Opt out clauses are a bad idea

Jay Jaffe responds to Keith Law’s opinion about opt-out clauses, saying that he doesn’t think they’re a bad idea. Let’s be clear about this: opt-out clauses increase the cost of a contract to a club. Depending on the player, they could cost a lot.

Let’s take CC Sabathia, who can reportedly opt out of his new seven-year Yankee deal after three years. Two basic things can happen: Sabathia can go downhill and decide to continue playing under the contract because he’s overpaid compared to the “market” (bad for the Yankees) or he can continue to pitch well and the market for free agent pitchers can become even more expensive than it is now. In that case, he’ll opt out of the contract and the Yankees will have to replace him at the now-higher free agent rate (bad for Yankees).

Opt-out clauses impact the value of options in the financial market and the impact the value of contracts in baseball. For CC, that impact is positive. For the Yankees, it’s definitely negative.