Major League Baseball and the Players Association have agreed to begin limiting certain contract terms prevalent in recent deals for Los Angeles Angels' Albert Pujols and Washington Nationals' Ryan Zimmerman. According to ESPN, teams and agents have already been informed of the new changes.
Contract terms that will no longer be permitted include personal-service deals and milestone bonus clauses. Pujols' 10-year $240-million contract has both of these, while Zimmerman's six-year, $100-million contract has a personal services option.
Pujols, Zimmerman, and Alex Rodriguez, whose contract also contains a milestone bonus clause, will not be affected by the new limits. MLB and the union will only block future contracts.
The milestone bonus in Pujols' contract pays him up to $10 million in marketing payouts for milestones such as 3,000 hits and breaking Barry Bonds' homerun record. MLB and the union say these bonuses violate a basic agreement which prohibits contract incentives based on only statistical achievements.
Pujols and Zimmerman both have the option of acceptiong a personal-services deal once retired as an active player. Pujols can receive a 10-year, $10-million contract with the Angels, while Zimmerman can receive a similar 5-year, $10-million deal with the Nationals. MLB and the union agreed that the basic agreement does not cover obligations beyond their playing career.
Teams are using such contract terms to avoid paying luxury tax, since such clauses do not count as guaranteed money. Baseball is attempting to close loopholes for teams attempting to circumvent luxury tax rules.
