Where Free Agency is Heading
Baseball as a game has been changing between the lines for as long as the game has been played. Since the beginning of free agency alone, we have seen an era of speed on artificial turf give way to a game of power in beautiful, classic parks. That age, too has come to pass and we enter a period of balance, with due attention paid to defense and baserunning. Baseball as a business has boomed, and as TV networks are built in its service, it booms again. But strangely, the richest clubs do not have as much of an advantage as they did before. Indeed the era of balance has reached into baseball’s economics as well.
In 2008 The Tampa Bay Rays found themselves analyzing how to build upon the success they had just achieved, having made the World Series after enduring a decade of humility in the cellar of the AL East. They could not spend their way into perpetual contention like the Red Sox and Yankees. Nor could they trade away the young talent that had just won them an American League Championship, in exchange for established stars; at least not sustainably. They struggled now with question of how to retain their own players, as they headed toward the open market. They would solve this problem for themselves in a way that would have wide influence on the league and could be permanently altering the nature of how organizations and players approach free agency.
Traditionally, the transformation from draftee/signee, to prospect, to Major Leaguer, to free agent would have unfolded like this: A franchise drafts and signs a player out of high school or college, or at the age of 16 internationally. Then the player works his way up to the Major Leagues, where the club enjoys 3 years of very fixed cost performance, followed by modest increases in pay (compared to free agents) through arbitration, each year for the next three seasons. After these six years of “club control,” the player becomes a free agent, and in the case of the young star, the player hits the open market at age 28 or 29 with considerable ability to earn prime wealth during his prime years.
The Era of “Prime Shrink”
During the PED era a star player’s prime could last from ages 28-36 – perhaps longer – during which he could possibly sign 2 rich free agent contracts. One at the end of the club control phase, and one after the expiration of the first free agent deal. One major aspect of the astronomical sums paid for free agents surrounding that era was the fact that the player could be expected to sustain a high performance plateau into his mid 30s.
Now, a player’s prime again lands within a sweet spot of about 28-32, with a natural decline coming more surely. This means that players reaching free agency at age 28 are far more likely to live up to a rich new deal than players reaching free agency at the age of 32 or older. This fact is still not being totally reflected in the market for players over 30, but it is being reflected in how general managers are dealing with players still under club control.
The Present Trend
in April 2008, after just half a season in the big leagues, Evan Longoria signed a $17.5MM, 6 year contract extension, and signaled the beginning of an era. The Rays had began to buy out years of club control and arbitration years at a cost slightly higher than they would have payed, if they had let the player reach arbitration naturally. But they also began buying out several free agent years at a substantially cheaper price than the player would have commanded on the open market. In 2011 Matt Moore became the most recent of the Rays to signin this way. After a phenomenal call-up and post season, he signed a 5 year extension worth $14MM, plus three club options, which could bring the total contract to 8 years and $37.5MM.
The rest of the league took swift note. One month after the Rays inked Longo to his extension, the Brewers locked up star leftfielder Ryan Braun for 8 years and $51MM. A year later, the Nationals got third baseman Ryan Zimmerman signed to a $45MM pact covering his arbitration years, as well as 3 free agent seasons. Even the Pirates, one of the most poorly run and perpetually underfunded clubs in the league, managed to extend star center-fielder Andrew McCutchen for 6 years.
But the clubs aren’t the only party benefitting from this wave of early extensions. The players realize that $30-50MM after one or two years of productive baseball, has the ability to make them a rich man for life. They know that nothing is guaranteed in professional athletics, and the security of tens of millions of dollars today, outweighs the appeal of an uncertain jackpot 4 or 5 years down the road. The players union has made no effort to work against this practice, and we have yet to see a club get truly burned by one of these deals. So, thus far it appears both sides have found something equitable and secure about doing business this way, which seems to suggest it will face no obstacles in its proliferation.
What is Next
With the rise in club friendly extensions, a lot of great players will not hit the open market until they turn 30, 31, or 32. This, coupled with the increasing ineffectiveness of aging players, means that lengthy, super-rich contracts like the one Albert Pujols received last year from the Angels, are going to become increasingly rare. It’s a long shot, but if aging superstars become a market inefficiency, watch for Billy Beane to exploit this in order to fill out his rosters for a couple of years.
Additionally, as teams who have extended young stars fall out of contention, they will be able to garner considerable prospect hauls by trading players under such club-friendly pacts. This incentive to trade in the service of rebuilding quickly could lead to a rise in trades, that see teams entering or already within contention selling quality prospects for players in their mid-20s. Whereas the Yankees model of buying high-priced, aging stars should see a steep decline.
With aging stars no longer looking as attractive to teams, more short-term deals can be expected for players 32 and older. Players like Shane Victorino probably could have expected to get a longer deal in the past, instead of settling for 3 years at $39/MM, as he did this off-season. So concerned are teams that players are going to break down sooner, that Victorino was talked about as a fourth outfielder in rumors this winter. Meanwhile, even guys that are just comfortably above average, who hit free agency at age 28 can expect ferocious competition for their services. Anibal Sanchez is certainly an example of this phenomenon.
The Test of Time
Early extensions are still young, but already seem entrenched in the economy of the sport, and appear poised for a long stay. Their tests will come, as players who turn out to be one year flukes, or as players who end up extremely limited by injury become beneficiaries of the practice. In the 2000s advanced statistics changed baseball strategies regarding what to spend money on. Now, we can watch a chain reaction started by their most ardent disciples, the Rays, do the same by maximizing returns based on when, in a player’s career arc, to spend it.