The Opt-Out Clause that Kills the Arenado Deal

Also in this article: Dodger Frugality, Dodger Revenue, Jack Mills

On November 12th, I wrote an article about a trade idea for Nolan Arenado, in exchange for dumping the salaries of Kenley Jensen, AJ Pollock, and Edwin Rios. The numbers basically showed the Dodgers getting Nolan’s contract for 199M, in exchange for dumping roughly 50.5M on the Rockies. It was a win-win situation for both teams with the only contingency being the Arenado No-Trade clause. I found a reason to pull the plug on that deal and the reason has to do with Jack Mills and frugality.

After hearing the buzz about the whole trade down the rumor mill, I felt that the trade was inevitable for various reasons but the second time around, I included a list of other names that could also be thrown into the trade since the Rockies are going to be hungry for young arms. I will not restate my second proposition in this article since I am now proposing that the deal might not happen at all but you could use the links embedded above to read the previous articles if you want to know what was said before. But given that this is what everyone has already been talking about, you should be in the loop. I don’t expect someone who has no clue about what has been going on with the Dodgers or in baseball to be reading this article as an entry point to what is going on in the offseason. If you are here, you are most likely in the loop with the rumors on the Hot Stove around the Dodgers. You know that Nolan Arenado is a hot rumor kicked around by fans like me, and discussed by more well known people in the industry like Jim Bowden and JP Morosi. 

Harold Reynolds got me thinking this morning on the MLB channel. He said, “We are in a pandemic and teams are looking to slash expenses.” Obviously, this was known prior to the trade idea and it was part of the reason why I felt the Rockies would be willing to trade. The Dodgers had just won the World Series, broke all sorts of records selling old shelved and new merchandise and I felt that they were able to withstand the pain a little bit better than a team like the Rockies who does not have a big market fanbase compared to the Dodgers. 

In 2020 the Dodgers total salary was $254,422,530.00 according to Spotrac. However, due to the shortened 60 game season, they were only on the hook for a fraction of that amount. The adjusted salary was $108,417,397.00. That means they were able to save 146Million in salary expenditures for 2020. If you take a look at the Time Warner Cable deal signed in 2012, TWC purchased the rights to televise the games for $8.35 Billion dollars for the next 25 years. If you divide that up per year, you get an average of $334Million per year. In essence, if you were to do the math with an adjusted salary total of $108.417Million, the Dodgers are still able to cover expenses with their TV Deal alone. Keep in mind that in normal years they have many other expenses because they have many expenditures across multiple levels within the franchise. They still have expenses and salaries to be paid at the farm level in all of their various affiliated facilities. They have rent, trainers, salaries, travel expenses and anything else associated with affiliated organizations. On top of that, they have money owed to top executives, the brass, the field crew, the facilities personnel, travel, trainers, coaches etc. Keep in mind, their affiliated facilities within their farm system were shut down. There was no minor league baseball to generate income. One would have to open the books to determine how much money was still being spent while those facilities were closed. They must have saved a lot of money by shutting down their facilities. Did they get a pass on commercial loans? I doubt it. Forbearance? Possibly. Or was it a bill that the Dodgers had to eat up? Most likely. However, with all that said, 334Million a year and subtract 108.4 Million per year and you are left with 226Million to cover all of those “Other or Miscellaneous” expenses. Is this enough to cover all of those revolving expenses? Maybe. Maybe not. Maybe I left out a series of other expenses such as Interest owed on borrowed money on mortgages, or other unseen expenses as a result of the lock down. Maybe they had to hire additional security at the minor league levels to protect their facilities or pay millions for testing kits and personnel to test all the employees and implement protocols. It is hard to tell the amount spent compared the income without seeing a profit and loss statement.  Point is, I have not included everything and there is no way of knowing if they were able to cover it with just their TWC contract. You can see in the revenue graph listed below that in 2019 the Dodgers made 556Million with a expenditures of $207Million. The difference is $349M. In 2014, the Dodgers made $403Million with a salary of $208.5Million. The difference is $194.5Million. If you compare the $194Million difference in 2014 with the $226Million difference of 2020 (not counting merchandise revenue), you can see that the Dodgers are still not as bad as they were in 2014. Perhaps the structure of the TWC 25 year contract is broken up differently than the generic $334Million average I came up with, but my ballpark figure should at least help to put things in perspective, although not exact. I guess this is where I should insert the disclaimer that I am not an accountant for the team nor am I on the inside sharing secrets. I am just providing an amateur assessment of what seems to have worked or not worked for the Dodgers as an outsider.

Revenue for the Dodgers going back to 2001.

We cannot discount the fact that the Dodgers must have made millions of dollars on merchandise alone. How much? One can only speculate but I am sure that there are still some fans shopping for items that were unavailable for them last month. Still there are others that will be shopping for Christmas presents in the next couple of weeks that are sure to clear out inventory wherever Dodger items are sold. (Enter World Series victory).

Therefore, more money was spent on merchandise than in years past. How much money did the Dodgers make? Perhaps 10 million, perhaps 50Million, or perhaps more? This had to have helped their revenue stream. Remember that they lost money in ticket sales and food sales.

Long story short, yes, they were able to save money with the adjusted salaries and the farm closures, but there were still expenses that needed to be paid and the merchandise sales helped the Dodgers absorb some of that financial pain. The bottom line is this: They will have to be careful going forward with so many uncertainties with the Coronavirus. A full season is not certain in 2021. Perhaps the Dodgers have to again play a season with no fans. Although we established that they are getting some income from their TV Deal and from merchandise, if they end up playing 162 games, they will be on the hook for $175.5Million for the 2021 season. The threshold for the luxury tax in 2021 is $210 Million. So the Dodgers have about 35.5 Million to play with before they go over the Luxury Tax threshold.

Guess how much Arenado is due to earn for the 2021 season. He is due to receive 35Million in 2021. That puts them right at the threshold if they take on his contract without dumping any salary. But this is not why I decided to pull the plug on my trade idea, because after all my proposition was for us to take his contract, and then in return dump AJ Pollack who is owed 30 million total, but 18 million in 2021. Kenley is owed 20 million in his last year and Rios gets the minimum. Dumping this salary helps you to decrease the current 175.5 Million the Dodgers are on the hook for in salaries of 2021 because although we get a single player for 35Million more, we lose 3 who will make 38.5Million in 2021. It is almost a wash for 2021. 35million vs 38.5million. If we kept the trio I mentioned, Kenley falls off at the end of 2021 but AJ and Rios would come back. So it makes financial sense for 2021 if they left because we would be saving 3.5Million.. The current $175.5Million, 2021 payroll, does not include a third baseman. As the roster stands, you still have to go and buy a third baseman, or give the position to Rios and keep the roster the same to save you millions. Likewise, Taylor can shift to third and be a rotational player with Rios which is something the Dodgers seem to love to do with righties and lefties and this would not cost them extra. In the trade deal, you can see how the deal will help save the Rockies money whether they dump Arenado’s full contract at 199M, or if they absorb the 50.5Million owed to the 3 players for 2021 I suggested. Either path taken, the Rockies save over 149 Million and I am certain they would do it based on the savings alone. What is not certain, is how much debt the Dodgers are willing to take on for the future. If they choose to become a model of frugality, they go with a Rios/Taylor rotation at third.

Now for the monkey wrench: There are two possible monkey wrenches in the Arenado deal that I feel are strong enough to pull the plug on the deal. An unknown variable that could end it before it starts. The two things are: 1. Frugality and 2. Jack Mills 

Frugality first:  What type of foresight does Andrew Friedman have when it comes to the economy and predicting future revenue if a deal is made? The Rockies as I mentioned, save over 149Million or 199Million. Either way, when in dire straits, it is a good deal for them. The Rockies are that young kid who took out a huge loan on a Porsche, and all of a sudden the kid is about to have a child with his new wife and he now needs to return the Porsche to the dealer or sell it on his own. His situation does not allow him any wiggle room to negotiate max price because that car needs to be gone ASAP. So a loss must be taken on this baby, his Porsche, for another baby, his unborn child. The thing is, the  Dodgers are that other person looking at that Porsche who can actually afford to take it off their hands. But not so fast. ‘Full price, I must not pay’ said Yoda.  WIth the economy looking slim, and no vaccine currently being administered yet with actual success, are they willing to take on that Porsche, unknowing if the economy will ramp right back up by April? Do they bet the house on the economy being ready and back to normal by 2022 and ride their Porsche all the way to 2026? I am not a financial expert, but I predict that it is possible that a housing crash might happen in 2021 or 2022, but don’t go calling your lender based on my advice. There might be an economic collapse where we see a slow recovery from the current crisis but the reality is that even when there have been financial hardships people find a way to make their way to the stadium. Seemingly, it has not mattered what is going on in the economy since 1978. The Dodgers have filled the stadium with about 3 Million in attendance year after year. We can’t say that we have not had any financial problems within that time frame. We have had plenty of them including the financial crisis most recently but the Dodger fans have always showed up to the stadium with the exception of 2020 since there was a full pandemic closure. Had Dodger fans been allowed to attend with social distancing measures, they would have filled those available seats every night just like they did in the World Series. Based on this, I would be willing to take the Porsche. But I am not a financial expert, so we will see what is decided by the front office. It is possible that their financial experts see things differently and just to be safe, they might get an old used Toyota 4Runner like Turner. You can always trust a Toyota and it will cost a lot less than the Porsche.

 Perhaps, they will play it safe with a Toyota 4Runner and allow Turner to try his luck in the free market. It is dubious that he will repeat the 20Million contract he was contracted for in 2020. It is more likely that it will take between 12Million and 14Million or possibly less. I do not mean less because of the value in this old used 4Runner, but less because the economy is down and the comparables will be down. Just like in a down real estate market. When the prices go down, it makes your home valuation go south. What will this off season look like in terms of valuation? Perhaps it will be down. If so, maybe the Dodgers move in and sign Turner for a low price for the next 3 years. Or will the Dodgers be super thrifty and pass on Turner, and roll the dice with their in house talent? Maybe Chris Taylor, Edwin Rios, or Max Muncy? I won’t use a Prius as an analogy for these last 3 players because although you save money on gas on a Prius, each one of these guys has too much power to be called a Prius, even though it would be the way to go for an analogy showing the frugal way. I just realized that I used frugal a few times. I guess this is the word of the day. It has taken over the theme of this article. (Frugal: the act of doing things in the most cost effective way). If the Dodgers become frugal like the rest of the league, they pass on the 199Million or the 149Million, they get Turner, or if they choose REALLY frugal, they pass on Turner and work with the pieces they have in house. 

Think about the following: The Dodgers do not look forward to negotiating with Jack Mills. If they trade for Arenado, they will have to get Arenado to waive his no trade clause which would happen for sure if we crossed that bridge. But the second monkey wrench occurs over the Opt-Out clause. The No-Trade clause should be an easy fix because if he waives it, the deal gets done. If he does not, the deal does not happen. End of story. The other variable that must happen for the Dodgers to deal is the waiving of the Opt-Out clause in 2021. I am not even suggesting for them to remove it completely. I think for all sides to be happy, they should push it back. Removing it would be best, but the push back should be acceptable. He needs to waive the Opt-Out clause so they are not just getting a one year player. If he were to exercise his Opt-Out option, he will want more money from the Dodgers as an extension beyond 2026 or else he walks. Most likely he walks as we have seen other players walk in their final year.  Machado was traded to LA, and signed elsewhere after his final year of his contract. It could come down to Jack Mills advising Arenado not to waive that Opt-Out clause in which case there would be no deal. I strongly believe he would waive it to play for his childhood team but Mills might have something else up his sleeve such as an extension to the existing contract.  If they refuse to remove the Opt-Out, the Dodgers should pass and that is where I see this going unfortunately.

Whether it is frugality, or whether it is Jack Mills, there are many questions to be answered that we do not know the answers to. Are the Dodgers looking to commit to that 6 year contract if Arenado chooses to waive the Opt-Out? That is where the frugal part comes in. Maybe they want to save money and take a hard pass. The Dodgers do not want to be left at the mercy of Mills and Arenado if they refuse to waive the Opt-Out. No deal should happen if they refuse in my opinion. It actually makes no sense to refuse to waive the option since it was written just in case the Rockies had not been put in a position to be contenders. He is going to a proven contender, so the Opt-Out should be easily removed. But will it? Do the Dodgers commit the 199M or do they do it only if the Rockies agree to an exchange of some Dodger salary?  It is a gamble. Is it a safe one? Does the economy bounce back? Will that uncertainty play a role in Andrew Friedman’s decision? Does it balance out financially for the Dodgers in 2022 so they can sign Seager? What does that do for Seager and Boras after 2021? Will frugality come into play? To avoid all of that drama, Arenado and Mills, must agree to erase the Opt-Out clause for 2021. Otherwise, there is no deal. I am sure this has already been laid out on the table for parties on all sides, but if it has not, you have it laid out here to make your own conclusions on how it plays out. This is how an agent can end up throwing a monkey wrench into the trade. By telling Arenado not to waive his Opt-Out option for 2021. Mills should ask Arenado to waive the 2021 Opt-Out in order to get the deal done. It could very well be that frugality kills the deal, or perhaps it’s the Opt-Out that kills it. We shall see.

Published by Pete Reyes

Dodger Fan since Fernandomania. I am a baseball aficionado and a former baseball coach. I am father of 3 and I am very proud that our Dodgers finally won the World Series. Follow me for some fun Dodger News and Updates.

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