The Rising Price and Length of Free Agent Contracts

The 2013-2014 free agent season isn’t over yet. Ubaldo Jimenez, Ervin Santana, A.J. Burnett, Stephen Drew, Kendrys Morales, Nelson Cruz, and Bronson Arroyo are still on the market and in most cases are looking for multi-year contracts. Between just those seven, I’d imagine MLB teams will probably commit somewhere between $250 and $300 million, and when they do, they’re going to push total spending on free agent contracts handed out this winter over $2 billion.

I’m not breaking any news here, but the rapid increase in free agent contracts over the last five years is still pretty staggering. Just for fun, I pulled all the data for Major League contracts signed for each of the last five years from ESPN’s free agent tracker, and dumped the data into a spreadsheet. Here are some total numbers for each of the last five free agent classes.


Year MLB Contracts Multi-Year Contracts Total Years Total Dollars Average Years Average Salary
2009 121 32 174 $846,795,000 1.4 $4,866,638
2010 124 43 198 $1,305,955,000 1.6 $6,595,732
2011 106 30 182 $1,366,988,058 1.7 $7,510,923
2012 89 42 165 $1,337,125,000 1.9 $8,103,788
2013 89 48 184 $1,775,075,000 2.1 $9,647,147

We already have seen more multi-year contracts signed this off-season than any of the previous four, and depending on how many of the second tier pitchers — Chris Capuano, Paul Maholm, Jason Hammel, etc… — land two year deals, there’s probably another 10 to go. If a couple of the available relievers end up snagging two year contracts as well, we could see the off-season end with 60 multi-year deals, almost double the number given out five years ago, and that’s with a smaller total number of MLB contracts handed out.

And the overall annual average value of contracts handed out this winter is almost exactly double the overall AAV of contracts handed out in 2009: $9.65 million to $4.87 million. We all know that the cost of signing a free agent has gone up a lot since these new TV deals started making MLB teams richer than they’ve ever been, but I didn’t realize just how quickly the total numbers had doubled.

Now, those averages for 2013 will come down a bit by the time the off-season is over, as there aren’t any more mega contracts to be signed that will drive those prices up, and there’s still a decent amount of filler arms that will likely sign low dollar one year deals before spring training opens. But of the 147 players who filed for free agency, we’re probably only looking at 100-115 Major League contracts, and it’s very possible that, for the first time in MLB free agent history, that most of the MLB contracts handed out will be multi-year deals, not one year pacts.

The death of the one year contract looks particularly stark if you focus on the last two off-seasons versus the prior three. From 2009 to 2011, 105 of the 351 MLB deals handed out were for two years or more, or just 30% of the total. In 2012 and 2013, 90 of the 178 contracts we’ve seen signed have been for two years or more, or 51% of the total. Even if we see a late barrage of one year deals, the one year/multi-year breakdown is still going to come in around 50/50 for the second year in a row, after being between 25/75 and 35/65 for most of the free agent periods that came before.

As MLB teams get more secured long term revenues, they’ve been more willing to give out longer guaranteed contracts, knowing that even if their attendance crashes, they’ve still got enough TV money around to pay their future commitments. And, of course, with more money in the game than ever before, the price to sign a free agent even on a short term deal has gone up as well. The surge in total spending has been driven by an increase in both price and length, which has pushed the average overall free agent contract from $7 million in 2009 to $20 million in 2013. The rate of increase has been slightly faster in AAV than in years, but both are clearly trending upwards.

And keep in mind, none of this data includes the explosion of free-agent priced extensions that we’ve seen in recent years. From Joey Votto to Clayton Kershaw — with Felix Hernandez, Justin Verlander, and many others in between — it has become pretty normal for non-free agents to sign contracts that rival the largest free agent deals in any given off-season, and this data isn’t capturing any of those commitments, so the total rise in recent contract expenditures over the last few years is probably even greater than these numbers show.

This is mostly a post without a conclusion, as I’m not really trying to make any broad points other than just to present some information, but I will say this: it is evidently clear that free agent prices have been trending upwards pretty rapidly over the last five years, and there’s no real indication that this trend is going to slow down any time soon, at least while cable companies are tying their long team success to the exclusive rights to show live sporting events. So, in the interest of having a conclusion, I’ll simply say this: perhaps the MLBPA should send a really big thank you card to Netflix, Amazon, Redbox, and all the other companies that are threatening the old cable business models. Major League free agents are getting very rich thanks to those companies existence.




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


42 Responses to “The Rising Price and Length of Free Agent Contracts”

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  1. murphym45 says:

    If the average annual value of these contracts has doubled and the talent has remained roughly the same, that means the cost of a win is increasing much faster than 5% per year (more like 15%) and our contract models ought to be adjusted accordingly.

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    • Dave Cameron says:

      You don’t want to set long term inflation forecasts based on the inflation rates that are seen during a boom part of the cycle. These increases are driven by TV contract resets that, in most cases, aren’t due for another reset for another 20 years.

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    • Brad Johnson says:

      What Dave said.

      No five year period of inflation is going to representative. So we absolutely can’t look at recent inflation and just project similar linear growth.

      A few teams really pushed their payroll during this period. How much did the Phillies, Dodgers, Rangers, M’s, etc. increase their payroll? Given the luxury tax, how much further could they increase their payroll? What other teams are in line for a big pay day?

      Since there aren’t many teams left that are looking at a big TV contract and most of the other teams have already used a lot of their payroll, we should expect a decrease in the rate of inflation sometime within the next few seasons.

      Of course, that’s a surface level analysis and assumes that the MLBPA would get the luxury tax threshold substantially increased in the next CBA. If the players are only taking home some 40% of league wide revenue, you can bet some changes are ahead that will increase that number.

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      • murphym45 says:

        Understood, and I guess most of the expected big TV contracts have already been signed, but there are still another 5 teams due for new TV deals in the next 4 years, and another 4 teams in 2019. I’m not suggesting that we calculate inflation at 15% for the long-term future, but I don’t think it’s crazy to think that teams might expect the cost of a win to continue to rise a bit faster than 5%/year for at least the next few years.

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  2. jon says:

    Strange, I did a plot of my salary over the past five years and it didn’t come close to doubling. I picked the wrong profession :/

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    • Dave Cameron says:

      This isn’t a plot of all salaries for all MLB players. Those haven’t doubled, because the non-FA guys don’t have the leverage to get market based wages. If they did, the free agents would be getting less.

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      • cass says:

        Don’t forget the MiLB guys. Those guys don’t make very much at all and I don’t think their salaries are going up much. But they’re also professional baseball players. In fact, most professional baseball players are getting paid poorly in the minors. Not really a very lucrative profession for most.

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        • nd910 says:

          It’s not getting paid poorly, it’s barely getting paid at all. Especially at the lower levels, you can barely support yourself much less a family.

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  3. Jeffrey says:

    And crazy enough, MLB players are getting a lower percentage of total revenue every year.

    That’s how large these tv deals are growing and how quickly.

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    • Dave Cameron says:

      I know a few folks have asserted this, but I haven’t actually seen any evidence that it’s true. It might be, but I’m not willing to accept it as truth based on what I’ve seen. If the total proportion of funds going to players had actually gone from 58% to 42%, as I’ve seen written, the MLBPA would have probably been far less happy with the last CBA than they actually were.

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      • Pumpsie Green says:

        Tossing percentages around like that is infuriating when the entire pot has grown to such a grotesque size. Owners vs players, 50-50, may sound fair, but that one single owner’s take-home share is growing exponentially in this relationship. When Guggenheim bought the Dodgers they spent according to what they knew from tried-and-true ratios of their business world. And the other owners haaated it. Because baseball has almost zero in common with most businesses. Team owners make more, risk less and profit higher, thanks largely to monopoly protections, artificial market restrictions, and benevolent local governments. Gugggenheim has readjusted their thinking in how to operate in this cash-cow world.

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  4. ThundaPC says:

    Fun thought for conspiracy theorists:

    MLB Advanced Media is heavily involved with WWE in setting up their 24/7 online video streaming service “WWE Network” (basically Netflix for pro wrestling) WWE is also in negotiations for TV rights to their cable programs which is expected to be significantly higher than their last deal.

    DVR-proof programming is getting more expensive by the year!

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    • Oliver says:

      This. Live programing is gold in a DVR era. A baseball plays 162 games a year. That’s 162 DRV-proof events a year per media market. No other sport offers anything close to that.

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      • Hank G. says:

        I don’t understand the idea that sports are DVR proof. I’m so used to skipping ads on other programs that watching ads for sporting events is intolerable to me. By waiting an hour after a game starts to start watching, I can skip the commercials and speed up the tempo of the game. In the event that I catch up to the live game, I still mute the commercials.

        This apparently make me atypical, but after a lifetime of television ads, even one more is too many.

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        • 6 since 2000 says:

          Bingo ! My local team starts games at 7:07pm I start watching at 8:30. Haven’t watched a commercial in years…

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        • Baltar says:

          Bingo! Bingo! Bingo!
          I only watch TV at all via DVR. This is most useful in sports where there is all that dead time and commercials.
          Just as with non-sports programs, I may even watch a sports event a day or more after it was played as long as it isn’t a really big event like the Super Bowl where it’s impossible to avoid hearing or seeing the results somewhere.

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        • Deelron says:

          I do exactly the same thing, I’m not interested in the “participate live in a chat during a game” deal, so I just start the game late, expect for when my personal team is in a playoff game, I get to invested to wait and could use the commercial breaks to go pace around.

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        • brendan says:

          some folks like to tweet and read live blogs during sporting events. it’s DVR-proof for those who want a shared experience.

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        • B N says:

          That whole DVR thing seems like a whole lot of work. I want to turn on the TV and just tune into the game as it happens in real time. Particularly since I live our of my market, it’s nice to be able to actually watch something while other people do too.

          Besides, I don’t want to have to worry about fiddling with a remote to rewind, fast-forward, or the like. Commercial playing? Talk to someone, grab a beer/soda, reply to a few work emails. I have no shortages of things to occupy my time for 5 minutes here or there.

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  5. Nivra says:

    Dave,

    Could you explain the discrepancy between these numbers and the $/WAR historic and current trends article you wrote near the beginning of the off-season?

    At first blush, they seem to present contradictory data.

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  6. pft says:

    The interesting thing about the table is the number of free agents has declined 20-30% which also could cause the price rise.

    It is curious that the middle tier of players include players like Arroyo, Cruz, Morales, Rodney, Santana, Jiminez and Drew are not signed after months on the market. The fact that 6 of 7 are Latino after 12 of 13 players caught in Biogenesis were Latino makes me wonder if there is a connection.

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    • evo34 says:

      So you are using a 7-person sample to conclude that 30 MLB GMs used a 13-person sample to ethnically profile and blackball all mediocre Latin free agents? I’ll take the other side of that…
      Also, Arroyo is not from Latin America (born and raised in the US).

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    • pft says:

      Didn’t conclude any such thing, so don’t put words in my mouth. Pretty sure Arroyo family heritage from south of the border, but may be wrong on that

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      • Los says:

        Bronson Arroyo and I have something in common, we both have Cuban fathers.

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        • Mr Punch says:

          “Latino” is just not a very meaningful concept for such purposes of racial profiling. Lou Piniella was considered a “minority manager” although his forebears came directly from Spain to Florida – south of the French and Georgia borders, I guess. The Mets once had four players with Hispanic names who hadn’t known any Spanish before taking it in high school (Hernandez, Fernandez, Ojeda, Torre, I think).

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  7. Catoblepas says:

    Dave (or anyone else), do you know what would happen in the case that a team somehow lost its guaranteed revenue and literally couldn’t pay the contracts? Is this sorta what happened with the Expos? Has there even been someone doing that in bad faith, i.e., an exec offering money to a player (and signing a contract) that he knew they probably wouldn’t be able to pay?

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    • walt526 says:

      Avoiding that situation is why MLB has the debt service rule (a team’s future obligations cannot exceed 10x it’s annual revenue). It’s a problematic rule for a number of reasons and many teams routinely violate it*, but it’s something that MLB has been concerned about over the past 15 years or so.

      * see http://articles.latimes.com/2011/jun/02/sports/la-sp-0603-baseball-debt-20110603)

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    • dana says:

      Its a great question…what happens when cable goes A La Carte…it is going to happen, either by Congress or competition, it is going to happen. What happens when the significant portion of LA cable watchers who don’t care about baseball are no longer subsidizing these outrageous salaries. We in the midst of a giant sports TV bubble, which will get turned upside down when cable goes A La Carte

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  8. Alan says:

    Tivo. They should thank Tivo.

    It’s getting to feel like the best hope for smaller market teams to have anything close to a level playing field is for internet streaming to entirely take over, meaning that most money is in MLBAM, which I think is split.

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  9. Peter Litman says:

    I would quibble with your toss-off closer: The thank-you card that MLBPA could send should go to Verizon FiOS and AT&T U-Verse. Those are the companies that made the distribution business so much more competitive (to date Netflix has been more additive than competitive). The more competitive distribution market increased the leverage of all of the strong programmers — MLB licensees (like ESPN, TBS and regional networks), broadcast stations, Viacom, AMC — who have all been able to raise their rates faster than they had when it was just a cable-or-DBS marketplace.

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  10. pft says:

    Seems to me if you remove players moving to and from the Yankees (Cano, Ellsbury, Beltran and McCann) the free agent story this year looks quite different. Quite a few teams seem to be doing nothing on the free agent market this season despite all the TV money.

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  11. walt526 says:

    The trend is not just being driven by the demand side via the television cash infusion, but it’s also a supply shock: far fewer good to great players are becoming free agents after accumulating 6 years of service time, instead choosing to sign extensions during the pre-arb and arb years that extend into their post-arb years. With more dollars chasing fewer (and generally inferior) free agents than there would be absent those post-arb extensions, less-than-elite free agents are able to secure multiyear deals than they would if there were more (and better) options on the free agent market.

    For example, consider Juan Uribe (who re-signed with the Dodgers this off-season, but did so after filing for free agency). It was a pretty thin market of infielders this off-season, so he was able to secure a second year despite being absolutely horrible in two out of the past three years. Hypothetically, if Evan Longoria was on the market along with one or two other young infielders, does a guy like Uribe get a multiyear offer?

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    • Steve says:

      This is a good point, and I wonder then does the exploding size of these contracts make players who were previously signing team-friendly extensions think harder about doing that, and therefore bringing more impact players back to FA younger?

      The circle of life….

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    • Nathaniel Dawson says:

      This is the effect you should expect to see, unless owners are just going to pocket the savings they get on signing players to extensions early. Maybe they’re doing a little of both, which would also explain why the players’ portion of revenue seems to be shrinking.

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  12. Ken says:

    Dave,

    If there are fewer free agents in the free agent pool and the same number of teams bidding on them. Doesn’t it make sense that the length/price of contracts in those years with fewer free agents would be longer/higher?

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  13. Anonity says:

    Given the rate of short-term inflation, the trend towards multi-year contracts makes sense. All else being equal, it’s better to lock a player in for two-plus years at today’s market rate, than hire his replacement next year for 15% more.

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  14. walt526 says:

    Jeff Todd’s take on this article (for the convenience of what is probably a small minority of Fan Graph readers who don’t also read MLBTR).

    http://www.mlbtraderumors.com/2014/01/free-agent-contract-trends-2007-08-to-present.html

    I’m sure Dave will have something interesting to say later today or tomorrow. :)

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  15. PAul says:

    Barak Obama will fix this income inequality problem

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