SBD/April 23, 2012/Leagues and Governing Bodies

MLB, Union Will No Longer Approve Personal-Service Deals In Player Contracts

Milestone bonus in Pujols' deal could pay him up to $10M in marketing payouts
MLB and the players' union have informed teams and agents that they "no longer will approve personal-service deals and special 'milestone' bonus clauses similar to those contained" in 1B Albert Pujols' contract with the Angels, according to sources cited by Jayson Stark of ESPN.com. Both parties "agreed to the changes this month in the wake of Pujols' 10-year, $240 million contract" and 3B Ryan Zimmerman's six-year, $100M extension with the Nationals, which also "contains a personal-services option following his playing career." MLB Senior VP/Labor Relations Dan Halem said that the contracts for Pujols and Zimmerman, as well as the "milestone-bonus 'marketing' package in Alex Rodriguez's 2007 contract with the Yankees, won't be affected by the new rules." But Halem added that "no future contracts containing similar provisions will be allowed." MLB Exec VP/Labor Relations & HR Rob Manfred said that the two sides "began talking about implementing the new rules this past winter because of growing concerns." The "milestone" bonus in Pujols' deal "could pay him up to $10 million in 'marketing' payouts -- $3 million for his 3,000th hit, another $7 million if he breaks Barry Bonds' all-time home-run record." The league and the union have "agreed that bonuses such as those violate a provision in baseball's basic agreement that prohibits contract incentives based on virtually all statistical achievements" (ESPN.com, 4/20). Stark wrote, "The closer you hone in on this, the more obvious it becomes why these arrangements raised eyebrows." Personal-service deals "create different issues." It is "fine for a team to defer money in a whopper contract and pay it out later." But it "gets tricky if the team attaches a condition that says the player only gets that money if he shakes 500 hands a week, plays golf with 11 sponsors and spends a month in spring training." Because those payouts are "not regarded as guaranteed money, teams potentially could use them to avoid luxury-tax bills." Stark noted it has been more than four years since Rodriguez signed his contract with the Yankees, so "why did milestone clauses suddenly become a problem this year?" The "answer is that, after A-Rod, no one else negotiated a milestone bonus," and the "hope was that it would turn out to be just a one-time thing" (ESPN.com, 4/20).
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