Give Me Weirder Contract Structures, You Sickos

The San Diego Padres are falling apart a little, having divested themselves this winter of Juan Soto, Trent Grisham, Josh Hader, and (most likely) Blake Snell. But reinforcements are on the way, in the shape of Wandy Peralta, who on Wednesday agreed to a four-year, $16.5 million contract. Peralta might be the second-best active pitcher named Peralta, and the second-best left-handed pitcher in baseball history named Wandy, but he’s still a good reliever.

Peralta made 165 appearances over two and a half seasons with the Yankees, with a cumulative ERA of 2.82 despite pedestrian strikeout numbers. But in the age of heavy metal fastballs and sliders, Peralta is a little more refined and subtle. His most common pitch is a changeup, which is useful against lefties as well as righties, and it’s hard to square up.

Since the start of the 2021 season, Peralta has a GB/FB ratio of 2.08 and a HardHit% of 31.8, which are 24th and 21st, respectively, out of 203 qualified relievers during that time. Peralta is like a parked car on cinder blocks: Easy to hit, difficult to drive.

For a team that’s looking to replace several bullpen pieces — and has already spent a ton of money on a Robert Suarez contract that doesn’t look good through one year — Peralta is useful. Throw him out there, have him induce three medium-velocity groundballs to Ha-Seong Kim, take him out, repeat two or three times a week. And when the likes of David Robertson and Hector Neris both cost in the neighborhood of $10 million on a one-year deal, getting Peralta at an AAV just north of $4.1 million is an efficient allocation of financial resources.

Which brings up the main point here. Because it’s not really a four-year contract. Ken Rosenthal reports that the deal, which as of this writing is still pending a physical, contains opt-outs after every season. Four years with three opt-outs isn’t a baseball contract, it’s being married to Larry King. Mike Petriello summed it up well: “in the running for the funniest contract of all time.”

Some years ago, I lived in an apartment in Houston with a balky air conditioner that would either drop condensation into my downstairs neighbor’s unit, or quit altogether in the 105-degree August heat. On one occasion, I was sitting at the kitchen table while my landlord’s HVAC guy worked on the AC unit. He didn’t speak much English, but he knew enough to be able to yell “OH, [EXPLETIVE]!” I looked up, terrified, in time to hear a pop, followed by a flash of blue light, and a huge bang. Nobody was injured, but repairs were put on hold until a replacement part could be procured.

Generally, when a technical expert is yelling terrified obscenities in his second language, it’s not a good sign. Something bad is about to happen. I tell this story because, when I went into our Slack channel to claim the Wandy writeup, Jon Becker used the phrase “weird tax wrinkles” in his response. Hearing that from Jon tripped a similar fight-or-flight response that brought me back to that explosive and startling moment all those years ago.

We’ll see how weird and wrinkly Peralta’s contract ends up being, but the four-years/three opt-outs structure is absurd in and of itself. And yet… why shouldn’t baseball have absurd contracts?

Compared to the NBA and NHL, MLB has pretty lax rules in terms of salary structure. (NFL contracts are non-guaranteed and therefore fake.) The CBT necessitates some rules to cover fluctuating salaries, options, and deferrals, but there’s no maximum length and relatively few restrictions on performance or playing time incentives. You can do that without a hard cap. (The NBA has a cap and an apron, which means it’s a pair of comfortable shoes away from being dressed for culinary school.)

This is an interesting gambit for Peralta, because it inverts the risk-reward relationship we normally see in baseball contracts. Particularly for young players, a long-term contract with options usually means team-side options. A player is selling out potential peak earning power in exchange for stability, and if he maximizes his potential, the club has the opportunity to buy his labor for less than it’s worth. Ozzie Albies has two club options in his deal; Andrés Muñoz and Colt Keith have three, just to pick a few examples at random.

Peralta, being 32 years old and into free agency proper, was able to invert that risk proposition. At $4.125 million per-year value, maybe he could’ve made more on a one-year deal on the open market, but he’s now locked into a $16.5 million insurance policy. If he outperforms this deal, he can choose to hit free agency again in a year. If he struggles or gets hurt, he has a guaranteed salary to fall back on.

This is not a novel contract structure. A middle reliever for a team that’s probably going to finish third or fourth in the NL West isn’t going to set any precedents. One of the wonkiest deals belongs to Mariners center fielder Julio Rodríguez, who in August 2022 signed an extension, more than half of which comes in options. First, a multi-year club option for 2030, which must be exercised or declined after the 2028 season. That club option would keep him under contract through either 2037, at escalating salaries depending on where he finishes in the MVP race each year from 2022 to 2028, or 2039 at $35 million per year, if he either wins two MVPs or finishes top five in the MVP vote four times in that same seven-season span before the club option must be exercised. (He placed fourth in the 2023 voting.) If that’s declined, there’s a mutual option for seven years at a lower salary that can be exercised after the 2029 season. And if the Mariners decline that option, Rodríguez can still exercise a five-year player option that pays at least $90 million, with the potential to escalate to $125 million based on award results. In the highly unlikely scenario that all of the options get declined, he would become a free agent after the 2029 season.

It’s hard to predict what a player will be worth in five years. Traditional long-term contracts attempt to approximate that value, and to spread a player’s peak value over the course of his tenure with the team. But stacking incentives, options, and opt-outs can allow both player and team to get a little more creative in terms of risk.

Byron Buxton’s seven-year, $100 million contract is a great example. How do you value a player who’s an MVP contender when he’s healthy, but might only be healthy for 60 games a year? The answer: Pay him for 60 games’ worth of MVP-level production and allow him to nearly double his money if he actually makes a run at MVP.

James Paxton, who has had a similar career arc to Buxton, has a similar contract. His one-year, $11 million contract already contained roster and usage bonuses when news of the deal was initially reported last week, but after a balky physical, the Dodgers and Paxton agreed to lower the guaranteed money from $11 million to $7 million while keeping the maximum total value of the deal at $13 million.

Both of those deals are structured to reduce risk for the teams. Ultimately, that’s what stacking team options does. But Peralta’s contract is a step in the other direction, locking in a guaranteed job for the player, while keeping the door open for a bigger payday if one can be had.

It’s not surprising that the Padres went for a contract structure like this, because — like many things under A.J. Preller’s tutelage, it’s a little weird.

This is the team that signed Manny Machado to a deal that’s worth $31.8 million against the CBT, but will pay him more than twice as much in 2027 as it will in 2025. It’s the team that offered Machado an opt-out in its first long-term contract with him. This is the team that signed 36-year-old Yu Darvish to a back-diving contract that brought to mind the cap-circumventing long-term deals that forced the NHL to rewrite its own rules.

Too often, we treat free agency like The Price Is Right, as if the most important thing is guessing the right number. That’s part of it — arguably the most important part. But in a world as laissez-faire as MLB’s free agency, I’m wondering if players will care more about how and when they get their money, in addition to how much money they get.

We already have players signing in one place or another for reasons other than maximizing pay. They think they’ll have a better chance to win, or to play more. They want to play with certain teammates or for certain coaches, or close to home. Some guys sign with a certain team because they don’t want to move their families again.

Why wouldn’t offering a preferred contract structure — opt-outs, options, incentives, front-loaded money — help tip the scale if all other things were equal? The people who run baseball teams are smart. Not only that, they’re the kind of smart that leads a person to use words like “amortization” at the dinner table. Surely they can figure out how to get creative with contract structures.