The hot, new trend in baseball is to sign guys super young.
The Indians signed Grady Sizemore to a 6-year deal in 2006, with a team option in 2012 (that they ended up declining). At the time, the deal was the largest ever for a player with less than two years of experience.
Since Sizemore, several other young players inked big deals.
During 2008, Evan Longoria signed a 6-year deal in his rookie season. Then, that following offseason, Troy Tulowitzki got a 7-year contract before hitting arbitration. Ryan Braun wouldn’t be outdone though, netting an 8-year contract the same offseason.
In 2009, Ryan Zimmerman inked a 5-year contract, buying out all his arbitration years and two free agent years.
In 2010, Justin Upton signed a 6-year contract with the Diamondbacks, foregoing arbitration. Adam Lind and the Blue Jays pulled a similar move, agreeing to a 4-year deal before he hit arbitration.
You get the picture. A smattering of young players in recent years received long-term contracts well before teams ran out team-controlled and/or arbitration years.
This offseason, the signings went to a new level. Rays super-prospect Matt Moore goes into his rookie season with a 5-year contract (plus 3 team option years). Royals catcher Salvador Perez got a similar contract as well, though for less money. Just before spring training, Jay Bruce, Andrew McCutchen, and Cameron Maybin all signed contract extensions well before free agency. Signing young players to long-term deals is currently the vogue thing to do.
The contracts current young stars sign are billed as a win-win. Young players earn some more money up front than teams are obligated to give them. In return, the team buys out arbitration years, and commonly a free agent year or two. Both sides get cost certainty, and added money up front gives a player an incentive to let a team get a few potentially cheap years out of them on the back end of the contract.
My issue is that baseball’s archaic contract system makes the Matt Moore and Salvador Perez contracts sensible. The team-controlled years are a holdover from baseball’s famed reserve clause, which used to keep a player tied to their team forever. The reserve clause became a part of the National League in 1880, and Major League Baseball did not have free agency until the late 1970s. Suddenly, with free agency, salaries skyrocketed, suggesting that teams used the reserve clause to suppress player salaries.
The recent uptick in long-term contracts handed out to inexperienced players is a new twist on the same reserve clause issue. Many young players are still vastly underpaid – so much so that they will accept a long-term contract that all but guarantees they will be underpaid at the start of their prime (the end of their contract) to gain some more cash up front. Major League Baseball’s contract system suppresses the income of young players. Now, teams with promising young players manipulate the system’s inefficiency by signing their budding talents to long-term contracts with money they weren’t obligated to offer.
If I were commissioner, I would be troubled by the stream of recent contracts to younger players. The respond could be so simple too: expand free agency. What would Major League Baseball look like if free agency replaced arbitration?
Last season, 142 players were arbitration eligible, and 243 players filed for free agency. The free agent pool would have literally been over 50% larger. However, arbitration does not pay players fair market value*, so teams would not have over 50% more money to spend on free agents.
*Arbitration is designed as a process to gradually bring a player up to their fair market value. It blatantly states that it does not pay a player what they would get in the open market, and that they aren’t making the money they should be in the first place.
As a result, two things should happen. First, younger stars in the game would get paid like stars, because they would hit the open market. Second, the average salary of a free agent should actually go down, simply because there would be less money to go around per player. Putting those two points together, a third consequence comes to light. If some younger players earn more money, but free agents overall make less money per player, then some solid veterans should make less money than in the current system. This might allow smaller market teams to pursue veterans that are harder for them to get right now.
Flooding the open market with arbitration-eligible players would profoundly impact the nature of the free agency. I value efficiency though, and the open market is the best place to foster it. If teams are smart enough to manipulate the current system, they are also smart enough to properly value younger players in free agency.
Teams pay their best young players millions of dollars, even in a system that practically begs them to steer away from such commitments. The current system has already been turned on its head by a growing group of progressive organizations. Teams are ready to pay all players based on merit. Expanding free agency would be more fair to young players, and allow contract values to more accurately reflect a player’s abilities. Signing young players may stay trendy, but the contracts would be more fair with expanded free agency.
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