When we think about professional athletes, we think about fame, glamour and multi-million-dollar salaries. Baseball may be the richest sport of them all, as 28 of the 30 largest sports contracts of all time belong to baseball players, but this perception ignores the players who never make it big. These are most common in baseball as well, given its extensive minor league system which pays players less than minimum wage. Even in the major leagues, a player’s team can cut him without owing another cent at the end of any of his first six seasons, providing little security for players at the beginning of their careers. This system of annually escalating salaries has led to riches for many, but has left those who do not play well enough or get hurt without anything to fall back on.
But there is another option for young players: signing an extension that guarantees a salary for those six years, even if it means making less than the player can expect if he succeeds. Staying on one-year contracts might increase the amount a player makes on average, but missing out on an even bigger payday by signing an extension is a much smaller concern than potentially not getting paid at all if a player falls short of expectations and is cut immediately.
For each of a player’s first three seasons in the major leagues, he makes roughly the minimum salary, which is about $500,000. After that, he enters arbitration, where his pay is determined by what comparable players earned at that stage in the past. He is under arbitration for an additional three years before reaching free agency after his sixth season. But under this system, a player is at the complete mercy of his team, which can choose not to offer him a contract after any of those six seasons and leave him without any guaranteed money. Extensions usually cover these six years plus at least one team option, where the team can choose to pay the player a certain amount for another year or allow him to become a free agent.
The perfect example of how extensions can make a huge difference for a player is Houston Astros first baseman Jon Singleton. Before reaching the major leagues in 2014, Singleton signed an eight-year contract extension that guaranteed him $10 million total. The first five years were fully guaranteed, followed by three team options that, if all exercised, would pay him an additional $20.5 million. Because he did not play a full major league season in 2014, the contract covered all six of his original team-controlled years and one free-agent season. The final team option was worth $13 million, so Singleton was only going to make about $17 million for his team-controlled years even if he was successful.
This would have been a serious discount if Singleton, then one of the top prospects in baseball, had lived up to his potential. By way of comparison, good-but-not-great first baseman Eric Hosmer will have made $31 million for his six team-controlled years when he becomes a free agent after the 2017 season and will likely sign a free agent deal that pays him more than $13 million annually for 2018 and for a few years after that.
But Singleton fell far short of his potential. Through two major league seasons, he had an abysmal .171 batting average and was removed from the Astros’ major league roster. Had he not signed an extension, he would likely have earned under $1 million for his two partial major league seasons and washed out of the game forever. The difference between $1 million and $10 million is massive — much greater than the difference between $10 million and $30 million when it comes to quality of life.
This guarantee means even more when you realize how little else these players have. Singleton was drafted out of high school, heavily limiting his job opportunities for after his playing career ends. Some players receive huge draft bonuses — the 2016 first overall pick, Mickey Moniak, received $6.1 million — and have little need for the financial security of an extension. But Singleton was an eighth-round pick and was paid a $200,000 bonus, which seems like a good amount until you realize he had to stretch that out over his five minor league seasons. With players earning under $10,000 annually in the minors, he had little else to supplement his bonus. The difference between entering a life after baseball with $1 million in the bank versus $10 million is gargantuan.
In the interest of full disclosure, Singleton is the only notable example of a player becoming an absolute bust after signing an extension. But he is also one of very few players to sign his extension before reaching the major leagues. Most examples of extensions that hugely limited a player’s future earnings were given to players with at least one MLB season under their belt, during which they proved themselves to be deserving of a long-term investment. And there are quite a few who have really gotten screwed: Chris Sale, Adam Eaton, Evan Longoria, José Altuve and Anthony Rizzo, to name a few. Extensions make sense for minor leaguers who have never had the chance to succeed or fail in the majors, not proven MLB players.
For players who have spent years toiling in the minor leagues for a pittance, an extension represents a golden opportunity to lock down a long-awaited payday. But these deals are very rare, as players hold out in hopes of making even more money down the road. For men with little savings and limited career prospects outside of baseball, the security of an extension is far better than taking a gamble for even more money.
Andrew Flax ’17 can be reached at firstname.lastname@example.org