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.




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Dave is a co-founder of USSMariner.com and contributes to the Wall Street Journal.


58 Responses to “The Evolution of Free Agency”

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  1. John Northey says:

    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.

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    • Fergie348 says:

      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..

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  2. White Blood Cells says:

    This is an interesting trend, and at first blush it looks like it should really help the small market teams. They have more options: 1. They can sign their star players (Reds, Brewers, Rockies, etc.) and their contracts end earlier, so the odds of deadwieght payroll are significantly reduced. 2. They can trade them for prospects. Their (the stars) trade value will increase because the FA pickings are so slim. So a guy like Stanton or Price will bring back a king’s ransom. Suddenly it seems like small market teams have more chips to play with.

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  3. mike wants wins says:

    I’d rather the sports world evolved to shorter contracts, and more player movement. For awful teams (my Twins), sometimes the only thing you have to look forward to is players changing….

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    • Of course, you understand that the players themselves to not want more player movement. My aunt lived in ten U.S. states over twenty years, and I’ve just moved to my fourth home in four years, but not everyone is capable of that, and to be frank, even I’m sick of it.

      And many ballplayers have steady relationships, families, property.

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      • Hurtlockertwo says:

        I agree, maybe $12 million in L.A. or NY may be better than $15 million in Cleveland or Detroit.

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        • Baltar says:

          Well, yes and no. The cost of living is higher in NY and LA. Also, a player travels so much during the season that he doesn’t really get that much advantage from the more desirable city. The location of the off-season home may actually be more important.

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      • mike wants wins says:

        Yup, I get that. Heck, I’m still living here in MN until my kids graduate. But then, they can choose to sign an extension if they want to stay, and the team wants them to stay. I’d love 2-3 year max contracts in all sports. Especially the non-NFL sports where dead, real, money can cripple a team. But, it is a relatively free world, so it’s not up to me.

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        • Simon says:

          As long as you’re happy paying a lot more per year for these short contracts, right? You’re OK with players getting $30-40 million a year for three years, I assume.

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  4. rustydude says:

    Does the trend toward more contract extensions rather than free agent signings mean that agencies like CAA that have better or at least more voluminous track records in signing extensions for their clients, will beat out agencies that have been concentrating more on taking their clients to free agency (read: Boras) for representing the top players?

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    • Trotter76 says:

      I can’t imagine that the Lohse saga (and to a lesser extent Bourn) didn’t negatively impact players’ impressions of Boras. He always seeks max dollars and likes to play the waiting game, and he severely misread the market this year. He’s done very well by a lot of players, but they seem more often to change teams than resign with their old teams. I think Cano thought keeping Boras would mean a) drama; b) leaving NY; and c) taking slightly more money over the situation he most wanted. That’s been the history.

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      • Simon says:

        I don’t think Lohse or Bourn lost out much really. There were a lot of articles written with an anti-Boras agenda, as is often the case, but neither player merited an awful lot more.

        Boras is an intelligent man – he’ll get long term deals for his guys if that’s what his players want, and he’ll certainly adjust to changes in the market. Is Elvis Andrus not a Boras client?

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        • Baltar says:

          I agree with you. Lohse got more money than he is worth in the end. Bourn got less, but that’s a combination of his skills being less valued on the market than they are worth and the draft pick.
          Although, psychologically, players would not rather wait until the last minute.

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  5. Gary says:

    MLB free agency is starting to remind me of NFL free agency. No real stars available, just a bunch of aging vets, or people you’ll have to criminally overpay to acquire real talent.

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  6. jld says:

    Seems to me that making JayZ your agent is they way to go when you want to start building a comprehensive endorsement and marketing strategy that will outlast your baseball career. If Cano likes it in NY, it seems like a good idea to start baking himself into NY culture, instead of just being a great player who plays in NY.

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    • Krog says:

      Good point. After Jeter retires Cano will be the face of the Yankees and possibly the biggest sports star in NY.

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    • rageon says:

      Rickey Williams agrees. You should absolutely trust a rapper to handle your sports contracts.

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      • Aggie E says:

        Um thats silly. CAA is a great sports agency and they will negotiate Cano’s contract. That Master P sports group used a bunch of green-out-of-college guys to negotiate Williams’ contract…

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  7. RMD says:

    So, Dave do you think the Red Sox meant to be trend setters or is their strategy just a coincidence of what is likely to be the future of free agency?

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    • Johnny Come Lately says:

      It was only a couple of years back that they shelled out major dollars and years to Adrian Gonzalez and Carl Crawford. I’m going with coincidence.

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      • Trotter76 says:

        I think they took a lower risk approach with multiple players and fewer dollars and years specifically BECAUSE they got burned on the lavish contracts to Crawford and Gonzalez. No coincidence there. Once bitten, twice shy.

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      • jim says:

        never mind that that was done by a completely different front office

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      • nvalvo says:

        Gonzalez’ deal was a long-term deal given to a player pre-FA, also. Exactly what we’re talking about.

        Not to mention, his was the deal that LA found valuable.

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    • Simon says:

      What else could they have done with this year’s free agent crop? If they didn’t want to try and outbid the Dodgers for Greinke, there weren’t any other big ticket options.

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  8. Pp says:

    Totally agree. Dave, isn’t it far to say Keith law is incorrect. Being able to sign a guy to a long term deal before he hits free agency IS an asset in itself.

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    • busch says:

      I think you misunderstand Law’s POV. For example: he loved Longoria’s extension. Other factors around extensions are what concern him, like when the Phillies signed Howard long-term despite decreasing value. If the Phillies had waited a few more years to see how his value held up they may have been able to sign him at a cheaper rate. Same with Uggla and the Braves.

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      • vivalajeter says:

        busch, I think Pp is correct. As much as I like reading Keith Law’s work, this is a part that I simply disagree with him on.

        For instance, Dickey signed a 2-year extension right after the trade to Toronto. Leading up to the trade, everybody knew the dollars he was asking for, and they were only going to make the trade if they knew they could sign him. Yet in his analysis, Keith Law insisted that the Blue Jays were only trading for one year of Dickey, and that the 2-year extension is completely separate (i.e. it shouldn’t factor into what they give up). To me, that’s just absurd. As Pp says, being able to sign Dickey to that contract is an asset in itself.

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        • busch says:

          I’m not sure that was Pp’s point, and if it is then it isn’t expressed very clearly.

          Would you say that it factored in if the Blue Jays had signed Dickey to an extension a month after the trade? Theoretically, it’s the same thing. The assets that were traded are one thing. What the Blue Jays do with the asset they obtain is something completely different. The Mets couldn’t increase their bargaining power based on whether the Blue Jays were going to sign him to an extension or not, so why assume the Blue Jays get a better deal in the transaction because they can sign him to an extension?

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        • vivalajeter says:

          busch, my point is that they were trading 3 years of Dickey, rather than 1 year, and that played a role in what they received in a trade. It was well known before the trade that he was willing to sign for 2 years at about $25MM.

          If nobody knew his demands and Toronto had signed him to an extension a few months later, that’s one thing. But they knew his demands before the trade was made, and they had confirmation that he was willing to sign with Toronto before the trade was complete, so it should absolutely be taken into account. It’s not much different than if the Mets signed him to the contract a day before the trade, and then traded him to Toronto. In that case, they’d be trading 3 years of service.

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  9. Simple Enigma says:

    Won’t at some point the market saturate to the point where only large market teams can afford these mega contracts? It doesn’t seem like for instance say the Mariners or Reds could afford another mega contract to go along with Felix and Votto respectively.

    Let’s pretend somehow Ackley turns into a top tier second baseman over the next two years. How could the Mariners afford to give Ackley the type of money we are predicting Cano will get? Tying up over a third of the salary in 2 players would be entirely too risky.

    I can see the low and middle tier payroll teams picking their franchise player then being unable to afford more mega extensions. Thus then the rising stars get traded to the Dodgers, Yankees, and Red Sox of the world, much like it operated in free agency.

    Is there anything I am missing that will prevent this?

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    • JK says:

      Teams don’t have to trade their stars to those who can afford the long term extension. They can simply keep their players through their arb years and let them hit the market. This, I think, is the key to sorting out the above scenario.

      With proper (from the team’s perspective) management of call-up date and service time, those team-controlled seasons will cover most of a players’ prime. So even if Ackley (in your example) becomes a superstar unaffordable for the M’s to lock up long-term, they can still derive much (most) of his total value in the pre-FA years then let him hit the market. They don’t have to trade him to the Yankees after his arb1 year just so NY can lock him up.

      Teams like Seattle holding onto their can’t-lock-up stars would leave the teams with FA money to spend with the option of offering the “old kind” of FA contracts that have fallen out of favour – long term deals for guys with >6 years service time that turn into albatrosses at the end. With more teams aware of the long term risks of these deals, the price for such players will come down (less competitive bidding for these FAs) and non-Yankees/Sox/Dodgers teams could come into the mix.

      Teams with money will surely be able to afford to sign more of their homegrown stars to long term extensions than poorer teams (e.g. Detroit extending Cabrera and Verlander, plus grabbing Prince as an FA). But they still need to draft/develop/acquire those players in the first place in order to offer them extensions. With IFA/draft spending caps, they can’t simply outspend on amateur talent to stockpile these guys and they’ll eventually run out of top prospects to trade for the Stantons and Prices of the world.

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      • Ron Baugh says:

        Seattle is a terrible example. They have shown a willingness to spend in the past, although badly (Sexson for example). They probably have enough money to lock up another start player. I would not be surprised if they try to get into the Stanton chase with all the minor league talent they have. The Mariners are likely to be among the spending teams. With a new TV deal likely to happen before the bubble bursts and a fairly large market the Mariners are not in the have nots grouping.
        They have made an effort to not spend because it has not been smart. Why overpay for free agents when the plan is to build? Over the past five years overspending just did not make sense. This ownership group has many issue but the willingness to spend is not one of them.
        Before you respond all “What about A-Rod and Johnson?” When the Mariners have not chosen to give expensive contracts there have always been other reasons than money. Except A-rod but his contract was stupid large.

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  10. Jason B says:

    The salary landscape is beginning to feel more like a “stars and scrubs” approach where the (baseball) middle class is becoming more endangered. The truly top tier guys are getting paid and paid handsomely; their skill sets are unique and difficult to replace. The “scrubs” are just the lower priced players – either veterans on shorter deals, or younger players before reaching their arb/free agency years.

    The larger mass of players seems to be becoming more fungible; there’s no need to break the bank to pay option A $10 mil per season when you’ve got options B, C, and D with similar skill sets and not too much of a drop in production available for, say, $3-5 mil apiece on one or two-year deals.

    Which does seem very much like football free agency. You can overpay on the first day to get the guy you most covet, or wait two weeks and get a guy who will give you 90% of his production at 20% of his cost.

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    • mike wants wins says:

      Correct, just like in the NFL and the NHL and probably the NBA someday.

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    • Ruki Motomiya says:

      This seems quite true. Possibly because the value of lesser players is now better understood, thus leading to more options in the lower priced tier?

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      • Jason B says:

        I think that’s probably a factor. Talent evaluation is advancing in all sports generally, and across all facets of any particular sport. In baseball, for instance, teams aren’t limited to looking at, and paying based solely on, triple-crown hitting or pitching stats anymore.

        We’re not perfect in our player evaluations yet – there’s still an element of art, or a ‘human element’ in addition to the science/number crunching – but it’s rapidly advancing and we are better able to quantify so many different facets of the game than we’ve ever been. (And the teams on the leading edge are still looking to “get there first” and exploit whatever market efficiencies might be available before the other teams catch up.)

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  11. jpg says:

    “The near future, anyway, before the cable TV bubble bursts and MLB teams stop swimming in money banks, Scrooge McDuck style.”

    Never in my wildest dreams did I think I’d see a Scrooge McDuck reference in a Fangraphs article. Brings back some fun childhood memories of my Duck Tales fandom.

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    • Caveman Jones says:

      I don’t even think it’s the first one I’ve seen either, but it might have been in notgraphs or something

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  12. KCDaveInLA says:

    Great article, illustrating that even the small-market teams would rather pay for value than risk getting a boom-or-bust return of minor leaguers, per current thinking. The Royals for instance (who always seem to be behind the curve of trade/free agency trends) have always been the trade-the-superstar-for-prospect types, but never quite seem to get it right (trading Johnny Damon got them 1 decent year from Angel Berroa, and Chris Getz is the only residual left from the Carlos Beltran deal). Now that paying superstars early is trending, I’m afraid that they’re going to give big money to guys that don’t quite deserve it yet (Hosmer, Moustakas, etc.). All this said, I hope the Rays don’t lose David Price and find a way to buy out at least a few free agency years.

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  13. olethros says:

    So the Cardinals pretty much started this trend with Pujols then, right?

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    • Caveman Jones says:

      I’m not sure that they started this trend, but it’s certainly the most visible move like it. Plenty of teams skipped out on the Pujols/Fielder/Hamilton sweepstakes of the last few years to get a solid portion of their production for a pittance by comparison.

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    • Ben says:

      I believe Cleveland did it in the 90s with a bunch of young players.

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  14. Shao says:

    This reminds me the case of Trout. Jeff Sullivan mentioned that the current MLB salary system is like shifting young stars’ dollars to veterans. So if the trend is to lock up your young stars during their premier time, that means young stars will get their check that match their fair value much earlier. Role players and 35+ years old veterans therefore are the only ones that will enter FA market and they will not benefit from the “shift” anymore. From this point of view, it is more “fair” now between players.

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  15. Ron Baugh says:

    So this will further put a larger value on a good farm system. Not only to develop the superstar talent to lock up for years but also to be able to obtain those players from the teams that are willing to sell them. Buying a championship is going to cost money and talent.

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  16. channelclemente says:

    There is a little rumor out here on the West Coast that I cannot verify, the Dodgers and Yankees may be talking about Cano. Any legs, or just smoke.

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  17. rjbiii says:

    You touched on this at the end, but how much of this is also driven on the teams’ side by the marketing possibilities of creating “face of the franchise” players? Towards the back-ends of these long-term extensions, franchise players well beyond their peak will still be able to consistently sell merchandise and tickets on the basis of that players’ history with the club and long-term affinitiy with the fans. If I was running a club, I’d be trying to factor that into my risk calculations with these contracts vs free agents, who may never develop that kind of relationship with fans.

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  18. Baltar says:

    I love the trend toward extensions rather than free agency. Fans, I included, love to have their teams keep their star players.

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  19. Susan Murray says:

    I’m starting to believe that Jay-Z wants to own the universe. The guy is a billion dollar enterprise. He’s the only guy that could compete with Boras and he’s going for it.

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