Are Baseball Contracts Guaranteed? A Financial Look at…

Fireworks go off at an MLB game after a player hits a homerun.

At some point in time, every baseball fan goes through the same feeling: the excitement of your favorite team signing a big-name free agent to a big contract.

However, all too often, those contracts don’t pan out and the team and its fans are left counting the days until the contract comes off the books, or the team cuts bait and finally buys out the rest of the deal early.

Compared to other sports, Major League Baseball contracts are different in that most deals are fully guaranteed, meaning that except in extraordinary circumstances, a team is on the hook for 100% of the money in any contract, except for performance bonuses or team options.

Because of this, it is not uncommon for teams to be crippled by a big deal or two going bad because there are few ways to get out of the contract without paying the full amount.

So the question is, why are most contracts guaranteed but some not guaranteed? First, we must fully cover…

What Is Considered a Guaranteed Contract in Baseball?

To understand all the circumstances surrounding the topic at hand, it is first important to understand what constitutes a guaranteed contract. Unlike other points that we’ll dive into later, there is a clear listed statute for these.

All Major League Baseball (MLB) contracts are considered guaranteed with a few stipulations that mostly apply to players not yet eligible for free agency. All free agency contracts are fully guaranteed except for performance-based bonuses or option years, or if a player has an early opt-out in his contract.

We’ll circle back to the contract stipulations in a moment but first, we’ll look at free-agent contracts.

When defining free-agent contracts, these are either major league deals that a player signs when he is eligible for free agency following the expiration of his arbitration years, or an extension with his original club that either buys out his arbitration years and/or extends beyond the date that he was originally eligible for free agency.

Those contracts, which are very often multi-year deals, are simple for the most part, in that, virtually all of them are fully guaranteed, and likewise, the team will be on the hook for the entire amount, unless the player is suspended long-term (usually for performance-enhancing drugs) or voluntarily retires, forfeiting the remainder of his contract.

Additionally, some contracts feature performance-based bonuses, additional option years (usually either a player or team option) that feature a smaller buyout amount if not exercised, or an opt-out of the entire contract, though we’ll get into the specifics of these exceptions a little later.

As for the stipulations stating whether a contract is guaranteed, when a player is pre-free agency there are rules in place stating when a contract becomes guaranteed.

When a player is signed to a non-guaranteed contract, they must be promoted to the Major League roster for their deal to become guaranteed, and in many cases, they only receive prorated big-league pay for the time spent on the major league roster.

Some players will also sign minor league contracts that require them to be promoted to the majors within a certain period (usually the first 30 days of the season) or be released, in which their contract would become guaranteed if they’re promoted.

For players in their arbitration years (fourth to sixth seasons in the major leagues for most players), they have some money guaranteed, but their salaries aren’t fully guaranteed until they make the club out of spring training.

If an arbitration player is cut in the first 16 days of spring training (or approximately by the end of the first week of March), they are owed 30 days of salary at a prorated rate.

If they are cut after the 17th day of spring training but before Opening Day, they are owed 45 days of salary. If they make the Opening Day roster, their contracts are fully guaranteed for the season.

When Are Baseball Contracts Not Guaranteed in Baseball?

Baseball sitting in the dirt of the batter's box.

As mentioned, there are a few cases when at least some money in contracts is not guaranteed, though at times it can be due to unexpected circumstances. In other cases, though, there is some unguaranteed money written into some contracts.

As stated earlier, suspensions and voluntary retirement will cause players to forfeit guaranteed money, though non-guaranteed money also exists in the form of contract opt-outs and option years, which can allow contracts to be extended on the fly or ended early.

Going one-by-one, in the case of suspensions, all MLB suspensions are without pay, though most are for on-field conduct and last just a handful of games, though others will have more dramatic effects on pay.

The longest suspensions levied by MLB are usually for failing performance-enhancing drug (PED) tests.

For example, New York Mets infielder Robinson Cano was suspended for 80 games in 2018 and then was suspended a second time in November 2020, which will result in him sitting out the entire 2021 season.

As a result, he will wind up forfeiting at least $36 million of his current 10-year, $240 million deal.

In rare cases, too, players will retire and voluntarily forfeit guaranteed money in the process.

One notable case was that of Kansas City Royals pitcher Gil Meche, who retired before the 2012 season, passing up $12 million that was due in the final year of a five-year contract.

This is in contrast to Prince Fielder of the Texas Rangers, who suffered a career-ending neck injury midway through the 2016 season.

However, while his career was over, he remained on the Rangers’ disabled list throughout his contract, collecting $96 million in total between his final game and the expiration of his contract following the 2020 season.

On the other hand, some contracts contain natural non-guaranteed provisions.

For example, before the 2016 season, the Houston Astros signed pitcher Doug Fister to a deal that gave him $7 million in guaranteed money but also contained up to $5 million in incentives, allowing the contract to be worth up to $12 million.

Also, an increasing amount of long-term contracts feature opt-outs to allow players to pass up later years of a deal and take the risk of landing a larger contract in free agency.

One notable example was Washington Nationals pitcher Stephen Strasburg, who opted out of the final four years of his contract following the 2019 season, walking away from $100 million.

However, he re-signed with the Nationals in a 7-year, $245 million deal, which is fully guaranteed, plus the addition of several award-based incentives worth $100,000-$500,000 each per season.

Lastly, many contracts feature an option year (sometimes more) on the end.

These options can be player options (the player chooses to accept or decline it), team options (team discretion), mutual options (requires both player and team to accept it, but either side can decline it), and vesting options (certain criteria, usually related to playing time automatically triggers the option).

On the other hand, these options also contain buyouts, which are a fraction of the option price, which the team would pay to the player if the option is declined, or in the case of a vesting option, if the vesting criteria are not met.

In one example, Miguel Cabrera’s contract, which expires following the 2023 season, contains two $30 million vesting options for the 2024 and ’25 seasons, that only vest if Cabrera finishes in the top-10 of the American League MVP voting in 2023 (and again in 2024).

However, if one or both options do not vest, Cabrera will receive an $8 million buyout and become a free agent.

Why Are Most Baseball Contracts Guaranteed in Baseball?

A Cleveland Indians player slides into second base.

This is one question that does not have a definitive answer, but there are a few reasons that are cited when questions arise as to why baseball players know they’ll receive their full contractual amount when other athletes in other sports do not.

It has been cited that the length of the MLB season, the strength of the MLB Player’s Association, and the lack of a salary cap in Major League Baseball all contribute to the fact that nearly all MLB contracts are guaranteed. While those are not foolproof reasons, there are reasons behind each one.

Going down each reason one-by-one, the length of the MLB season is a tremendous advantage in securing money for players.

Because each MLB team plays 80 more games each year than their NBA or NHL counterparts and 146 more games than each NFL team, there are many more games to collect revenue.

The lack of a salary cap also plays a factor in contracts being guaranteed. In the NFL and NBA, in particular, many large deals are signed, with only part of them being guaranteed.

This can be done as a form of insurance to ensure that a team doesn’t blow a large portion of the cap on one player in the case that the player’s performance falters and they are released, hindering their ability to sign (or keep) other players.   

Because there is no salary cap in baseball, there is little incentive for players to accept large sums of non-guaranteed money, as there is no hard limit on how much money teams can spend in one year.

Since 2003, MLB has had a luxury tax (officially known as the competitive balance tax) that teams must pay when they exceed a certain team payroll.

However, the threshold has only been met by eight franchises, so it is rarely a factor for most teams.

The fact that MLB does not have a salary cap, while the NFL, NBA, NHL, and MLS all do has a lot to do with the strength of the Major League Player’s Association.

The union, largely due to the leadership of Marvin Miller throughout the 1970s, turned into arguably the strongest union in all of professional sports, ushering in exploding salaries and free agency, among other things.

This was the issue of a salary cap that led to the longest and most devastating work stoppage in baseball history: the 1994-95 MLB strike. Major League Baseball did not institute the salary cap and over a quarter-century later, it appears that there is no viable effort to introduce one.

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Steven G.

My name is Steven and I love everything sports! I created this website to share my passion with all of you. Enjoy!

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