Dustin Pedroia and the Pricey Guarantees of MLB Contracts

MLB contracts provide exceptional leeway for players. Even for severely injured players, it's near-impossible for teams to escape contractural obligations.
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Boston Red Sox second baseman Dustin Pedroia is one of the most impactful players in his team’s history. He’s a former American League MVP, World Series champion, All-Star and Gold Glove winner. Standing 5’9’’ and weighing 175 pounds, Pedroia is often celebrated for his hustle and grit. He’s a clubhouse leader, too, and is actively involved in a number of charities, including the Jimmy Fund and Pedroia’s Platoon. There’s a lot to like.

More recently, the 36-year-old former Arizona State star has become an expensive spectator for a club that is aggressively trying to slash payroll. His situation is a reminder of the sanctity of guaranteed contracts in baseball and the inability of teams to deny players a chance to collect even when they can no longer perform.

Playing hurt and then not playing because of being hurt

Pedroia’s injury history is long, but until recently had been accompanied by a knack to play, whether healthy or hurt. He suffered a broken left foot in 2010, a torn adductor muscle in his right thumb in 2012, a left wrist injury in 2014 and multiple strains of his right hamstring in 2015. While these injuries cost Pedroia games here and there—including a substantial 63-game absence in 2015—he was generally a mainstay in the lineup from 2007 to 2016.

Pedroia’s reliability and durability were two key reasons why, in 2013, the Red Sox signed him to an 8-year, $110 million contract extension. The deal runs through the 2021 season. Unless Pedroia retires or takes a buyout, the contract will pay Pedroia $13 million in 2020 and $12 million in 2021.

Back in 2013, the popular narrative accompanying the signing was that Pedroia had taken a “hometown discount” to remain with the organization that had drafted him 11 years earlier. Commentators went so far as to call it a “bargain”, especially given the 10-year, $240 million deal signed by second baseman Robinson Canó that same year.

Pedroia's deal is no longer a bargain since he no longer plays and might not ever play again. He missed 57 games in the 2017 season. He then missed 315 of the Red Sox’s 324 regular season games in the 2018 and 2019 seasons. He also missed the team’s entire World Series run in 2018.

Pedroia’s absence from the lineup is the result of a bad left knee, a problem that stems in part from an incident in 2017 in which Manny Machado spiked Pedroia during a slide. According to The Boston Globe, Pedroia has undergone five knee operations, the first of which occurred in 2016. His surgeries have included a microfracture procedure, which involves creating tiny fractures to stimulate growth of new cartilage, and a joint preservation procedure, which entails grafting cartilage from a cadaver donor and inserting it into the knee.

Pedroia hoped to resume his career when the Red Sox begin spring training in a few weeks, but he recently suffered another setback. It’s unknown when, or if, he’ll return. If he doesn’t play again, Pedroia is set to collect about $56 million in salary from 2018 to 2021, during which he would have played in only 9 of 648 regular season games.

The competitive balance tax and carrying injured players’ salaries

Pedroia’s situation highlights the significant risk of long-term, guaranteed contracts in baseball, particularly in conjunction with the competitive balance tax (also called the luxury tax). The tax is imposed on teams whose player payrolls exceed a predetermined threshold. The tax rate applies to each dollar the club exceeds the threshold. The percentage for the rate is based on the number of consecutive years a club exceeds the threshold. The Red Sox have exceeded the threshold the last two seasons. In 2018 they paid a 20% tax rate. In 2019 the rate rose to 30% (and reportedly paid $13.4 million in taxes). If the Red Sox don’t get their payroll below $208 million—MLB’s predetermined threshold for the 2020 season—they’ll pay a 50% rate in 2020.

Red Sox owner John Henry appears committed to his team avoiding the 50% rate. He has encouraged his baseball operations staff, led by chief baseball officer Chaim Bloom, to figure out a way of getting payroll under $208 million. This led to speculation the team might deal its franchise player, outfielder Mookie Betts, which it ultimately did Tuesday night to the Los Angeles Dodgers. Removing Pedroia’s salary from the payroll could have helped the Sox get under the threshold to avoid having to trade Betts.

MLB economics: when the inability to perform a contract doesn’t stop payment

A sensitive but logical question is why can’t a team refuse to honor the contract of a player who is no longer able to meet the duties of that contract?

You might react to that question by stressing the Red Sox agreed to pay Pedroia. A deal is a deal. Both sides willingly took a chance, too. Pedroia gambled that the contract wouldn’t vastly underpay him. The Red Sox gambled that Pedroia would remain a productive player into his mid-30s. Regret doesn’t justify an employer refusing to honor a contract.

That’s a defensible viewpoint, but this isn’t a situation where Pedroia has underperformed or struggled. It’s one where he’s been unavailable to play. Paying a player who can’t play to play is arguably incongruous.

in contract law, when one side can’t perform his or her obligations, the deal is usually considered breached. The side that is performing can then terminate the contract.

Baseball’s economic system recognizes this dynamic. The Uniform Player Contract (UPC), which is the required template for MLB player contracts and can only be modified in limited ways, imposes a number of requirements on players. Pedroia might not be able to satisfy some of these requirements, which could in theory evidence a breach.

For instance, under the UPC section for “Employment”, the player “agrees to render, skilled services as a baseball player” during the term of the deal. Pedroia does not appear able to render these services. Under the UPC section for “Payment,” the club agrees to pay an amount of money “for performances of the player’s services.” Here, again, Pedroia doesn’t appear able to perform services. Also, under the UPC heading “Ability”, the player “represents and agrees that he has exceptional and unique skill and ability as a baseball player.” Can a player credibly make such a representation if he can no longer play?

A club can also terminate a guaranteed contract if the player commits a prohibited act as described in the UPC section titled “Termination.” For instance, a club can void a contract if the player fails to “keep himself in first-class physical condition” or fails “to exhibit sufficient skill or competitive ability.” Pedroia’s knee woes would seem inconsistent with maintaining “first-class physical condition” and if he can’t play, he can’t “exhibit” the necessary skill.

Players who sign long-term contracts also often agree to “conversion to non-guaranteed contract" provisions. These provisions are riders and detail the circumstances in which a team can convert guaranteed salary into non-guaranteed salary. Usually these riders concern misconduct of various types, including player participation in off-field activities that are dangerous.

It’s unlikely that Pedroia’s contract contains an applicable rider. After all, he didn’t do anything wrong.

He simply got hurt on the job.

Therein is the most persuasive reason for the Red Sox being obligated to pay Pedroia. Even if he can’t perform the remainder of his contract, and even if he might collect four seasons of salary during which he essentially didn’t play, the situation is not “his fault.” His knee injuries occurred while on the job. There is no indication that he partook in any questionable conduct away from the Sox. He simply got hurt while playing baseball.

Comparing Pedroia’s situation to those of other players, and why the MLBPA fights for contract guarantees

The Pedroia situation is distinguishable from the New York Mets’ recent dealings with outfielder Yoenis Céspedes, who last year badly fractured his right ankle on his ranch in Port St. Lucie, Florida. The New York Post recently reported that the incident involved a wild boar and Céspedes falling into a hole on the property. Because Céspedes's injury occurred away from baseball and due to his own conduct (unlike Pedroia’s injuries), the Mets gained leverage in negotiating a reduction in the value of Céspedes's contract. 

In 2016, Céspedes signed a four-year, $110 million deal. Last month, the Mets and Céspedes agreed to reduce the guaranteed value of his contract by as much as $30 million. The move helps the Mets' payroll stay under $208 million for purposes of the tax.

Pedroia’s situation is more analogous to that of retired third baseman David Wright. In 2012, the Mets re-signed Wright to a seven-year, $122 million contract. Three years later, Wright was diagnosed with spinal stenosis, a condition where space within the spine narrows. Stenosis can lead to pressure on the spinal cord and nerves. It can also trigger significant pain and numbness, including in the legs and arms. Wright would miss most of the 2015 and 2016 seasons, and all of the 2017 season. He returned in 2018 to play two games. All told, Wright played in only 76 of 648 regular season games from 2015 to 2018.

But Wright was unwilling to retire. Had he done so, he would have forfeited $15 million in 2019 and $12 million in 2020. At the same time, there was no reasonable expectation that Wright could continue to play. The Mets were unwilling to argue Wright, a popular player, could not perform the contract, even though, by all accounts, Wright could not perform the contract.

The Mets were no doubt mindful that clubs have historically failed to void player contracts. Attempts to void deals can be challenged by both the player and the Major League Baseball Players Association through the collectively bargained grievance process. In this process, a neutral arbitrator hears competing arguments.

Contract grievances have often favored players. This is true even when players engage in conduct that would lead the firing of most people from their jobs. For instance, in 1987 the San Diego Padres tried to void the contract of pitcher LaMarr Hoyt, who had been incarcerated on a drug possession offense. The arbitrator, George Nicolau, regarded contract termination as excessive and denied the Padres the opportunity.

The MLBPA is inclined to “fight” every attempt by an MLB club to void a contract. Each voidance creates precedent and can relied on by other clubs to attempt exit contracts. Stated differently, one voided contact weakens the surefire quality of guarantee contracts for all players.

One circumstances where teams have been able to void a contract is when a player breaches Paragraph 5(b) of the UPC. This section of the UPC—which was relevant with Céspedes—forbids players from participating in activities that pose a substantial risk of personal injury. Explicitly prohibited activities include pro boxing, pro wrestling, skiing and sky diving. Players must obtain the express permission from the club before partaking in such an activity. In 2004, New York Yankees third baseman (and current manager) Aaron Boone tore the anterior cruciate ligament in his left knee while playing pick-up basketball. The Yankees voided Boone’s contract and Boone declined to grieve it.

Back to Wright. The Mets could not credibly argue that Wright injured himself while partaking in a prohibited activity. His back condition might have been congenital and could have been worsened by playing. The team was also unwilling to insist that Wright couldn’t perform the contract.

Instead of a stalemate, a compromise was reached. Last year, Wright, the Mets and insurance companies for Wright’s contract negotiated a settlement whereby Wright received most of his remaining guaranteed money, albeit partly through deferred payments. The settlement allowed Wright to retire and be named an advisor to Mets general manager Brodie Van Wagenen. The Mets, meanwhile, reduced payroll obligations by about $6 million and freed up a roster spot.

Red Sox could reach a settlement with Pedroia, but don’t expect him to become manager

Could the Red Sox and Pedroia reach a settlement similar to the one reached by the Mets and Wright, with Pedroia still receiving most of his earnings and the Red Sox being able to defer payments? It’s possible, particularly if Pedroia decides his knee is not going to permit him to return. A settlement would also be more likely if the Red Sox purchased an insurance policy on the contract. The insurer or insurers would defray some of the Red Sox’ expenses. Pedroia’s contract already contains deferred money—according to Spotrac, Pedroia is owed $18 million in deferred payments from 2021 to 2028. These deferred payments could be increased as part of a settlement. Depending on the terms of the resolution (and other factors), it’s possible that workers’ compensation insurance could provide additional compensation for Pedroia.

The Red Sox are also in the market for a manager. The team recently parted ways with Alex Cora in the wake of his involvement in the Houston Astros’ sign-stealing controversy. Could the Sox convince Pedroia to retire as a player—which would relieve the team of his salary for purposes of the competitive balance tax—and then take the job as manager for the same pay?

That idea is problematic on a number of levels. First, it’s unknown if Pedroia would be interested in managing. He presumably intends to continue his playing career, at least for the time being. Second, the Red Sox would be entrusting the team’s roster and in-game decision making to someone who has never managed or coached in major league baseball or minor league baseball. That doesn’t sound like a great idea, especially for a team with baseball’s second-highest payroll and playoff aspirations. Third, MLB would likely reject the maneuver on account of the Red Sox seemingly attempting to circumvent the competitive balance tax. MLB would note that “Manager Pedroia”—who has never before managed—would earn more three times that of the highest paid manager in baseball (Cleveland Indians manager Terry Francona, who, per Bob Nightengale, will earn $4.2 million in 2020). Paying Pedroia such a rate would not be credible.

More likely, Pedroia will continue his attempt to come back. If those efforts fail, Pedroia and the Red Sox (and any insurance companies with policies on Pedroia’s contract) could negotiate a settlement along the lines of Wright and the Mets. Pedroia would still receive most, if not nearly all, the pay owed but over a longer period of time. He could also be hired to an advisory role to the club.

Meanwhile, the MLBPA will pay close attention to any attempt by the Red Sox and other clubs to threaten the guarantee of player contracts—even contracts of players who might no longer be able to play.

Michael McCann is SI’s Legal Analyst. He is also an attorney and the Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.