Jon Lester agreed to a contract to pitch for the Chicago Cubs last week. He was introduced to the public today as an official member of the Cubs, and is now on the 40-man roster (it’s full). You’ll notice that Lester got Kerry Wood‘s old number, but it’s cool:
— Bob Nightengale (@BNightengale) December 15, 2014
Former teammate David Ortiz made a funny too:
— David Ortiz (@davidortiz) December 15, 2014
Anyway, we know the basic framework of Jon Lester’s contract. It’s six years, $155MM, with a vesting option for a seventh year if he hits some performance thresholds. There’s also a huge signing bonus which I believe is considered part of the 2014 books. Here’s a breakdown of the details:
For starters, Lester is getting a record $30 million signing bonus, of which $15 million is due by April 1. After that, $2.5 million each is due by Dec. 31 in 2018 and 2019, and a final $10 million installment is due by Sept. 15, 2020.
Here’s Lester’s year-by-year salary breakdown:
2015: $15 million
2016: $20 million
2017: $20 million
2018: $22.5 million
2019: $22.5 million
2020: $15 million
There is a $25 million mutual option for 2021 with a $10 million buyout, and the option would become guaranteed if Lester pitches 200 or more innings in 2020 or 400 or more in 2019 and 2020 combined.
We also knew about the no-trade rights soon after the agreement was announced, and the hotel suite kinda makes sense for a player of his caliber, but the private plane sounds like a supreme perk. Maybe he’ll use it for a trip to Hawaii or Machu Pichu.
For all intents and purposes I believe that a signing bonus is still counted into the luxury tax calculations and is still considered part of the salary although the breakdown allows the Cubs some payroll flexibility throughout the course of the deal. Part of this may also have to do with the way the Ricketts Family has to structure their debt payments per the sale agreement with the Tribune. Being that the Cubs are being fiscally responsible and are unlikely to hit the $189MM threshold, I don’t think the luxury tax comes into play here.
It’s unclear to me whether the $15MM chunk of signing bonus will go towards the 2014 books or the 2015 payroll, but since it’s due by April 1st of 2015, my guess is that it doesn’t matter since the contract as a whole is used for average annual value calculations for luxury tax purposes anyway (the comments in this HBT article helped and I’d appreciate it if someone with more transactional knowledge could point me to a better resource). Effectively what happens once we factor in all the chunks of the signing bonus is that Jon Lester gets paid thusly:
- 2015 – $30MM
- 2016 – $20MM
- 2017 – $20MM
- 2018 – $25MM
- 2019 – $25MM
- 2020 – $25MM
- 2021 – either $10MM buyout or the full $25MM if the option vests
That accounts for the whole seven years and $170MM possible. Pretty slick, and Jon Lester will still be a very wealthy man. The allocation of funds is a bit slim up front (that first year aside, thanks to half the signing bonus) but as the Cubs get Jumbotron revenue and realize where their TV rights will go, the money should start flowing and they can accommodate Lester’s later-year raises.
Obviously the Cubs are still on the hook for the $155MM guaranteed money, and up to $170MM if Lester gets it all, so this isn’t really going to trick the luxury tax or anything. But it is a creative way to run the books such that you get some flexibility in the early years of the contract while still keeping a key player happy.