The world runs on mutual options. If you go on a first date, it comes with a mutual option to go on a second if you both so desire. In fact, right now, you and I have a mutual option to go on a date tomorrow. What will you wear to our date? No need to decide, because I'm declining my half of the mutual option.
This is just how we live: We have freedom and liberty and we get to choose, individually, whether to do things together. Business transactions start as mutual options. Conversations are mutual options. Life itself is a mutual option, between us and our fate. But only in baseball, weirdo baseball, does the mutual option get written down, as it did last week, when Jose Bautista and the Toronto Blue Jays agreed to a one-year contract with a mutual option for a second year. Or, in other words, a one-year contract.
It's worth asking: What's up with mutual options? These options, typically tacked on to the end of a deal, can be declined by either party when the year in question comes. There is no downside. There is, consequently, very little upside for obvious reasons: If one party stands to benefit relative to the market, the other party stands to lose. And will thus decline the option.
There have been scores of these clauses tucked into major league contracts, though, which raises many questions: Why are we still seeing this phenomenon? What's the point? Does one side actually benefit? Can both? Let's start at the beginning.
The mutual option did not enter baseball parlance until 1992. Even then, it was not American baseball, but rather a team in Japan's Nippon Professional Baseball league, the Osaka Kintetsu Buffaloes, that gave former big leaguer Alvin Davis a contract that included a "mutual" option. The quotation marks are from the original report, as this novel contract feature was still something that needed to be set off by punctuation. Five years later, when major league pitcher Ken Hill and the Texas Rangers signed a deal with a mutual option, it was still being referred to as "rare."
But between Davis and Hill came Rick Aguilera, the great relief pitcher with the Minnesota Twins. The evidence suggests that Aguilera and the Twins agreed to what was likely the first MLB contract with a mutual option in February 1993. The deal, a contract extension, locked up Aguilera for two years and $7.51 million, after which the Twins could agree to pay him $4 million for a third year. If they picked up the option, Aguilera had 10 days to accept. If either party declined, so long.
Free agency was still relatively young at that point -- less than two decades old -- which made it a fertile era for teams and agents to plant newly imagined contract details: escalator clauses, performance bonuses, playing-time incentives and various options -- club options, vesting options, etc.
"It's the suck-in-your-gut of contract clauses, just convincing enough to fool somebody walking past in a hurry."
The Twins' GM who negotiated the deal, Andy MacPhail, had already made a bit of slightly less boring history two years earlier, when he pioneered the player option. In that case, he gave Jack Morris a three-year deal worth $9 million. But Morris could opt out after one year, and he did, becoming a free agent and signing a bigger deal with the Blue Jays.
"I think they say necessity is the mother of invention," MacPhail, now president of the Phillies, told ESPN.com in a recent conversation. "At that time, you were starting to have clubs that had significantly more wherewithal than others did. In the early stages of free agency, clubs were feeling their way along and trying to figure out the best way to maneuver through it. We had a talented group of players and we had to come up with ways to keep them or attract them, and I think that was the motivation behind it."
Revisiting our original set of questions: Is there anything about a mutual option that would actually attract a player to a team? Does anybody get anything out of them?
We went through a list of 100 mutual options over the past two decades to see what the outcome was in each. Only four of the 100 on our list were exercised by both sides: pitcher Brian Moehler and the Houston Astros, first baseman Jason Giambi and the Colorado Rockies, first baseman Kevin Millar and the Boston Red Sox, and first baseman Mark McGwire and the St. Louis Cardinals. In the last case, McGwire's option was picked up a year and a half in advance, and it might better be viewed as a lazy extension. But regardless, it counts.
So, 96 percent of mutual options were thrown aside -- either the player declined it, the club declined it, or some other condition (like a trade) voided it, the player retired, the player was released, or something similar. Mark Grace and the Arizona Diamondbacks reached a handshake deal to tear up their mutual option, which just goes to show that mutual options are everywhere! They exercised their mutual option to tear up the mutual option. Mutual options are the air we breathe.
That still leaves four percent of mutual options that were exercised, which might seem to justify their existence. But in those cases, the team and the player agreed on how much the player should be paid. Presumably, they could have reached this agreement without the aid of a clause in a previous contract. People do it all the time. (I did it 20 minutes ago, when I hired a man to cut down a ficus tree in my yard. Our deal came with an implicit mutual option for me to fill his bathtub with soup.) The mutual option seems, logically speaking, not necessary in even these four cases.
But these deals must exist for a reason, right? After asking a variety of agents and executives, I received a variety of explanations:
1. They defer money until the following year.
Baseball teams aren't like other businesses in many ways. Their most expensive employees sign four- and five- and 10-year deals, for one thing, while revenue can swing wildly from year to year depending on whether a single uninsured elbow ligament snaps. But to the chagrin of many GMs, most of them do have an annual budget they have to follow, like any other business executive.
The mutual option is a barely clever way of pushing some of the team's debts from this fiscal year's budget to a later year's, because, in most cases, teams have to give players a small, pre-negotiated buyout as part of a declined option. For instance: Rick Aguilera was owed $7.51 million for the two guaranteed years and could get $4 million in the third if the option was exercised by both sides. But it wasn't, so the Twins had to pay him $200,000.
"Totally psychological. It makes the player feel better." MLB executive
Now, you and I and every right-thinking adult know this almost certainly means Rick Aguilera is going to get paid $7.71 million for two years, and when Rick and his agent and MacPhail are negotiating the deal, they're smart enough to know what's what. Similarly, when the league calculates payrolls for luxury tax purposes, the buyout is part of the guaranteed money in the guaranteed years.
But technically, the final $200,000 falls under some budget down the road. GMs tend to prefer flexibility today to flexibility tomorrow -- the interval between today and tomorrow provides the GM time to anticipate and prepare for that expense. Also, the GM might be fired by then. Huzzah!
2. They create momentum for the next deal.
Even if everybody is realistic about the low likelihood of a mutual option being exercised, it is, at least, on the books and creates some connection -- however tenuous -- between the player and next season's roster. An agent and a club official both offered similar explanations.
"It tees up another negotiation," the agent said. "It creates a setting to start a negotiation and keeps everybody in communication and with an open mind."
The club official cited the work of behavioral economists Amos Tversky and Daniel Kahneman, who introduced the idea of anchoring and adjustment. In Tversky and Kahneman's research, people are found to be strongly influenced by their first reference point. They might ultimately adjust away from it, but they remain irrationally attached to the first number they see. By creating a mutual option, the club and the player are establishing an anchor for the next round of negotiations. And, if nothing else, both sides have demonstrated an interest in sticking together.
3. They're a low-cost "win."
As one team executive put it: "Totally psychological. It makes the player feel better."
One year ago, Bautista was reportedly asking for five years to remain in Toronto (he denied these reports). A bunch of factors made this an unrealistic demand this winter, but the outcome -- a one-year deal to stay put -- was still surprising and, presumably, disappointing. A mutual option won't fool him, but ... well, maybe it will a little? It looks better, doesn't it? It's the suck-in-your-gut of contract clauses, just convincing enough to fool somebody walking past in a hurry.
We've kept a bit of information from you so far. There are four ways a mutual option can work: (1) No buyout at all. This is rare. (2) A buyout regardless of who declines the option. (3) A buyout only if the club declines the option. (4) Each side's option is at a different price. So the club might have an option to pay the player $10 million, while the player might have an option to play at $8 million.
"The greatest negotiators in the world know how to at least create an illusion that it's a win-win." Agent
Nobody could give a definitive answer, but based on our review of public information about the 100 mutual options, it appears that the second type -- a buyout regardless, such as in Bautista's new deal -- is the most common. But the third and fourth types do exist, and in those cases, there is a narrow sliver of salary where both sides can make a rational decision even if they disagree about what the player is worth.
For instance: Say Aguilera's contract guaranteed him the $200,000 buyout only if the club declined his option. From the club's perspective, the cost of paying Aguilera $4 million for the third year is only $3.8 million -- since the club will have to pay him $200,000 if it declines the contract. But for Aguilera, the cost of opting out is $4 million, because he would be turning down the contract and get no buyout. In that case, Aguilera can think he's worth $3.9999 million, and the club can think he's worth only $3.80001 million, a substantial enough difference but close enough to justify exercising the option.
"You're threading a needle," a team executive said, "but at least there is an opening there where there is some logic to the needle."
There is an interesting wrinkle in Bautista's contract that might produce this scenario. Bautista reportedly has the mutual option for 2018 but a vesting option for 2019, which would mean that each side will make a decision next winter that might affect the following two seasons. Gaming that out gets complicated, and the space between each party's priorities and incentives starts to expand. Perhaps, depending on the details, such a needle might be thread-able.
4. It's all in the word "mutual."
MacPhail doesn't recall how the mutual option came up between him and Aguilera's agent, Tom Selakovich. But MacPhail said, "My guess is that it was a collaborative effort. How can I address your need and how can I address my needs?" When a player and a club are negotiating, they must take both a confrontational stance and a collaborative one. The player wants more money; the club wants to give less. But the club wants the player to be part of a team, and the player wants to be part of that team. As soon as the ink is dry, the parties share a single goal: winning.
Perhaps, then, a mutual option is a ratifying of that togetherness, a transition from the confrontation of negotiation to a celebration of the result.
"The greatest negotiators in the world know how to at least create an illusion that it's a win-win," one agent told ESPN.com.
Maybe the mutual option does this, subtly: It envisions a future, probably unrealistic -- certainly unlikely -- but satisfying nonetheless, in which the deal worked out so well for both parties that each wants to stay together at roughly the same terms. It's a pledge, not of anything tangible, not of any real commitment, but of the desire to stick together.
The Twins traded Aguilera to Boston before the end of his final guaranteed year. The Red Sox declined his option.