Baseball Collusion or Smarter Owners: A Look at Long Term Contracts

There has been a lot of talk this off-season about the lack of free agent signings; only 67% of MLB free agents have signed deals compared to an average of 86% from 2011 to 2017 (granted, the average is by opening day, which I’m expecting that we’ll see some players signed in the next few weeks to bring up the 2018 percentage). Some might argue for collusion, but could MLB teams be looking at what a player is projected to do rather than what they have done?

MLB traditionally has paid players based off the last few seasons, or even the last post-season when issuing contracts to players. That’s different from other sports, but I’ll get to that later.

According to MLB Trade Rumors, 287 players entered the 2017-18 off-season as free agents; 191 have signed deals (102 of them minor league deals). When compared to the previous 7 seasons (MLB Trade Rumors started their tracker in 2011), there is a sharp decline in signings.

One thing I want to note is the total free agent count this off-season is pretty much right in the middle of the previous years; the peak was 401 free agents in 2015-16. Also, the percentage of Minor League contracts is proportional to previous years; the exception was 2015-16 where over half of the contracts given out were minor league.

What’s the cause of lack of signings?

As we’ve seen in the last few years, MLB teams are getting more progressive; we’re seeing an increase in analytics in front offices, innovations like Statcast becoming common place, and technology being implemented like never before. These items are causing a change in mindset.

Historically, baseball has paid players for what they did; what if they are looking at the data and deciding they need to switch to paying for projections?

Since 2000, there have been 59 new contracts issues that were at least 5 years in length, according to MLB Trade Rumor’s Transaction Tracker; I also included Denny Neagle and his 5-year contract, which wasn’t on their list. If you look at the average salary vs bWAR, you’ll find they have opposite correlation.

The trend line shows bWAR typically decreases as the player ages, but the salary typically goes up. I think this is to be expected without the graphs. When you intersect the trend lines, they show the optimal bWAR/Salary combo is around 26 or 27; this is the beginning of the typical peak period for many players.

The issue is many of the contracts at this time come after this age. There were 3 contracts that included age 26 and 2 including age 27. Age 32 had the highest amount of contracts included at 48. The reason for this is simple; many players during the beginning of their careers are under club control, or will forfeit that control for a guaranteed contract.

Teams may be figuring this out. After watching teams stuck with contracts like that of Albert Pujols ($26M last season with -1.8 bWAR), Alex Rodriguez ($21M for a -1.2 bWAR his last year), or Josh Hamilton (over $28M to not play on the final year of his contract with the Angels/Rangers), organizations are warry of offering large contracts to guys on the wrong side of 30. It’s why teams like the Red Sox won’t meet Scott Boras’s rumored demands of 8 years, $200M for J.D. Martinez.

Teams also have a limited market to sign players. Many of the better players are typically signed to extensions before they hit the open market; this goes for under control players and guys coming up on free agency. Since 2000, MLB Trade Rumors shows 60 extensions of 5 years or more. Like the new contracts, the correction is opposite between bWAR and Salary.

The different is when you look at the bWAR of new contracts vs the bWAR of extensions.

bWAR of extensions (green) is higher for each age except 36. This supports the idea that better players are extended before hitting the market. My thought on this is a team can scout a player every day when they come up through the system and play every day for a team. When you look at guys on the market, you see them in person a handful of times a season and through video, which isn’t the same as watching in game.

Another difference is the peak age of contracts. I noted earlier that most of the new contracts belonged to players aged 32; for extension players, it’s aged 28, where there were 72 players under contract. This is due to players signing extensions at a younger age than those who hit the open market.

One possible way to eliminate the risk of long term deals is to make contracts like those in the NFL; make so much of the contract guaranteed and allowing the team to opt out. The owner would love this; wouldn’t Arte Moreno want to give Pujols a payout so they can reallocate money and their DH position to other players? Unfortunately, the players association would not allow this, much like they have opposed a salary cap.

The downside to this could be additional reckless spending by teams. If a team knows they could lure a Bryce Harper player by offering him 15 years, knowing he’d only probably play 5 with the team, they’d be more likely to make an outlandish, and most likely a back loaded, offer to get him.

Another way to see if there is collusion is through the arbitration process. It seemed like this year had more arbitration hearing than in recent years; I looked into MLB Trade Rumor’s Arbitration Tracker to see how this year differed from the past.

This year, there were 201 arbitration eligible players; the previous high was 2015 with 196. From 2011 to 2017, there has been an average of 178 arbitration eligible players a year.

Out of the 201, 174 agreed to deals prior to the deadline to trade figures. When you look at the percentage of players who signed (87%), that’s in line with last year, but at the high end of the time period (average from 2011 to 2017 is 78%).

When looking at the numbers, you can see that more players in the past have exchanged figures with their team. The difference is a majority of them agreed prior to having a hearing.

This year, there have been 21 hearings or potential hearings this year. That’s up from a high of 15 last year; the average amount of hears from 2011 to 2017 has been 7.

There have been 6 agreements prior to hearings this year, down majorly from the previous years. There were 14 last year and the average from 2011 to 2017 is 32. Typically, only 4% of players will head to a hearing with their team; we’re looking at 10% this year. That’s a dangerous thing for the player/team relationship; we’ve seen in the past the relationships can become strained after a hearing. Dellin Betances and the Yankees had one of these situations last off-season, while Marcus Stroman commented on playing for a team that makes the hurtful comments about you this week.

Does any of this prove (or disprove) collusion? No; the only proof we could have would be emails or phone conversations between owners where they openly say it. I believe the lack of contracts is tied to the track record of long term deals. The arbitration thing is a mystery though.