Vladimir Guerrero Jr. got his wish when the Toronto Blue Jays signed him to an extension that did not include deferrals, and it appears the two sides have found a unique way for the slugger to put even more money than expected in his pocket.
Guerrero and the Blue Jays agreed to a 14-year, $500 million contract extension on Sunday. None of the money in the deal is deferred, which had been a sticking point for the 26-year-old in negotiations.
Guerrero’s extension also includes a $325 million signing bonus, Ken Rosenthal of The Athletic reported on Wednesday. The remaining $175 million will be paid out in salary.
There is no restriction to how much of a contract can be paid out in the form of a signing bonus, as the entire amount is used in MLB’s luxury tax calculation anyway. The full $500 million will still be spread out over 14 years as well, so it’s not as if Guerrero is receiving $325 million up front. However, Rosenthal noted that there at least two ways in which Guerrero will benefit from receiving 65% of his deal as a signing bonus.
The most notable benefit is that signing bonuses are paid out as income in the state in which the player lives. Guerrero’s full-time residence is in Florida, which has no state income tax. That could save Guerrero millions in taxes on $325 million of his contract.
Signing bonuses are also paid regardless of the performance of services, meaning Guerrero would receive the full $325 million over the life of his contract even if games were canceled due to a work stoppage. The same would be true if games were canceled because of a pandemic or for any other reason.
Rosenthal says it is unclear if the Blue Jays will benefit in any way from the structure of the extension. It is possible that the benefit for Toronto was simply making the deal more appealing to Guerrero.
Guerrero was set to become a free agent after the season and had imposed a deadline in February for Toronto to sign him to an extension. He still did not close the door completely on negotiating, however. Perhaps the large signing bonus is what got Vlad Jr. and the Blue Jays across the finish line.
