In April of 2014, Sports Illustrated featured Max Scherzer, a St. Louis native and former University of Missouri baseball star, on its cover with the headline “Mad Max’s $144 million bet.”
At the time, Scherzer had turned down a reported $144 million contract extension from the Detroit Tigers, gambling that he could make more on the free agent market this winter. His gamble appears to have paid off.
On Sunday night, the right-handed pitcher agreed to a seven-year, $210 million contract with the Washington Nationals.
The deal may not be what it seems, though. Scherzer will not be making $30 million per year for the next seven years. Instead, half of his contract will be deferred, meaning that the Nationals will pay him $15 million per year over the next 14 years.
As Dave Cameron of Fangraphs, a baseball stats and analysis website, points out, that $210 million is really more like $170 million, due to the effects of inflation.
However, Scherzer will also enjoy a unique tax advantage as a result of working in Washington, as a recent Forbes story highlights. Thanks to the District of Columbia Home Rule Act — a federal law that, among other things, exempts people who work in the District of Columbia but make their permanent residence elsewhere from paying tax on their Washington income — Scherzer’s millions aren’t subject to the District’s income tax.
Deferred contracts like Scherzer’s have become especially popular among Major League Baseball teams in recent years because they give teams more cash to either spend on other players or for ownership to invest.
When St. Louis Cardinals left fielder Matt Holliday signed his seven-year, $120 million contract in 2010, about $2 million per year was deferred without interest. Holliday’s contract includes a $17 million team option for 2017. Depending on whether that option is picked up, Holliday will make either $1.4 million or $1.6 million per year through 2029.