A central lesson that game theory and institutional design teach us is that actors play to the rules that the institution creates, not the behaviors that the institution intends to elicit. Thus, you have think through the perverse incentives that an institution might create.
Contract incentives in sports seem to be one of the worst violators in this regard. These incentives usually read “if you achieve x milestone, you will receive $y bonus.” The key problem in the design here is in the discontinuity. There is basically no substantive difference from a team’s perspective between 210 innings pitched and 209 and 2/3rds innings pitched. Yet you will have contracts that create massive paydays at 210 but provide nothing extra at 209 and 2/3rds. (See Phil Hughes as an example.)
Today’s contract failure comes from the Seattle Seahawks. Wide receiver David Moore’s contract called for a $100,000 bonus if he caught 35 passes this season. With 22 seconds left in Week 17 and Seattle up three points, Moore sat at 34. In a world that makes sense, Seattle would take a knee and win the game. Coach Pete Carroll called in just that.
Instead, this happened:
Apparently Russell Wilson knew about the incentive and changed the play in the huddle so that Moore could hit the guarantee—a great response to the incentive structure put in front of them! But also a completely unnecessary injury risk for a team that had secured a win and a spot in the playoffs.
The solution to this type of problem is to eliminate the crazy discontinuities in contract incentives. If Seattle thinks that Moore should be incentivized to hit catch goals, they should incrementally pay some amount of money per catch rather than concentrate all of the value in the 35th.