The contract is technically worth $7M, but the Indians are only on the hook for $3M if Millwood gets hurt. The other $4M is a "signing bonus," contingent on Millwood's pitching arm. If he spends 20 or more days on the disabled list because of an arm injury, 1/183rd of that signing bonus goes away for every subsequent day Millwood is on the DL. If you're wondering where the 183 comes from, that refers to the number of days in a baseball season. So if Millwood pulls a Bere and doesn't pitch at all, the Indians owe him $3M. If he pitches less than 190 innings but his arm holds up, they owe him $7M. Millwood can also earn an extra $1M in performance bonuses according to Andy Call of the Repository. The bonuses are mainly based on innings pitched.
This is an outstanding deal for both sides. Millwood didn't get the attention other pitchers got because of his elbow, and is now in a situation where he can re-enter the market next season and cash in. The Indians get a pitcher who, when he's healthy, is at the very least a solid number 3 starter for a one year deal with very little financial risk. Baseball Prospectus, whose work I generally like, panned the deal even before it happened. They compared Millwood to Wade Miller, who also signed an incentive-laden contract this offseason, stating that paying Millwood $7M is too much. Frankly (and I say this as a subscriber to BPro), I disagree. Here's their argument:
Miller and Millwood were fairly comparable in 2002-03 (combined VORP of 67.4 for Millwood and 60.7 for Miller). Both ran into arm trouble last year and missed a considerable number of starts. When they did pitch, though, Miller was superior, boasting a VORP of 21.8 to Millwood's 9.3. Both have comparable strikeout rates (within a quarter-K per nine). Miller is two years younger.
Millwood, of course, has more "experience." Now, if they were in the first few years in the bigs and playing at the major-league minimum, then experience would count because it's codified in the Collective Bargaining Agreement to be that way. It doesn't have to be that way in the unprotected, free-wheeling, every-man-for-himself world of free agency, though. If the Indians want to reward Millwood for having pitched in the big leagues longer than Miller or because he ripped it up real good back in 1999, then give him an additional 500 EBFB (extra big fun bucks). To our way of thinking, the Red Sox established what the market value is for moderately successful starting pitchers coming off injuries is when they signed Miller to one year at $1.5 mil. Because of that, anything beyond $2 million for Millwood is excessive on the Indians' part.
The experience comment is a red herring, in my opinion. All the Indians were looking for is starting pitching help for 2005, preferrably from a pitcher who was healthy. The difference between Millwood's and Miller's years of service probably had little to do with their respective contract offers; their injuries did (Miller has a shoulder problem, and Millwood's injury was with his elbow). The Indians put Millwood through what I can safely call an exhaustive battery of medical tests to make sure Millwood's arm was healthy, and further covered their bases with the non-guaranteed signing bonus. Stating that the Indians are offering Millwood more money than Miller just because he's pitched more innings doesn't really make sense to me. And since both contracts are a season apiece, does age really matter? Of course, Prospectus may change its tune when they see the details of the contract, but even at $7M I don't mind the deal at all.