what is a buyout clause?

Answer 1

This is used where at least two parties own or have a contract on some thing together.

At the start of their relationship one party or both agree to pay or settle on a plan to end the relationship by buying out the others interest in the relationship.

This is used in sports contracts where either party can do it.

Our say if you & I enter a buisness arrangement we may feel that
we may not always be in agreement & want to have a plan to disolve or relationship. So we would have a buyout clause.

Answer 2

A buyout is when a team will pay you money instead of honoring the remainder of your contract.

Let's say, for instance, A-rod is scheduled to make $26 Million the final 2 years of his contract. He has a buyout clause in his contract, that states the final 2 years can be bought out at a price of $15 Million per year. For some reason the team he's playing for hates him and doesn't want him playing for their team anymore; he's causing a huge distraction. The team can pay him $15 Million per year over the next 2 years for him to walk away from his contract. The buyout is usually less than what the player was destined to make. The team gets out of the contract without getting into legal troubles, and the player gets money just for abandoning his contract. A-rod can go sign with another team now because he's a free agent. His old team doesn't have to worry anymore now that he's gone.

I don't know if $30 Million would be a proper buyout for a contract like that. I was just using that as an example. I'm not familiar enough with the process to know the going rate for a buyout. The key is that both the team and the player agrees upon it, when they sign the contract.