The New York Yankees And Opt-Out Clauses

CC Sabathia of the New York Yankees throws a pitch against the Detroit Tigers during Game Five of the American League Championship Series at Yankee Stadium in the Bronx borough of New York City. (Photo by Patrick McDermott/Getty Images)

CC Sabathia signed an extension, essentially using the power of his opt-out. Are opt-outs harmful to teams, or just teams not in New York?

Rather than use the opt-out in his seven-year contract yesterday, CC Sabathia signed an extension with the Yankees that keeps him in town through 2016, and possibly for 2017 as well. This was as good as choosing to opt-out if you're CC, but also better for the Yankees, since Sabathia won't test the market.

You hear an awful lot about opt-out clauses leading into the off-season, especially since they need to be exercised or ignored so soon after the playoffs end, but they don't appear very often in the game. They do exist, though, as J.D. Drew utilized an escape clause to get out of Los Angeles following the 2006 season, giving him a chance to sign a five-year deal with the Red Sox after playing just two of the five years in his Dodgers' deal. Aramis Ramirez has had two separate opt-out clauses in his career, invoking the first following the 2006 season, but rather than go elsewhere, he used it to negotiate a more lucrative and longer-term deal with the Cubs, one that had its own opt-out for after the 2010 season. Vernon Wells had an opt-out built into his seven-year, $126 million deal, but as Grant Brisbee points out, Wells' didn't feel the need to leave his cushy contract.

This is just the latest opt-out for New York, though, who also had Rafael Soriano decide not to invoke his clause, instead sticking with the $11 million he'll make in 2012, and presumably the $14M coming to him in 2013. More famously, Alex Rodriguez chose to opt-out following the 2007 season, although that was part of his original 10-year, $252 million contract with the Texas Rangers that New York inherited in their 2004 trade.

Rodriguez's decision to terminate the most lucrative deal in the history of baseball resulted in a brand new most lucrative deal in the history of baseball. Rodriguez, heading into his age-32 campaign, signed a 10-year, $275 million contract to replace the one he signed when he was 25 years old. This new deal had to be paid in full by the Yankees as well, as the previous contract still had over $21 million in payments coming from the Rangers. 

Rodriguez has averaged just 124 games a year since signing the new contract four years ago (or, just three more games per season than Drew, much-maligned for his fragility, averaged for the Red Sox over his five-year contract). He still has six years to go, and with a bum hip and his age-36 season coming, chances are good things will get worse before they get better.

From that perspective, you can consider the extension of Sabathia a victory, as they didn't have to re-sign him to a brand new seven-year deal, they just tacked on one guaranteed season and one vesting one to a pre-existing contract. On the other hand, though, this is the Yankees, and while these kinds of high-priced gambles where they essentially allow their players the chance to renegotiate their deals after a few seasons would hurt less financially secure franchises, for the Yankees, it's a risk they can not only take, but one they can absorb should things go south -- this Yankees club that had Rodriguez appear in just 99 games still had 97 wins and the AL East crown.

There was little chance that Rodriguez was going to opt-out and go elsewhere after 2007. There was no one else in baseball who was going to give him a 10-year, $275 million deal, or anything close to it, and absolutely no one who was going to match the perks the Yankees included in the deal for historic purposes -- assuming Rodriguez breaks Barry Bonds' all-time home run record, his deal is actually worth $305 million. 

If you think otherwise, look no further than Forbes' list of baseball's most valuable franchises from before the 2011 season, where the value of Rodriguez's deal tops the yearly revenue for every single franchise, excepting the Yankees. Sure, no team would have to pay Rodriguez all of that money a year, but the fact that one player can make more over the life of a contract than the Red Sox Nation marketing machine can in a year shows you just how different the playing field is for New York. They have a ceiling, as everyone does, but it's yet to be found.

The Red Sox will likely be up against the luxury tax this year, and will make an effort to avoid having to pay it, as multiple penalties mean higher taxes. The Yankees, on the other hand, last had a payroll that would have qualified under 2011's $178 million luxury tax back in 2005, and have paid the luxury tax every year since 2003. This means that, on top of their payroll, they pay a 40 percent penalty on money over the tax threshold; in 2011, that means another $12 million. The Yankees essentially pay a 26th man on their roster in tax money.

This isn't a criticism of the Yankees, either, just a reminder that they use their cash to their advantage. The opt-out clause gives the player freedom he can't necessarily get elsewhere, and allows them to renegotiate their deals if they feel they can do better thanks to productive performances. The Yanks have to pay more because of it, but the money is there -- they paid $207 million in payroll last year, and another $12 million in penalties are forthcoming, but as Forbes states, they also made $427 million in revenue in 2010, a difference of $155 million from the next-in-line Red Sox that almost equals the Pirates' total revenue ($166M). If incentive to perform even better and earn even more through an opt-out means the Yankees have to pay elite free agents even more of a premium and even more in taxes, that's just the cost of business in the Bronx.

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