Winter Contract Extensions are Becoming Increasingly Rare

On February 17, 2011, Jose Bautista signed a five-year, $65 million extension with the Toronto Blue Jays. Bautista’s contract was one of a dozen similar extensions signed by players that Winter. From the 2008 to 2011, at least 11 players signed extensions similar to Bautista’s every winter (Extensions between end of the postseason and February 17th, using MLB Trade Rumors Extension Tracker). At the time, Bautista had fewer than six years of service time, agreed to a contract exceeding two years, and the contract bought out at least one free agent season. Offseason extensions are a fairly common practice, but in recent years, they have become increasingly rare. Since 2011, no offseason has seen double-digit extensions. Only Giancarlo Stanton, Kyle Seager, Wade Miley, and Devin Mesoraco signed similar contracts this Winter, matching a recent low of four from two offseasons ago.

While the number of extensions has gone down considerably in winter, the costs associated with these contracts have not experienced the same downturn. From 2008 to 2011, 47 Winter extensions cost teams $1.66 billion while the last four winters have seen teams sign extensions totalling $1.51 billion in guaranteed money to just 22 players. $150 million dollars is hardly a small amount, but the number of deals dropped by more than half, causing the cost to sign an individual extension with a player to go up considerably.

For the purposes of defining a winter contract extension, an end date is necessary. The reason for cutting off the winter contracts at February 17th is not entirely arbitrary as it matches up very well with the present date. Also, the arbitration process can serve as an impetus for completing a contract extension. Going to a hearing is not a pleasant exercise and the team, player, and agent are already in communication regarding the next season’s contract. Most arbitration cases have been settled or gone to hearing at this point, making a cutoff date right around now appropriate for winter signings before a new batch of signings begins in the spring.

Beginning with the winter of 2008 and moving through to the winter of 2015, there have been a total of 69 contract extensions matching the parameters above. After averaging nearly 12 contract extensions per winter from 2008-2011, the last four winters have seen an average of only around five.

The chart below shows the number of winter extensions per year along with the average number of years on the contract and average annual salary for the extensions signed.

The past few seasons have provided fewer contract extensions, but the contracts that are reached average more years and more money than their predecessors. Giancarlo Stanton moves the needle quite a bit for 2015, but even without Stanton, the average annual salary of the contract extensions from this winter is $10.5 million. The guarantees necessary to get a player to forego free agency have risen considerably over the past decade. From 2008-2011, only Troy Tulowitzki signed a winter extension guaranteeing more than $100 million. Since that time, six players with under six years of service time have signed for nine figures during the winter. Four of those big deals were reached in the last two offseasons (Clayton Kershaw, Freddie Freeman, Kyle Seager, and Giancarlo Stanton).

When teams negotiate extensions, the franchises attempt to receive the prime years of the players career, likely including the first few years of a player’s free agency. Getting the first few years of free agency without committing guaranteed money into a player’s 30s made these contracts very team-friendly. The rising free agent market likely decreased the appetite for extensions on the player side, and the increased cost on the team side left considerably less room to find amicable agreement.

Teams are less likely to receive value at the back end of the contract when signing a player to an extension that buys out more than the standard 1-3 years of free agency. Of the 47 contract extensions from 2008-2011, 31 bought out two or three years of free agency with another 11 buying out a single year. During that time Nick Markakis, Dan Uggla, Rickie Weeks, Troy Tulowitzki, and Jose Bautista relinquished more than three years of free agency. Only Bautista’s contract has ended up a team-friendly deal with the jury still out on Tulowitzki’s remaining six seasons. From 2008-2011, the average winter extension, including options, gave teams 2.3 years of free agent control. From 2012-2015, that number has gone up to 3.5. Here are the contracts from the past four years where the player has signed away at least four free agent seasons.

The first three contracts have not worked out for the signing teams while the latter five still have a ton of money and years owed to them. Including the previous group, that is just one success out of six with the status of six contracts undetermined. While giving up free agent years is generally a benefit for the team, adding enough years on the contract can tilt the benefit from team to player, providing enough incentive for the player to sign a contract that gives away a few of his precious prime years.

The decrease in winter signings have coincided with an increase in signings during the spring, but it does not appear that teams are merely delaying extensions from one period to the next. The average service time for the players signed during winter from 2008-2011 was 3.7 (individuals rounded down to the nearest whole number e.g. 3.123 to 3). The players who signed in the winter from 2012-2015 averaged 3.8 years of service, showing very little difference in average service time between the two groups. The same types of players are signing in winter, and as the contracts increase in value, they have decreased in number.