In 2023, Free Agents Are Landing Bigger And Longer Deals
By now, the public ritual is well-worn: Before an array of cameras and reporters, the newly-signed free agent sits on a dais with his team’s general manager and skipper. The club officials gush over the player’s special talents and makeup. The player stresses that this is where he feels he can win.
With camera shutters clicking, a uniform and hat slip on over the player’s dress clothes and new haircut. After taking questions from the assembled media, the ritual concludes and eventually the player adjourns with his family and agent to celebrate a windfall that should set his great-grandchildren for life.
While the press conferences look the same, the amount of money clubs have spent this offseason is new. With two months remaining before the first spring training games, clubs have already guaranteed roughly $3.4 billion to just 77 free agents this winter, per Spotrac, up from $3.2 billion to 147 players in 2021-22 and $1.4 billion to 143 players after the pandemic-shortened 2020 season.
Nine players have signed contracts with nine-figure guarantees, and while those have garnered the most headlines, multiple club executives said they also have been surprised by the activity at lower ends of the market, such as for back-end starters or pitchers coming off major arm injuries. One executive said that entering the offseason, their organization had projected contract figures they thought would get deals done with various free agent targets. But they quickly had to adjust those numbers upward as they saw the market play out.
There’s no single rationale that explains the bigger contracts free agents are landing this offseason. Instead, a confluence of factors has emerged to create the conditions we’ve seen so far.
More certainty equals more money
In many ways, this year’s free agent market has unleashed three years of pent-up demand. The shadow of Covid hung over the entire 2020 offseason. MLB had just completed a 60-game regular season played in empty ballparks. Clubs had to secure loans to cover the unexpected revenue shortfalls caused by playing a season without fans. And coronavirus vaccines were not yet available, leaving open the question of how long the pandemic would continue to affect their businesses.
Last offseason, labor uncertainty caused clubs to be cautious. At this time last winter, the league and players' union were a month into a lockout that would last until a new Collective Bargaining Agreement was ratified on March 10. Pre-lockout, teams were hesitant to be aggressive without knowing the rules of the road that would guide the industry for the next several years. Post-lockout, teams were rushing to finalize their rosters during a truncated spring training.
Agent Scott Boras acknowledged at Carlos Correa’s Twins press conference last spring that their post-lockout strategy was not about maximizing total guaranteed dollars and years for Correa, but about “finding placeholders.”
“Looking at a long, long relationship is very difficult for ownership and for teams, roster management, construction, all the things, the diligence they apply to put their teams together for the long-term,” Boras said at the time. “It was very apparent . . . that the focus was not there for that type of consideration.”
One season later, there is more certainty in the marketplace. The league has a CBA in place through 2026, and in a post-vaccine Covid environment, the country has moved past the lockdowns that created so many revenue questions for clubs. With stabilized revenues, organizations can properly budget the costs of paying down any Covid-era loans while at the same time executing longer-term strategies.
All of those factors allow clubs to be more aggressive, and Correa is a prime example of what happens when teams can be more aggressive. One season after signing a three-year contract in Minnesota (with two opt-outs), the 28-year-old shortstop agreed to a 12-year, $315 million deal with the Mets, which, due to ongoing questions regarding Correa’s medical evaluations, has not yet been officially executed.
New CBA rules, new decision-makers
During the most recent CBA negotiations, MLB Players Association leadership was clear about what they felt was the biggest problem in baseball: too many teams weren’t trying to win. The free agent market was depressed, they argued, because teams were stripping down their major league rosters and fielding low-payroll squads while preparing to (hopefully) contend with a wave of low-salaried young players some years into the future. Creating structures to disincentive tanking was a primary union goal.
However, one of MLB’s primary CBA goals—playoff expansion—has done more this year to supercharge the free agent market than any anti-tanking measure. Adding a sixth playoff team in each league increased the number of teams that feel they have a puncher’s chance at the postseason—with just a little free agent help. In a sport where anyone can beat anyone in a short series, the value of just getting into the dance becomes far greater.
During negotiations, expanded playoffs, “was a concession for (the MLBPA), because the teams make the money in the postseason, players don’t,” said Greg Genske, a player agent whose clients include 38-year-old Justin Turner, who signed a two-year deal with the Red Sox this month. “But has it in fact increased activity on the free agent market? Absolutely. You have way more teams who think they have a chance to win and, therefore, they’re in the market.”
Last season, the Phillies rode their No. 6 seed in the National League all the way to Game 6 of the World Series; the previous year, the Braves won the World Series despite the fewest regular season wins of any team in the postseason. Teams, and their owners, have noticed.
Meanwhile, one specific individual—Mets owner Steve Cohen—has impacted the top of the free agent market all by himself.
After the Mets’ initial agreement with Correa, Cohen, whose net worth is estimated by Forbes at roughly $17.5 billion, had guaranteed more than $806 million to nine players this winter—before the uncertainty surrounding Correa’s agreement—luxury tax be damned. In addition to Correa, four of the 12 contracts this offseason guaranteeing $75 million or more have been signed in Queens, put toward re-signing Brandon Nimmo and Edwin Diaz, importing Justin Verlander and signing Japanese ace Kodai Senga. One owner gobbling up so many of the top free agents only serves to increase the asking price for those who remain.
“Having more owners at the high level of free agency is what moves the market,” Genske said. “Adding one legitimate team to that mix has a huge impact.”
Working around the luxury tax
One unique facet of this year’s free agent market has been the prevalence of ultra-long-term contracts carrying players late into their 30s or early 40s. Already, we have seen three deals of 11 years or more—Correa (28 years old), Trea Turner (29), Xander Bogaerts (30). Even players with long injury histories have received long commitments from their clubs. The 30-year-old Nimmo signed an eight-year, $162 million deal despite playing more than 92 games in just two of his seven seasons. The Rangers signed Jacob deGrom through his age-39 season despite injuries that limited him to no more than 92 innings in any of the last three years.
However, in a marketplace that is reaching new heights in contract length, there have been no new benchmarks set for a contract’s average annual value. Crucially, AAV is the metric by which MLB measures a team’s total payroll for purposes of calculating luxury tax. The generally-accepted theory around the league, according to several agents and club officials interviewed for this story, is that clubs are guaranteeing money well into a player’s decline phase as a method to spread out the AAV commitment and maximize the on-field talent today without triggering (or further incurring) luxury tax penalties.
However, this strategy raises a number of questions, including: How long could a team make a contract in order to amortize the contract’s AAV? Rather than paying $280 million over 11 years, could the Padres have paid Bogaerts, say, $320 million over 20, knowing that they may release him nearly a decade before the end of that deal? Officials with CBA expertise suggest that MLB could attempt to challenge such a contract as an attempt to circumvent the luxury tax rules, but there isn’t necessarily a specific part of the CBA that addressed such a scenario, nor could anyone point to a bright line that would determine whether a specific long-term deal would be approved or rejected.
In 2019, Bryce Harper reportedly turned down a four-year, $180M offer from the Dodgers, a record $45 million AAV which would still stand today. Instead, Harper signed with Philadelphia for $330 million over 13 years—roughly $25.4 million AAV—through his age-38 season. Four years later, the Phillies have Trea Turner signed until he’s 41.
“I do think you sometimes have to differentiate between a normal big league player and an elite athlete,” Phillies president of baseball operations Dave Dombrowski said. “An elite athlete can last longer at their performance level than, say, other individuals can.”
Maybe so, but the ravages of time come for us all, and as these contracts and players age, teams may have to address difficult questions of whether to hold onto an underperforming player because of the money committed to them a decade earlier. But it’s also likely that many of the decision-makers today won’t be around to deal with those headaches. Over the last 10 years, all but three teams (Yankees, White Sox and Nationals) have changed general managers at least once.
Teams like the Rays and Guardians have shown that you don’t need large player budgets to field consistently competitive teams. But money to buy elite players helps, and that help is immediate. This year, more teams are grabbing for all the help they can get.