The Benefit of Extending a Free-Agent-to-Be

Teams are constantly trying to sign young players to contract extensions, buying out both the remainder of the player’s cost-controlled seasons and then years of free agency after that. Doing so provides great benefits to the team, chiefly by allowing them to avoid the expenses of the free-agent market.

Not every player is offered or signs that type of extension, however. Some players choose to avoid extensions altogether, hoping for the big free-agent payoff as soon as possible. Other players might develop later and miss the window for an extension. Still others might lack the requisite talent to attract a deal. In every case, the player in question moves on, and that’s the end of it.

There’s a final scenario, however — one in which the club and player both possess an interest in reaching an extension but, for whatever reason, are unable to agree on the terms until the player’s final season of team control. In this case, a team isn’t buying out team-control years, only free-agent ones. And that changes the calculus a little bit. Because, while it’s possible the team might be receiving something of a discount from free agency, the odds of these deals working out for the team are not great.

Contracts for pending free agents (how I’ll refer to these players in their last year of team control) aren’t common. Players who’ve reached the brink of free agency have a major incentive to play out the year and see what the market provides. Having been unable to reach a deal for years, the odds that a player and his club will have a change of heart are low. This is particularly true for players who have never signed a contract extension and are heading into their sixth (or, because of service-time manipulation, seventh) year in the majors, and are now faced with their first chance at free agency.

Despite their rarity, there are a few examples of these contracts for pending free agents every season. Last year, for example, Rick Porcello signed a five-year deal with the Red Sox, while Clayton Kershaw and Brett Gardner have also signed similar contracts in the past couple years.

Looking at contracts from late-2007 through 2013, we can see how those deals have worked out for the teams that have signed them. Using MLB Trade Rumors’ extension tracker I looked for players with between five and six years of service time who were pending free agents and then signed contracts buying out at least two years of free agency. Those deals needed to be at least half-completed by this season to provide a decent idea on the deal’s outcome. In all, I found 26 such contracts. To determine value, I used $8 million per win for this season, and to approximate past and future years, adjusted by $250,000 per season. For contracts still active in 2016, I used the FanGraphs Depth Charts projection for the player, and if there were any years after 2016, I decreased the 2016 projection by half a win per year.

When dealing with contract extensions signed earlier in a player’s career, teams expect — or at least hope — to receive some benefit during the free-agent years by getting those seasons at a discount. When signing a player so close to free agency, no such discounts should be expected. While the performance in the free-agent seasons should be slightly more certain given the proximity in time, teams should be expecting to be pay free-agent prices to retain the player and get them to forego free agency. For the most part, that is exactly what has happened.

The table below features all 26 players to receive these contract extensions, including the amount of money they were paid during their free-agent years along with the value they provided — or, in the case of some, are expected to provide — during those seasons, along with the relevant surplus or deficit. Players owed money after the 2016 season are highlighted in blue.

In total, we have over a billion dollars in contracts — and the return provided by the players comes to within $100 million of the cost. That said, the range of outcomes is diverse. On the low end, we have Matt Kemp, whose deal has been bad since it started, but not bad enough for the San Diego Padres not to want to be a part of it. On the high end, we have Jose Bautista, who bloomed late and found his power stroke in Toronto. After one really great year, the Blue Jays capitalized on his lack of proven history and signed away five free-agent years at what would prove to be a fantastic price. Oddly enough, in every other deal that has proven to be a good one for the team, the player has been traded during that contract. Prado was thought to be a salary dump at the time, but he put together a solid season last year with the Marlins. Kendrick, Hamels, and Gomez all brought back solid prospects in their trades while Aybar was included in the Andrelton Simmons trade so Atlanta could keep up appearances as well as have a potential asset to flip at the trading deadline.

In total, the players averaged just a $3.7 million deficit compared to the cost of a win on the free-agent market, a fair value for players so close to free agency. Roughly half of the players produced a return within $20 million of their cost on either side. To provide a little more context for these deals, the table below includes a bit more information on the same players. Below, the reader will find added the percentage value of the contract compared to the amount paid, plus total WAR accumulated as well as the cost per WAR. No adjustment for inflation has been made on the cost per WAR.

Brad Lidge looks a bit ridiculous here given the negative WAR total, although when everything is tabulated, he doesn’t make that much of a difference. Teams received 92% of free-agent value for locking players up and spent $8.1 million per win on these players. There are few bargains to be had, but that is to be expected given the market these players are foregoing by signing a contract. The benefit for the team is more in cost-certainty and roster-planning than any actual monetary benefit from signing players early.