On February 28, 2019, Bryce Harper, a 26-year old free agent, signed a thirteen-year contract with the Philadelphia Phillies worth $330 million. The week before, Manny Machado, another 26-year old free agent, signed a ten-year contract with the San Diego Padres worth $300 million.
Despite the size of these contracts, their implication is important for another reason: free agency in MLB is antiquated and serves as a restraint on trade. Even with Machado and Harper’s signing record-breaking contracts, that hypothesis remains true as they reached free agency approximately four years before the average player.
Since the end of MLB’s steroid era in the mid-2000s, teams have become aware that signing free agents to long-term contracts that last until their mid-to-late thirties is economically inefficient. As a result, signing younger players to extensions that “buy out” or “delay” what would be their first few seasons of free agency has become the new market trend.
This has become MLB’s equivalent of a land rush as more than 30 players with less than four years of experience have signed extensions between 2013 and 2018. Teams are moving to extend these players in order to avoid the pitfalls of signing free agents whose performance will inevitably decline with age.
Players that sign these extensions are in a conundrum: should they be risk averse and guarantee themselves money that they may not earn or should they bet on themselves to reach unrestricted free agency after six years of service time to (theoretically) maximize their market value?
Since this shift in MLB’s labor market is still in its infancy, players are operating without much analysis. As a continuation of my law review article The Evolution and Decline of Free Agency in Major League Baseball, I analyzed the opportunity cost of a player signing a contract extension and thus delaying the years he would be an unrestricted free agent. The purpose was to help players make informed decisions about whether to accept a contract extension that delays their free agency.
To pose this inquiry as a question: how much, if anything, does Odubel Herrera stand to lose by signing a 5-year $30.5 million extension that delays his unrestricted free agency by one year?
The research demonstrates that the average player who signs an extension and delays free agency stands to lose $7.24 million for each season that free agency is delayed. That amount is actually an understatement because players signing extensions and delaying free agency, on average, buy out almost 2 years of free agency. Accordingly, the average player stands to lose $11.15 million by signing an extension and delaying unrestricted free agency.
The results of this research demonstrate that MLB’s labor market is flawed (and potentially collusive) because teams have found two ways to suppress labor costs: (1) circumventing free agency based on a player’s age and (2) signing younger players to contract extensions below their market value.
The MLB Players Association needs to acknowledge this fact and collectively bargain to start free agency sooner. Early free agency would formalize the logical idea of labor costs rising or declining according to a player’s value. Teams would be incentivized to invest in younger free agents, as demonstrated by Harper and Machado, during their statistical prime, and players would be disincentivized to sign below-market value contract extensions that delay free agency.
Noah J. Goodman (LAW ’16) is an associate at the law firm of Raynes Lawn Hehmeyer where he focuses his practice on individuals and families who have suffered catastrophic emotional and physical harm. Mr. Goodman also researches and writes about collective bargaining issues in professional sports and advocates to improve player rights.