The Interesting Financial Particulars of Edwin Jackson's Contract

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The Interesting Financial Particulars of Edwin Jackson’s Contract

Chicago Cubs

The Chicago Cubs agreed to a four-year, $52 million deal with free agent starting pitcher Edwin Jackson this week, but as is always the case with bigger contracts, we are deeply curious about the precise structure of the deal. And, in Jackson’s case, it looks like it’s pretty interesting.

Per ESPN, citing a Cubs source, Jackson’s deal comes with an $8 million signing bonus, and annual salaries of $11 million thereafter.

That $8 million bonus, presuming it’s paid out before the end of this year, could nominally be a part of the 2012 baseball budget, leaving a mere $11 million commitment in each of the next four seasons.

A few things to note:

  • For the purposes of the luxury tax – if the Cubs are ever pushing up against it (will be $189 million in 2014, so they’d have to add *a lot*) – contracts are treated as evenly spread out over their length. This is done to avoid shenanigans, and would mean that Jackson’s deal, for purposes of the luxury tax cap, is treated as worth $13 million per year through 2016.
  • Fans always want teams to front-load deals because then the team is paying the most money for when the player is likeliest to be at his best (and paying the least when he’s likelier to be old and broken). But, in financial terms, that just never makes sense. Because of inflation, and because baseball contracts are fully guaranteed (the money is going to be spent), teams always prefer to back-load deals – put simply, money paid out five years from now is worth less than money paid out today. While we like to think about “creating additional budget space a few years from now,” teams tend not to think that way – money spent is money spent, whether it’s in 2013 or 2015.
  • HOWEVA, there is an exception. All things equal, teams would prefer to back-load, but, conversely, players would prefer to front-load for the same reasons. So, where you can front-load (for example, with a huge signing bonus) as an incentive to the player, and the budget in the given year allows for it, then it can make some sense. The nice byproduct will be a “feeling” like there’s more money to spend in later years since a big chunk of the money was spent up front, even if owners don’t necessarily think the same way.
  • DOUBLE HOWEVA, if the Ricketts are dead-set on a setup where the baseball budget is directly tied to revenue, then I suppose in a year where there is “extra” money left to spend (like 2012), the baseball ops guys might help themselves ever-so-slightly by giving Jackson the big signing bonus this year, before his annual salary even kicks in.

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Author: Brett Taylor

Brett Taylor is the Editor and Lead Cubs Writer at Bleacher Nation, and you can find him on Twitter at @BleacherNation and @Brett_A_Taylor.