Trevor Bauer Goes Home
Let me preface this post by saying, it gives me no pleasure to write about Trevor Bauer. To call Trevor Bauer the “bad boy” of baseball is dignifying and honorific. Bauer is a troll, he’s immature, he’s troubled, and he manipulates his platforms to amplify his social standing. It’s vaguely Trumpian: a provocative theatrical performance put on by a demagogue, enabled by a close set of allies that benefit from the association, and consumed by an audience that chuckles silently in tacit endorsement or eyerolls but takes no action to remediate the situation. As talented as a pitcher Trevor Bauer may be, his is bad for baseball and his antics will draw the attention of the Los Angeles media for however long Bauer stays with the Dodgers.
With that aside… Let’s discuss the particulars of Trevor Bauer’s contract because— much like Bauer— it’s really weird. Bauer signed a 3-year $102M contract to become the highest paid pitcher in baseball in 2021. If you’re thinking, “that math doesn’t make sense, Gerrit Cole is the highest paid pitcher in baseball,” then you would be correct as well. Bauer’s contract pays him $40M in year one, $45 in year two, and a mere $17M in year three. Therefore, Bauer takes the reigns as the top salary in baseball in 2021 (and 2022— barring any changes), and Cole retains his title as largest total contract value. Further, Bauer’s contract allows him to opt-out after every season… something that I’ll touch on shortly.
Bauer’s choice to forego long term security isn’t exactly unexpected. The starter has been on record stating that he’d prefer to sign one-year deals with different teams each year in order to teach young pitchers his ways (which aside from being shameless self-promotion, is incredibly risky for pitchers). In signing a three-year deal though, Bauer gets to bet on himself and enter the free-agent market to hopefully secure a bigger deal. And for the price of a few extra million in the initial years, the Dodgers buy themselves out of the long-term financial burden of rostering an aging pitcher. In 2023, when Kershaw, Jansen, and potentially Bauer are off the books, the Dodgers will have more financial flexibility to lock up Bellinger, Buehler, and others.
The option structure of the contract however may create some interesting dynamics in year two and three. Because Bauer’s contract is so front-loaded the value of each of the options is dramatically different. By opting out after year-one, Bauer is forgoing $45M in year two plus $17M in year three. But because of the second opt-out, Bauer doesn’t have to decide about year three after year one. Instead, the decision for him is simple: do I want $45M next year, or do I think I can make more? The answer here is quite simple: $45M is a lot of money and Bauer would be a fool to forego it. In the second opt-out Bauer asks the same question but replaced $45M with $17M… again simple answer, but the other way.
Here, I’ll refer you to Ben Clemens’ work at Fangraphs, where he breaks down the odds that Bauer opts out after each season. Clemens gives Bauer a 3.9% chance of opting out after year one and a 75.8% chance of opting out after year two. If Bauer has an all-time great season in 2021, we live in one of 4% of simulations where he cashes in after a year in LA. And if he crashes and burns and tears a UCL potentially, we live in one of 25% of scenarios where he stays in LA in year 3 for a mere $17M. The most likely outcome here is that Bauer stays in LA for 2 seasons, makes $85M and then negotiates a new contract elsewhere.
And this scenario is the one where Bauer’s opt outs will stress test another system in MLB: the luxury tax system. Since Bauer’s contract has two player-options both out years are counted as “guaranteed” money per the collective bargaining agreement. Thus, the total $102M is divided over 3 years to calculate Bauer’s luxury tax implication: $34M. In year one, while Bauer is owed $40M, his weight on the luxury tax payroll will be only $34M. In year two, when Bauer is paid $45M, his luxury tax salary will remain at only $34M.
Therefore, in the most likely scenario (where Bauer opts out after 2022), the Dodgers will have only been liable $68M in luxury tax payroll when Bauer netted $85M in salary. Per the CBA, the difference between the luxury tax implication and the amount owed to the player, must be added to the club’s payroll in the year in which the option year falls. Essentially, the Dodgers will be on the hook for $17M (the difference between Bauer’s salary and the amount accounted for) in 2023, when Bauer is no longer on the team.
However, the next paragraph of the CBA makes an interesting amendment to this clause. If the player’s option year value is less than 80% of the lowest guaranteed year already paid (in Bauer’s case: $40M in 2021), then the difference between the option value and the 80% figure should be allocated pro rata across the previous guaranteed years. Essentially, the difference between Bauer’s 2023 salary ($17M) and 80% of his 2021 salary ($32M), is to be allocated across the two previous years.
I’m not certain exactly how MLB will go about and make this adjustment, whether it be pre or post hoc. If assessed before, then Bauer’s luxury tax hit in 2021 and 2022 will be $34M plus $7.5M (a total of $83M across the two years). Therefore, if he were to opt out in 2022, the Dodgers would only be liable for a $2M difference in a non-rostered 2023 instead of a $17M difference. If adjusted post-hoc, the Dodgers may have to go back and adjust their 2021 and 2022 payrolls in 2023— requiring additional overage payment and affecting their penalties in subsequent years due to escalating taxes for repeat offenders.
Ultimately, this strange contract— like Trevor Bauer himself— will test the strength of our collective comprehension. Some lawyers between the League and the Players Association will have to determine Bauer’s exact luxury tax hit and may have to revisit that conversation annually. Bauer will have to revisit the contract annually to decide whether he wants to continue to pitch in Los Angeles or test the market and launch another media circus. And as baseball fans, we’ll have to consistently revisit the character of Trevor Bauer. Bauer’s contract is fitting: a weird contract for a weird man.