Categories: Phillies Beat with Destiny Lugardo

Constructing a Bryce Harper extension that could appease all sides

Bryce Harper is entering his sixth season with the Phillies. (Photo by John Adams/Icon Sportswire)

The details regarding Shohei Ohtani’s 10-year deal with the Los Angeles Dodgers were reported Monday and they are stunning.

Ohtani, according to Fabian Ardaya of The Athletic, will make two million annually for the next 10 years, then $68 million per year interest free from 2034 to 2043. The deferrals bring the present-day value of the deal down to just over $460 million. Ohtani’s average annual value, the number that counts towards the Dodgers’ luxury tax bill, is just over $46 million.

It’s a good deal for the greatest talent in baseball history. The extreme deferrals were Ohtani’s idea, according to multiple reports. Jack Harris of the Los Angeles Times reported that Ohtani was willing to take these deferrals with every team he negotiated with, not just the Dodgers.

Only Ohtani would agree to such a deal. Ardaya’s report mentions that Ohtani makes around $50 million per year on endorsements. It would not be realistic for any other free agent in baseball to sign a deal that defers 97% of the annual salary.

The Dodgers are no stranger to signing stars to deals that contain deferrals. Mookie Betts’ contract includes $115 million in deferrals, while Freddie Freeman is owed $57 million in deferrals at the end of his deal.

The Phillies are not known to include deferrals in contracts to big stars. Deals for Didi Gregorius and J.T. Realmuto signed in 2021 only included deferrals to alleviate cash flow concerns following the pandemic season. Nearly half of Realmuto’s 2021 salary, about $10 million, will be paid out from 2026 to 2027 in $5 million installments. Payments to Gregorius began in 2023 and run through 2026. He is owed a total of $9.5 million in deferred compensation from 2023 to 2026.

The Phillies have not used deferrals as a tool to avoid the luxury tax. Maybe that could change following the Ohtani deal.

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They have instead preferred to stretch out the terms to lower a contract’s average annual value. It’s why Trea Turner signed for 11 years and Aaron Nola signed for seven years.

The precedent set for those deals was Bryce Harper’s 13 year, $330 million contract signed prior to the 2019 season. The deal came at a strange time. Teams were hesitant to spend at the top of the market. Scott Boras and Dan Lozano, the agents representing Harper and Manny Machado, struggled to find markets for their 26-year-old superstars. If both players were free agents at 26 in 2023, there is no doubt that both would land deals over $400 million.

Machado’s initial 10-year, $300 million deal included an opt out clause halfway through the contract. That allowed Machado to use that as leverage to sign an 11-year, $350 million extension prior to 2023. Machado will make a total of $470 million over 15 years with the Padres, beating Harper’s total guarantee by $140 million.

Harper went against his agent’s recommendation and did not request an opt out in his deal. He wanted to know where he was going to play for the rest of his career, but it came at a significant cost.

Boras will try to bridge the gap between the two deals. The campaign for a Harper extension unofficially began when Harper hinted at his desire to play into his 40s in spring training. Boras has since provided multiple quotes to the media regarding a possible extension.

“There’s no better metric than when [owner] John [Middleton] himself says that it’s a great bargain,” Boras told the media at the Winter Meetings, including MLB.com’s Todd Zolecki. “So that’s certainly something that we appreciate him saying and I think all of us know it’s true.”

Boras is referring to when Middleton told Harper — and Boras beforehand — that he “underpaid” him following Game 5 of the 2022 National League Championship Series.

Boras’ presence is also felt throughout the Phillies roster. Harper, Nick Castellanos, Bryson Stott, Alec Bohm and top prospect Andrew Painter are all represented by Boras. Maintaining a good relationship with Boras is shrewd business for the Phillies, who will dealing with him and many of his clients for years to come.

With all that in mind, Boras will try to pull off something no agent has ever done: leveraging an opt out without actually having an opt out.

All of these things can be true. Harper, with eight years and $208.31 million left on his contract, is a steal in baseball’s economic landscape post lockout. At the same time, it is absolutely insane that a player is asking for an extension with eight years remaining on the deal. Only Harper can get away with this.

It’s also easy to understand why Boras and Harper are shooting their shot right now. Harper’s interest in playing for the Phillies for the rest of career is most likely genuine and he is as confident as anyone that he could play in the big leagues for 20 years.

But extending Harper beyond his age 38 season is a massive risk for the Phillies. Harper’s first season with the Phillies has so far been his only injury-free season in red pinstripes. It would be both depressing and costly for the fans and team to watch Harper labor through the rest of his career while battling injuries.

The Phillies also do not have to give in because Harper does not have an opt out. It’s a situation the team would prefer not to deal with, but they also want to keep the face of the franchise, a player that has been everything they could have hoped for, happy for the foreseeable future.

Maybe there is a world where Harper and the Phillies sign an extension and all parties benefit because of it.

There is a deal to be made where Harper gets the additional years he wants, Boras get more money for his client and the Phillies lower their luxury tax payroll.

This hypothetical deal combines elements of a typical Phillies free agent deal where the term is extended and combines it with deferrals that drag down the AAV even further. Harper also gets to double down on the idea that he’s signing a contract with an even lower average annual value to help the Phillies add players around him.

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Let’s say Boras, Harper and the Phillies agree to a deal that includes:

Three additional years added to the 8 years remaining and $55 million total guaranteed added to the $208,307,696 left, making it an 11-year, $263.31 million deal without deferrals.
The $55 million added is deferred interest free and paid out in $5 million installments over 11 years from 2035 to 2046.

Using the 4.43% discounting rate used for all agreements signed this offseason, the five million per year added to Harper’s deal would have a present value of $3,103,787. The total average annual value of the deal, the number that counts towards the luxury tax, would be $22,040,850.27. His annual tax hit would include $18,937,063.27 of yearly salary and $3,103,787 of deferred compensation.

The deal would cut Harper’s annual luxury tax hit from $25,384,615 to $22,040,850.27, a $3.34 million decrease and stretch out the terms of the original agreement by another three years. Harper gets more years and more guaranteed money while Boras sets a new precedent for adding additional money to a deal that did not include an opt out clause.

It’s possible the Phillies could lower their tax bill even further by asking Harper to defer a portion of salary that was originally agreed to be paid without deferrals, but the assumption here is that Boras, Harper and the players association would not go for that.

Maybe Boras is hoping to get even more money and a higher average annual value for Harper, but he does not have enough leverage to extract enough money out of the Phillies to completely close the $140 million gap with Machado.

The Phillies would probably prefer to focus on more pressing matters, like an extension for soon-to-be free agent Zack Wheeler. But it could be beneficial for the Phillies to work out a similar extension like the one proposed above before the start of spring training to lower their luxury tax burden in 2024 and beyond and avoid having this be a topic that lingers over the team for years to come.