I found it very interesting how creative both sides were in constructing the contracts for Jose Reyes and the Marlins, and Albert Pujols and the Angels..
Both players got huge deals, but each one took less money up front to help their teams in the next two years. ESPN’s Jerry Crasnick reported that Pujols’ 10-year contract was back loaded so that the Halos could afford to sign C.J. Wilson.
The Marlins used their savings on Reyes’ backloaded contract to sign free agent pitcher Mark Buehrle.
Jose Reyes will earn just $10 million in 2012 and $10 million more in 2013. He’ll receive the remaining $82 million on his deal in years 3-6 – an average of $20.5 million annually.
Albert Pujols will earn base salaries of $12 million in 2012 and $16 million in 2013. The remaining bulk of his $254 million deal will be paid out in years 3-10 for an average annual salary of $28.25 million dollars.
Some fans believe that backloaded contracts like this can cripple a team. They don’t. As a matter of fact, the $20-$30 million that these players won’t get paid in years one and two, will be earning interest and dividends that will help offset the higher salaries in the finals years of the deal.
In the long run and based on the principles of the “Time Value of Money“, the Marlins and Angels will have proven to have done quite well for themselves in the long run. In addition to coming up with the magic numbers needed to sign both star caliber players, they made it possible to fortify their additions by adding additional key players to their rosters to increase their chances for the post season.
In other words, would you rather pay Jose Reyes $40 million over the next two seasons?
Or would you rather pay Jose Reyes AND starting pitcher Mark Buehrle $40 million over the next two seasons?
Clearly the latter is the better option.
