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August 24, 2006

The Annuity That Changed Baseball

Hunter v. Finley

by Brent Gambill

Most people identify Curt Flood's Supreme Court case as the precursor to free agency in baseball, while Andy Messersmith and Dave McNally are recognized as the first free agents in MLB history. Between those two milestones, however, came a series of players who nearly played out their option year, which would have provided a means of testing the reserve clause: Al Downing, Ted Simmons and Bobby Tolan. Each signed new deals before their option year ended, in part because of ownership pressure to avoid just such a case.

In the winter of 1974, however, a different set of circumstances set one pitcher free on the open market. Jim "Catfish" Hunter's freedom was the product of a unique scenario.

On February 11, 1974, Hunter signed a standard MLB player contract that stipulated a two-year agreement with the Oakland Athletics. While negotiating the contract, Hunter requested, as an addendum, that his attorney J. Carlton Cherry seek Internal Revenue Service (IRS) approval to defer $50,000 of the annual salary. The provision called for half of Hunter's salary to be paid into an insurance company fund during the season, intended for the purchase of an annuity for his benefit following his playing career.

The actual legalese of the provision stated that half of his $100,000 annual salary was to be paid "to any person, firm, or corporation." This was done in order to defer income and avoid taxation. Oakland A's owner Charles O. Finley requested some minor revisions in the wording of the contract concerning when the $50,000 would be paid--the words "to be paid during the seasons as earned" were eventually added by Finley before returning the contract unsigned to Cherry. Following the deal's signing, Finley became concerned with the tax consequences of purchasing the annuity. He soon discovered that the club could not deduct the annual $50,000 annuity payment as a business expense. He would not have use of the $50,000, as it would be in the annuity, and he could only get the tax deduction years later, when Hunter collected the money out of the annuity. Finley decided to drag his feet on making the payment.

As detailed in his biography Catfish (written with Armen Keteyian), Hunter spoke with player representative Jim Kaat prior to the 1974 All-Star Game. Kaat advised him to have his attorney write Finley a letter concerning the non-payment. Cherry sent letters to Finley in August and September asking him to sign the deferred compensation agreement. In his correspondence, Finley never gave a straight answer concerning the matter. In one reply, he stated that he was ready to commit, but feared that his wife, the secretary of the club, would not sign the paper. On another occasion, he complained that he was worried about other players wanting the same clause in their contracts. In mid-September, Richard Moss, counsel to the Major League Baseball Players' Association (MLBPA), sent a contract-violation notice to Finley. He had a ten-day grace period to meet the terms of Hunter's contract per the rules of the Basic Agreement. Those ten days passed without response.

Tired of the stalling, Cherry took the case to the MLBPA. On October 4, 1974, the following telegram arrived at the offices of Charles O. Finley & Company: