The Evolution of Free Agency

The big news of the morning is that Robinson Cano has fired Scott Boras as his agent, and is joining a newly created wing of the CAA group that will be led by hip hop artist Jay-Z. I don’t pretend to know anything about hip hop artists and their geographical biases, so I’ll just go along with the consensus that hiring Jay-Z as his agent is a pretty good sign that Cano wants to stay in New York. And, as Ken Rosenthal noted, CAA is the agency for many players who have re-signed with their current teams rather than test free agency, including being the representatives for Buster Posey, Matt Cain, Andre Ethier, Ryan Braun, Ryan Zimmerman, Ryan Howard, and Adam Jones.

Reading all the tea leaves, I think it’s probably fair to expect Cano to re-up with with New York before he ever gets to free agency. The Yankees can’t afford to let Cano leave, and despite their desire to get under the luxury tax, they’re still the Yankees. Avoiding a bidding war with the Dodgers is almost certainly in their best interests if they want to keep Cano in the Bronx, and so it seems like the interests of both parties are aligned to keep Cano from hitting free agency.

If we scratch Cano from the list of potential free agents for next winter, that leaves us with Jacoby Ellsbury, Josh Johnson, Roy Halladay, Tim Lincecum, and Shin-Soo Choo as the premier players likely to make it to the open market. And, that less than stellar class leads us the inevitable discussion of the changing role of free agency in Major League Baseball.

Rob Neyer wrote about this yesterday at Baseball Nation, recapping the thoughts of other notable baseball scribes who have tackled the same subject in the wake of the latest round of long term extensions.

What does all this mean? Well, let’s not overstate things. We may assume that some teams still won’t have the money to sign their young stars to long-term extensions; however, if the small-market Reds can lock up Joey Votto forever, not many clubs will have that excuse. Also, if the Rays can’t afford to pay David Price what he wants, they might well trade him to someone who can. So there will still be opportunities for the haves to reap what the have-nots have sown.

Just not nearly as many, it seems. For now, anyway. If there’s one thing we know, it’s that baseball financial trends don’t trend forever. My gut says that we’re currently in a transition period, with an edge going to smart teams with some flexibility. My gut also says it’s almost impossible to predict what things will look like five or 10 years from now. I mean, the Yankees and the Dodgers and the Red Sox have to spend their money somewhere, right? If they can’t spend their money on free agents or amateurs, where will they spend it?

Well, I think we know where the Yankees are going to spend their money. Cano’s salary is likely going to double, or something close to it, so just keeping him in New York will require a similar commitment as signing another top tier free agent. As for the Red Sox, they spent $60 million in free agency last winter, but no more than $13 million on any one player, as they seemed to emphasize building a deep roster rather than adding another marquee player to the payroll. So, yes, the Red Sox have to spend their money somewhere, but they may very well pursue multiple mid-tier free agents once again, rather than chasing the guys looking for long term scores in free agency.

And, in this way, I think the Red Sox are actually showing us what the future of free agency is going to look like in Major League Baseball. The near future, anyway, before the cable TV bubble bursts and MLB teams stop swimming in money banks, Scrooge McDuck style. Rob’s right that things are cyclical, and things will change course eventually, but given the current state of MLB economics, I think we’re headed towards free agency primarily being a way to fill out a roster with solid veteran role players. And I think history shows that this is probably the most efficient use of free agent dollars.

The main problem with entering into a long term contract for a free agent is age. Because of the six year service time rule and the fact that teams can get an extra year of service by manipulating the call-up date, most great players are under team control to their original franchise for at least seven years from their debut. If they sign an early career contract that buys out arbitration years, they usually have to give up a team option for a year or two of free agency as well, so now you’re looking at a player having eight or nine years of experience before he hits the open market. Even if they get to the big leagues early, that puts them near 30 when they reach free agency.

Last year, B.J. Upton was the youngest free agent to sign for significant dollars, and he was headed into his age-28 season. Pretty much all the other top guys were 29, 30, or 31. Long term deals for guys heading into their 30s don’t have a very good track record. These are the kinds of players you’d rather sign to three or four year deals than seven or eight year deals, but the allure of adding a premium player in the short term caused teams to sacrifice in the long term in order to outbid each other for aging free agents.

The shift towards big money extensions, rather than big money free agent paydays, has changed the calculus a bit. Elvis Andrus is 24. Buster Posey is 26. Felix Hernandez is 27. We’re talking about Adam Wainwright and Justin Verlander being the old guys in the extension game because they’re 30-year-old pitchers. The average age of the mega-contract is coming down, because these deals are now getting done before these players ever reach free agency. And, so, rather than hold the star players salaries down in their prime and then overpay them at the back end of their career when they aren’t as useful, the move to extension paydays rather than free agent paydays is distributing money towards a player’s late 20s rather than his mid-to-late 30s.

This shift is going to lead to fewer premium free agents, but it’s also going to lead to more money on the books for the best players in their primes. Look at the increase in AAVs of the extensions getting signed lately. These are free agent prices. As Jeff noted in his write-up of the Felix Hernandez extension, the discount the Mariners got for signing Felix was that he re-signed with them in the first place. Teams are no longer requiring steep discounts over market price in order to sign long term extensions when a player is still years from free agency. Now, the discount is that they get to buy out more productive years without having to guarantee as many end-of-career albatross seasons. A seven year deal for a 27-year-old is better for the team than a seven year deal for a 29-year-old, and that’s the model teams are moving towards.

In response, I think we’re going to see free agent contracts get shorter. Only Zack Greinke got more than five years as a free agent this winter. If Jacoby Ellsbury has another monster season, he might be able to do better than five years, but if he comes in around his projections — a .340ish wOBA, good defense and baserunning, +4 WAR or so — then he’s going to profile as just a slightly better version of Michael Bourn. Like Bourn, he’ll be headed into his age-30 season. Like Bourn, he’ll be a center fielder whose value is tied heavily to things that peak early. Ellsbury will do better than Bourn, simply due to the monster 2011 season that everyone still remembers, but I don’t know that he’ll do better than five years.

Josh Johnson? Tim Lincecum? Roy Halladay? None of these guys are getting crazy long deals, not with their health concerns. We’re in for another winter of three to five year contracts for the best players on the market. And I think that’s going to become the new normal. You acquire stars through the farm system or through trade, and you fill out your roster with aging role players on short term deals.

There will be big contracts signed next winter. They’ll just be signed by the likes of David Price and Giancarlo Stanton, after a couple of teams mortgage their farm systems to acquire the rights to extend those two superstars and keep them long term. The big money deals aren’t going to wait for free agency anymore. If a player can get $150+ million guaranteed without carrying the risk of injury for the full seven years it takes to reach the open market, then the logic of diminishing returns suggests that he take the big paycheck earlier, even if he’s leaving some money on the table in the long term. And for teams, the system of signing star players to long term deals earlier in their careers should allow more of these contracts to work out, rather than turning fans against their best players because they’re now overpaid and underperforming.

Rob’s right; free agency isn’t dead, it’s just changing. The days of buying a franchise player in free agency are probably behind us, at least on an annual basis. For the foreseeable future, I’d expect free agency to be the place you buy a short term fix rather than a long term superstar.

Dave is the Managing Editor of FanGraphs.

Newest Most Voted
Inline Feedbacks
View all comments
John Northey
11 years ago

I think the biggest reason for the extension craze is teams knowing the bucks that are out there more so than the players. Players are seeing deals in the $10-20 mil a year range and signing, while teams are thinking more is out there. In the winter before last we saw Pujols get a deal only A-Rod has seen before for raw dollars (10 years $240 mil) despite being on the wrong side of 30 and Prince Fielder get more years and dollars than anyone expected (9 years $214 mil). That tells me there is a big demand for the right player out there. This winter we saw Josh Hamilton, a guy with lots of red flags, get $25 mil a year, an amount surpassed only by A-Rod, Clemens, and Verlander.

If I was a premium player (ie: not Lohse level but true star level) and knew I’d hit free agency pre-30 I’d be very, very tempted to wait it out. Someone will sign for $30 mil a year soon, and if someone like Harper can wait he’ll see a payday beyond A-Rod level.

11 years ago
Reply to  John Northey

The marginal utility of earning $30MM per year as opposed to $22MM a year isn’t terribly high when compared to the risk of injury or ineffectiveness pulling that deal down to the single digits or lower.

I’d imagine that given the history pitchers would be more open to trading 15 or 20% of a nine figure contract in exchange for risk reduction but I’d expect quite a few premium players would bite on a deal that kept them comfortable in a city they know well and sets them and their family up for life with a $100MM plus contract. I know I would..