what kinda financial outs do we have on his contract?
Here's a good article on this issue:
Potential Salary Loss for Aaron Hernandez - Over the Cap
Basically it sounds like the Patriots are better off keeping him on the roster (put on the Reserve/Suspended list), and the league would suspend him based personal conduct detrimental to the league and team:
There is little to be gained by releasing Hernandez. He is only set to earn $3.223 million in cash over the next two years, most of which is tied to actually playing football. Even though the contract is guaranteed he still needs to be on an active roster in order to earn his Paragraph 5 salary and I believe his roster bonus, which in his rookie contract was tied to being on the active roster and seems to have rolled over to his new contract.
Players suspended do not earn their salary. If Hernandez is placed on the Reserve/Suspended list by the league the guarantees mean nothing. The league has the ability to suspend a player and declare him ineligible for conduct so the Patriots would get the same protection from paying guarantees by simply petitioning the NFL to suspend Hernandez rather than releasing him under the conduct clause.
So for every game that Hernandez fails to play due placement on Reserve/Suspended he will lose 1/17 of his base salary and $7,375 of a roster bonus in 2013, and 1/17 of his base salary in 2014. That is regardless of guarantees. The Patriots will receive immediate salary cap relief if suspended. Now we get to the bigger reason why the Patriots will keep Hernandez on the roster.
Under the new CBA, failure to perform the duties of your contract due to incarceration triggers a forfeitable breach allowing a team to recover signing bonus money that has been paid but unaccounted for on the salary cap. Hernandez received a $12.5 million dollar signing bonus in 2012, of which only $2.5 million has been accounted for. That leaves $10 million in potential forfeiture for the Patriots to reclaim if Hernandez does not report due to being jailed. If jailed this year he can also forfeit $50,000 of his signing bonus he received as a rookie in 2010.
If placed on the suspended list due to being jailed the Patriots will recover 1/17 of his yearly signing bonus allocation for each game he is unavailable to the team to play football. So each year the team will recover $2.5 million, a significantly higher number than the base salary in question for the 2013 and 2014 League Years. Even if he plays out the 2013 season and is then jailed in 2014 the Patriots would pay him $1.523 million in 2013 for the opportunity to win back $7.5 million in bonus money. So for their own financial purposes they need to stand by Hernandez to allow the process to play out.