The Freddie Freeman Deal as a Market Correction

Even a couple of days after the news broke about the Braves locking up Freddie Freeman to a $135 million contract, there remains a lot of residual skepticism about this price for a non-star player who was still three years from free agency. Yesterday I compared the deal to similar contracts signed by Ryan Braun and Elvis Andrus, but Freeman doesn’t have Ryan Braun’s track record and Andrus was a year ahead of him in service time, so both comparisons required a little imagination. The reality is that we haven’t seen a contract like this for a player like Freeman before. The guys who have landed $100+ million extensions while still early in their careers have almost exclusively been superstars (Braun, Troy Tulowitzki, and Buster Posey), and Freeman is not at that level. This is the first nine figure commitment we’ve seen to a player this far from free agency who isn’t already one of the true elite players in the sport.

The size of the Freeman commitment stands out because, over the last four or five years, we’ve seen a rash of young player contract extensions that have generally been for far less than what the Braves just gave their first baseman; in most cases, the total guarantees were half as large as what Freeman just got from Atlanta. It’s easy to react negatively to 8/$135M for Freeman when you see contracts like 7/$80M for Carlos Gonzalez, 6/$66M for Nick Markakis, 6/$51M for Andrew McCutchen, Justin Upton, and Jay Bruce, and a bunch of contracts hanging in the 5/30M range for good young pitchers like Madison Bumgarner, Chris Sale, Jon Lester, Derek Holland. These prices are what we’re used to seeing in terms of long term deals for good young players with potential but also real risk. Freeman’s deal blew all those contracts out of the water, even though as a player at this point in his career, he’s pretty similar to many of them.

So that leaves us with two options. Either the Braves massively overpaid Freeman — a pretty popular sentiment, it appears — or that players and agents have concluded that the previously agreed to price levels were simply too team friendly. I’m going with the latter.

Just from the brief list above, look at the success rates teams have had on the contracts I already mentioned. The Gonzalez and McCutchen contracts are two of the very best in baseball, from a team’s savings perspective, while Bruce and Upton are underpaid even while they haven’t made the same big leap forward that was projected earlier in their careers. The only bust of the bunch is Markakis, and to be honest, he probably would have ended up making a similar amount over the last five years had he not signed that early career extension. That deal hasn’t worked out for the Orioles as a bargain, but it probably didn’t cost them more than $10 million more than going year to year would have.

But that’s just a few handpicked deals, and it’s easy to make any argument look good by just cherry picking data points in your favor. So, let’s look at every 4+ year contact extension signed between 2009 and 2013 that gave up control of at least one free agent season. According to MLBTradeRumors Extension Tracker, there were 47 such deals signed between the end of the 2008 season and the end of the 2013 season.

Here’s the full list, sorted by total money guaranteed to the player.

As you can see, the average contract extension for players in this range was something along the lines of 5/30 to 5/35 with a team option for a sixth year, so the norm was to sell the rights to two free agent years in order to get your arbitration paychecks guaranteed ahead of time. Obviously, better players and players closer to arbitration got more, but the format was pretty standard; any solid player who would fork over a couple of years of free agent rights in exchange for an early career guarantee could get a nice contract. Players got security, and teams were able to keep their home grown stars through their prime years. Win-win, right?

Well, not really. Not if the players and agents are interested in actually coming close to a mutually beneficial midpoint between risk and reward for both sides. Because these deals have ended up favoring the teams over the players to a staggering degree. Of those 47 deals, we can count on one of Antonio Alfonseca’s hands the contracts where the player likely came out ahead by hedging against injuries or performance risks.

Cory Luebke got $12 million guaranteed from the Padres, only now he’s going to need Tommy John Surgery again, and he’s out for all of 2014 after spending most of 2013 on the shelf too.

Brett Anderson got $12.5 million guaranteed from the A’s shortly after the 2010 season started, and has thrown a little under 300 innings in the four years since signing the contract. Of course, even with those injuries, the A’s still exercised his $8 million option for 2014 and were able to find a trade market for him, so it’s not like Anderson is stealing money that no one would give him otherwise.

Nick Blackburn got $14 million from the Twins before the 2010 season began. He proceeded to implode and pitch his way out of baseball.

Franklin Gutierrez got $21 million from the Mariners after his breakout 2009 season, then proceed to break every part of his body over the next four years.

Ricky Romero got $30 million from the Blue Jays in the middle of the 2010 season, and has turned into an albatross after forgetting how to throw strikes, but he gave the Blue Jays an excellent season in 2011, and would have certainly cost more to extend him if they had waited an extra year.

Nick Markakis got $66 million from the Orioles after his monster 2008 season, then lost his power and hasn’t been the same since.

You could make an argument for Cameron Maybin belonging on the list, but he didn’t go bust right after signing the contract, giving the Padres another decent year in 2012, and it’s not obvious to me that he would have been any cheaper to sign had San Diego waited another year to lock him up. Wade Davis didn’t exactly turn into what the Rays thought he would either, but he still had enough value to be seen as a quality trade chip. Jaime Garcia got hurt again, but pitched well enough when healthy that he probably didn’t leave much money on the table, especially if he pitches well again this year.

If you stretch to include the borderline cases, you can maybe come up with 10 cases where the player probably came out ahead by signing, and in most of the cases, they ended up pocketing an extra $5 to $10 million that they wouldn’t have otherwise made. But these extensions have had something like a 75% success rate for the teams signing them, and when they’ve worked, they’ve saved far more money for the signing team than they’ve cost when they haven’t.

Take the Andrew McCutchen deal, for instance. With four years to go before free agency, coming off a +5.4 WAR season at age-24, McCutchen sold his four remaining years of team control for a total of $24 million, then gave the Pirates three free agent years for a total of $41 million. Had McCutchen simply waited one more season, and was able to negotiate off his 2012 breakout, he probably would have been able to sell his free agent years for twice what he actually got.

By taking that deal in 2012 instead of waiting one more year, McCutchen probably left $30 or $40 million on the table, and that’s not even factoring in the additional guaranteed years he could have gotten by getting closer to free agency. If he had waited until after the 2013 season to sign, when he had an MVP in his bag, he’d probably have been able to command a $200 million extension, maybe more. The Pirates probably saved more money with the McCutchen contract alone than every other team wasted on failed extensions signed over the last five years.

There’s a reason Scott Boras has been advising his players to not sign these early career extensions. These deals have overwhelmingly favored the teams, and the prices that some of the best young players in the game have been accepting for their best years simply gave up too much of their earnings potential for the amount of risk they were selling. These deals simply were lopsided, and there are dozens of great players currently making a fraction of their open market value because of these early career extensions that have taken hold.

We haven’t even talked about Paul Goldschmidt, who might have been in line for a Posey-type deal this winter had he not signed for $30 million last winter. One of the main reasons teams have been able to inflate free agent pricing so quickly the last few years is that they are using money that would have otherwise gone to a lot of the young stars as they got closer to free agency; by locking in their prices early, the teams have kept the prices for these players down to such a degree that they’ve got enough left to throw around for the mediocre players who are reaching free agency.

Freeman’s $135 million contract, as a non-superstar still three years away from free agency, should serve as a pretty significant deterrent to team’s ability to sign these same types of early career, small guaranteed contracts that were so prevalent for the last five years. The argument in favor of those contracts was always that a lot could happen in six years, but Freeman’s deal shows that even waiting just an additional year or two will lead to significantly higher payouts, and the risk of injury or performance decline for many of these players over 12-24 months is just not that high.

The Freeman deal might look like the outlier right now, but I think it is more of a market correction that is going to become more common. Good young players are worth far more than they’ve been settling for over the last few years. The extension prices of the past few years were simply too slanted in favor of the teams, making a fair deal like the Freeman one seem like an overpay in comparison. Given how much money MLB teams have now, though, I don’t think they’re going to be able to force the genie back into the bottle; the Freeman deal is probably more of a trend than an outlier.