The Future Of MLB Free Agency

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Josh Hamilton and Zack Greinke led the 2013 free agent class, and in the end received the $25M AAV salaries to validate that, thanks to some new Los Angeles money and a need to win now. As far as best free agents available goes, Hamilton and Greinke were not at the level of class that we typically think of $25M per year players. They will make their new teams better, but being best available does not necessarily mean they’ll be worth the price paid. Both players will be hard-pressed to live up to their contract value.
After the 2012 free agent class of Prince Fielder and Albert Pujols and Yu Darvish, 2013 paled in comparison. On top of a disparity in talent level available, changes to the MLB CBA have impacted the free agent process, much to the chagrin of Scott Boras clients Kyle Lohse and Michael Bourn. Signing any player who was given a qualifying offer now results in the loss of a draft pick, or more importantly draft pool dollars. This being the first off-season under these rules, many teams appear skittish about losing that draft pick. This may change in the future, but in the present these two particular mid-level free agents find themselves unemployed two weeks before they should be starting their jobs.

The hot stove leading up to the 2013 season was mostly just tepid, never reaching the boiling point of years past. The rumor-to-transaction ratio seemed to be higher than normal, with either the prevalence of Twitter or the weak free agent class to blame.

What’s more, it appears that the big free agent markets of off-seasons past won’t be returning in the near future, either.

When building a roster, all MLB teams are looking to create as much surplus value as possible. That surplus value is the result of a player producing more value on the field than what a team is actually paying him for his services. While the Dodgers seem to have no interest in this endeavor, almost without fail the other 29 teams do appear to be chasing surplus value.

Player value is often discussed as being approximately $5M per win (above replacement). In the free agent market, from the point a player signs a contract until it ends, history has shown that teams end up paying free agents $9M per win. If the goal is to come out ahead, and $5M per win is the measure, signing players in free agency is rarely an effective method.

As was demonstrated by the Moneyball A’s, it is the small market teams who drive innovation in the game. Because of their inability to spend with the big teams, creativity and innovation are key to their ability to compete on a regular basis. Even better at this than the Moneyball A’s are today’s Rays. The Rays continually rank in the bottom of the league in payroll, while sitting at or near the top of arguably baseball’s toughest division.

The Rays are going to be a driving force of change in baseball, and have already done so. Their success is built around leveraging their players before they reach free agency, both on the field and contractually. Tampa Bay keeps a young roster, so that they are getting production from players making the league minimum or who are under team control through arbitration. For the really good ones, they sign them to exceedingly team-friendly contracts that buy out their first several years of free agency. It’s this strategy that has put the Rays in position to employ Evan Longoria for 12 years for a little under $150 million.

Extending players before they hit free agency is becoming a prevalent activity in baseball. In most cases, it gives the team a much better deal than if they were negotiating with a very talented player in an open market, and it’s a good deal for the player too, as it gives him long-term security, even if it isn’t for the maximum he theoretically could get.

Because teams are less eager to spend in free agency, and because extending players prior to free agency is a growing trend, and because it is typically the very best players receiving these extensions, the pool of top-level free agents is only going to continue to dwindle in future years. 

Below is a snapshot of projected free agents for the 2014, 2015, and 2016 seasons, showing the top 50 players in 2010-12 WAR, plus a couple other notables. 

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You can see that the 2015 class does look like it would be a phenomenal feeding frenzy year for free agents with Verlander, Felix, and Kershaw all currently projected to be available. But the smart money says none of those three reach free agency, and work out extensions with their current employers between now and then.

With those three out of the picture, the landscape looks much bleaker for premium players to be found in free agency. Cano may hit free agency, but that doesn’t mean it’s likely he is in anything but pinstripes in 2014. After Cano, the 2014 class is mostly players who come with big question marks. 

The 2016 class looks more interesting with Cabrera, Zobrist, and Price, but with the new national TV contracts kicking in by then, Detroit and Tampa Bay may find themselves with the available cash surplus to keep their All-Stars close.

With the growing national TV contracts, and the surge in large local TV contracts being signed as well, contracts and salaries and payrolls will only trend upward in future years. What that also means is that future middle-class free agents will start signing larger deals, as cash-laden teams outbid each other for each marginal win. The belief that one win is worth $5M may hold true, but not in the free agent market. When signing a desirable player, paying $9M or higher per WAR will become the standard. If you think teams overpaid in free agency this year, it will only get worse in years to come. 

As Dave Cameron said on Twitter last week, “At some point, if we think that no player is worth market value, then our idea of market value is wrong.”

With the new spending caps in place on international and amateur signings, and a dwindling market of impactful free agents, there will be fewer outlets of “buying wins” for teams to turn to. An added emphasis will be placed on scouting, development, and contract negotiations. The teams who do that best will gain the greatest efficiency from each dollar spent, each roster spot used, and will hold the most leverage in the trade market.

Peter Ellwood is a Senior Staff Writer for Shutdown Inning. You can email himat Peter.Ellwood@shutdowninning.com or reach him on Twitter @FutureGM

Peter Ellwood

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