What the Hell Is a ‘Swellopt’ and Could It Be Next Big Thing in MLB Contracts?

It probably won’t overtake “doink” anytime soon, at least not in the sad lexicon of Bears fans, but there’s a new word popping up in some more erudite baseball circles: Swellopt. I must admit that when I first saw it, I thought it was swellpot and only corrected myself after discovering the source words of the descriptive portmanteau. The brainchild of Scott Boras (who else?), a swellopt is the newest concept in MLB contracts and could be a way for both team and player to get what they want.

“For the club, if the player performs well, the club can opt in (contract swells),” Boras told The Athletic’s Ken Rosenthal. “For the player, if the club doesn’t opt in, the player has the choice to continue with the contract (swell) or opt out. It’s a swell option for both.”

Whoa, so it’s a double entendre in addition to being a portmanteau. Just imagine if Boras had somehow made it onomatopoeic as well. The folks at the OED editorial offices would’ve had a field day. Probably gonna catch hell for this section in the comments, but both English nerds out there are surely pleased.

Even though the concept of the swellopt contract is relatively nascent, its primary practitioner is a major influencer and represents some of the biggest players in the industry. Boras has long been known for negotiating deals with lots of deferred money or player options, but his latest creation centers around the idea of a dual option that serves as something of a compromise between team and player.

Cubs fans may be familiar with the swellopt, though it wasn’t know as such at the time, when it comes to Jake Arrieta’s deal with the Phillies. He is guaranteed $75 million over three years ($25M AAV), but the Phillies can opt into two additional years at $20 million apiece ($23M AAV). If they choose not to exercise that extension, Arrieta can opt out after the second year (2019) and elect free agency. There are also $5 million escalators based on starts and Cy Young finish, as well as a $1 million assignment bonus if he’s traded.

Initially viewed as something of an aberration, Boras has since used similar structures when negotiating deals for Zach Britton and Yusei Kikuchi. Britton’s deal to return to the Yankees is for a guaranteed $39 over three years ($13M AAV), but he can opt out after two years and $26 million (same AAV) if the Yankees don’t opt in for a fourth year at $14 million ($13.25M AAV). He’s also got the $1 million trade bonus. With me so far? Good, things get bigger with Kikuchi.

The Japanese pitcher signed a contract with the Mariners that guarantees him four years and $56 million ($14M AAV), but it’s actually much more complicated than that. It starts out as a three-year, $43 million ($14.33M AAV) deal with a team option for an additional four years at $66 million ($15.57M AAV). If the team opts not to exercise that option, Kikuchi can either trigger the fourth year at $13 million to get to that initial guarantee or he can opt out and become a free agent.

We won’t bother getting into all the luxury tax ramifications of such deals here since that doesn’t really serve our purposes. Suffice to say there’d either be credits or additional true-ups, though you’ll notice the differences in AAV are all fairly modest. What we see in each case is a mutually beneficial partnership that gives teams the option to extend a player who’s performing well while also protecting the player from being dumped for nothing.

Now, one thing to note here is that all of these deals were for pitchers and none carries an initial guarantee of more than $75 million. The real litmus test for the viability of swellopts moving forward may be whether Boras is able to swing one for Bryce Harper, or perhaps if Dan Lozano uses a similar template for Manny Machado. We have already heard that the Dodgers would prefer a shorter deal, potentially at higher AAV, and that the White Sox will not go beyond seven years. Maybe a swellopt is what solidifies the market.

The idea of enticing the top two free agents with deferred money is something I’d suggested earlier in the winter, but Joel Sherman of the New York Post recently laid out an even more creative way to land them by leveraging monster swellopts. The contract would begin with a three-year, $114 million segment, after which the team could trigger an additional four years at $166 million. If the team declines, the player could opt into a fourth year at $46 million.

So the minimum guarantee for the player is four years, $160 million ($40M AAV) with potential to be either three years and $114 ($38M AAV) or seven years and $280 million ($40M AAV). That last figure is actually what I had wondered about with respect to the Sox and the report of their unwillingness to push to 10 years, so I like where Sherman’s head’s at. Except he then adds yet another swellopt.

If the team opts into the first extension, there would an additional team option for three more years at $120 million. Thus we’d be looking at a contract with a total potential value of $400 million over 10 years that would guarantee the player no less than $114 million over three years. And that low end would only come in the event that both team and player declined their respective options.

Any way you slice it, such a structure would secure the highest AAV ever (currently Zach Greinke’s $34.4 million), something a source indicated Boras is prioritizing over total value. But the options could also push the deal to that highest overall value mark as well. And while the annual values in question would push teams into luxury tax penalties, most of the money is set to come due after a new CBA is in place.

Maybe it’s just wishful thinking, but one would like to assume the next labor agreement will be more player-friendly than this one by offering more payroll leeway with fewer penalties. Ooh, and perhaps there could even be a salary floor. But I digress.

Given how the market has shaped up, or I guess how it hasn’t, the idea of a swellopt for either Harper or Machado has quite a bit of validity. Maybe that’s even part of what’s driving the stagnation, as the unique structure of such a deal would require more than just a brief sit-down and a handshake agreement.

Whether the Cubs are involved or not, the use of swellopts with either of the top free agents this winter could signal a bigger trend in the industry. We’re already seeing more of a shift to deals with higher AAV and fewer years, but younger players at the top of the market may require a different tack. Or maybe it’ll be as simple as giving someone $350 million over the next decade and calling it a day.

I guess we’ll have to find out eventually.

Back to top button