FG on Fox: On Valuing Stanton’s Opt-Out Clause

$325 million. That’s the number that gets your attention, and it should; the contract that Giancarlo Stanton signed with the Marlins is the largest in the history of baseball, and it will span the next 13 years. There are kids currently in first grade who could theoretically get to the big leagues in time to play with Stanton before this contract expires. The $325 million commitment is twice as much as Loria paid to buy the entire Marlins organization back back in 2002. The deal is staggering in both length and cost, but as Jeff Sullivan wrote last week, it’s an entirely reasonable contract for one of the game’s best players.

But there’s another fascinating aspect to Stanton’s contract: the $325 million figure might end up being nothing more than a mirage. Because of the leverage he commanded, and potentially some lingering distrust of the franchise after their last spend-a-bunch-of-money-then-trade-everyone fake out, Stanton’s representatives were able to negotiate an opt out clause into the deal, meaning that he can choose to void the deal after the 2020 season.

If Stanton continues to perform at an elite level, it’s entirely possible that he could void the last half of the deal and land a new contract for even more than this deal guarantees him next decade. After all, Stanton will have just finished his age-30 season when the opt-out decision comes due, and even at that age, elite players are landing 10 year contracts in free agency. Alex Rodriguez used this exact tactic in 2007 to opt-out of the final three years of his initial mega-contract, turning the remaining $72 million into a new 10 year, $275 million contract that the Yankees are still regretting.

Since that deal, the opt-out clause has become an increasing popular request for premium free agents, as Clayton Kershaw, Zack Greinke, and Masahiro Tanaka — among others — have had opt-outs negotiated into their contracts. Greinke’s decision comes next winter, when he’ll have $71 million remaining on the last three years of his deal; assuming he stays healthy and pitches reasonably well in 2015, opting out should be a pretty easy call, given the market price for high quality arms.

And that is exactly why the game’s best players are increasingly asking for these options to be inserted into their deals. For the player, a large guarantee with an opt-out is the ultimate win-win, as they secure a significant paycheck even if their performance declines or they suffer an injury, but they aren’t stuck with a below-market salary over the long term if they play well, or if the economic status of the league improves after they sign their mega-contract.

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