Freddie Freeman And The Changing Extension Market

Freddie Freeman's eight-year, $135MM extension, signed as he entered his first of three years of arbitration eligibility, certainly appears to present a new model for extensions. As I noted yesterday in writing up the signing (along with MLBTR's Steve Adams), the deal wants for ready comparables.

Ryan Braun's five-year, $105MM guarantee with the Brewers came at a similar point in the players' service clocks, but Braun was both a next-level talent and already bound by five more years of an earlier extension. (In that respect, the second Evan Longoria extension is similar.) The cleanest comp — Justin Morneau's January 2008 extension with the Twins (six years, $80MM) — is unquestionably out of date.

One is tempted to look at two similarly-sized deals for an explanation. Buster Posey landed eight years and $159MM from the Giants just before playing out his Super-2 season. But Posey had a Rookie of the Year Award, two World Series titles, and an MVP award under his belt, and is one of the game's premier players at a premium defensive position. Looking at first basemen, Adrian Gonzalez's 2011 deal with the Red Sox (seven years, $154MM) appears to land ahead of Freeman's deal, but Gonzalez was less than a year shy of free agency and had posted five straight years of production that averaged out to Freeman's best single season.

Then, there is last year's $120MM promise made by the Rangers to Elvis Andrus. Particularly when one considers that the Andrus deal — unlike Freeman's — conveyed significant upside to the player via two opt-out provisions, that contract seems a closer mark. Granted, Andrus was a year nearer to free agency than was Freeman and probably carries a higher floor as a top-end, up-the-middle defender. But like Freeman, Andrus was 24 at the time of the deal and was promised big money for future years well before he was ready to enter the open market. Critically, unlike Posey, neither Andrus nor Freeman are fully established, superstar-level players. 

Both the Andrus and Freeman contracts raise an important question for market valuation of extensions. Though he rejects the Andrus deal as a comp given the differences in service time, Dave Cameron of Fangraphs argues that Freeman's contract represents a market correction — not an outlier. Utilizing MLBTR's Extension Tracker, Cameron looks at the recent history of four-year or longer extensions inked by players that were still three or more years away from free agency. The results show that such contracts have been startlingly team-friendly, and not just because the arbitration and pre-arbitration years included came at an understandably cheaper rate.

Cameron estimates that roughly 75% of the deals have worked out swimmingly for the team, noting that Andrew McCutchen's deal standing alone probably saved the Pirates more money than was wasted on the few failed extensions. Freeman's new deal could, Cameron suggests, render largely obsolete the recent early-career extension models.

While I would suggest that the Andrus deal represents a similar data point in the correction Cameron proposes, the point stands. Freeman's contract, perhaps, shows that the phenomenon has extended back earlier in the service time spectrum. Put together, the Andrus and Freeman deals show that non-superstar players can command prices more commensurate with their abilities — and, correspondingly, that such players have greater bargaining power than was previously possible at their levels of service.

This development is similar to that observed in this year's free agent market. As I recently wrote, the rise in free agent spending has been driven by a boom in two types of deals: two-year and four-or-more-year contracts. Simply put, with more TV money (national and local) on the market, players have seen an uptick in their ability to pry away money and years. Some of the types of players that used to settle for one year have been able to demand two; some of those that used to get three years have scored four or more. 

Likewise, non-superstar, above-average extension candidates appear increasingly to have enhanced bargaining power to demand more (and more expensive) years. Indeed, that seems to be precisely how Braves GM Frank Wren viewed the Freeman extension. As MLB.com's Mark Bowman reports, Wren made some illuminating comments yesterday:

"The deal makes sense because the normal escalation the three arbitration years would have had naturally. Then he gets paid in his free agent years at the current market. What we're I guess gambling is that by the time his free agent years come in three years, that market may have inflated even further and we've got a good deal. We feel it's a solid market deal as [there] is for an above-average player." 

Viewing Freeman as a young and very good player, but not necessarily a top-line superstar, the Braves were willing (and, given their new stadium deal, able) to promise him current open-market rates for his future services. As Cameron notes, it was not long ago that McCutchen — coming off of a year that bettered Freeman's platform year, and playing a premium defensive position — sold three free agent years (the last one of which was not even guaranteed) for just $41MM in total. Freeman is promised $106.5MM over five free agent years. Simply put, the Freeman deal is different in concept.

One other salient point to be made, as Cameron also observes, relates to age. Masahiro Tanaka just commanded one of the biggest contract commitments ever made to a player ($175MM with posting fee included) despite having never thrown a pitch in North America. The reason he could command a financial output greater than that made for an established top-of-the-line free agent like Zack Greinke — just one year earlier, on the open market — boils down in large part to the fact that he is just 25 years old.

With an increasing appreciation for the analytical value of aging curves, it makes greater sense to make a long-term commitment at a point at which that commitment covers peak years of a player's career. In this sense, perhaps, the extensions of Freeman and Andrus (both 24 at the time of signing) represents an acknowledgement that earlier commitments deliver both a safer and higher-upside investment. Of course, the corresponding result is that young players could continue to see a substantially enhanced bargaining position even though they remain years away from free agency.

Of course, all of this does not necessarily mean that deals of this ilk will replace completely the old model of the "team-friendly extension" for non-superstars. The lesson, I think, is this: it is now demonstrably plausible for a younger, non-superstar player to make a credible demand for a more sizeable contract, rather than selling their future at a cut rate to avoid risk of injury or decline. At least when that player's team is sufficiently motivated and financially able to meet that price, such contracts are a reasonably achievable outcome.

Put another way: whereas Cameron calls the Freeman deal a market correction, as distinguished from being an outlier, I would suggest that it is representative of a new conceptual model that can still exist alongside others. (A fine distinction, to be sure.) Whether or not this new model comes to dominate the market remains to be seen, but its introduction both reflects a booming market and changes the scope of possibilities moving forward.

Ultimately, any player — particularly one who did not get a big signing bonus and has yet to reach multi-million arbitration paydays — must balance risk against the potential sacrifice of future earnings. As Cory Luebke recently reminded us with his need for a second Tommy John surgery after signing his extension, nothing is guaranteed until pen meets paper. Likewise, teams that lack the will or the capacity to guarantee current market rates for future free agent years, or that have genuine questions about the player's ability to continue or increase performance levels going forward, will remain hesitant to make Freeman or Andrus-sized commitments. 

It remains eminently possible, then, that below-market valuations on free-agent years will still remain a reasonable outcome as well. Extensions will continue to occur at the point that player and team incentives overlap. Surely, however, the Freeman and Andrus extensions have shown that the point of overlap may be rising. And they show that players with less service time (and less mileage on their bodies and more peak years yet to come) can drive their demands northward. 

The effect may well continue to trickle down. After all, the purpose of extensions is to increase the value of an asset (the team's rights in a player) by taking advantage of exclusive negotiating rights and leverage through team control. Though there are practical limits to the practice — including roster limitations, risk, and the relative availability of commensurate players — it stands to reason that the general theory applies nearly as much to good players as it does to great ones. Just as relatively marginal free agents have been able to increase their long-term security  by adding guaranteed years, more marginal extension candidates might increasingly be able to secure multi-year guarantees at reasonably substantial rates from teams looking to invest their money wisely. 

Players whose potential extension talks could be impacted include not only superstars like Giancarlo Stanton (3.118 years of service), but above-average players such as Pedro Alvarez (3.085). We knew already that Mike Trout (2.070) would command a massive deal, but will, say, Eric Hosmer (2.146) or Brandon Belt (2.128) command a Freeman-esque deal if they talk extension with their clubs next winter? Or might their clubs take a harder line, forcing the players either to wait for a big-dollar promise or take a smaller deal? Each of these outcomes is possible. Many other 2+ position players could have their extension situations impacted by the Freeman framework, led by names like Kyle Seager, Jason Kipnis, and Desmond Jennings.

Then, of course, there is the pitching market that just paid the youthful (but not MLB-tested) Tanaka like an established MLB frontline starter. Will that logic extend to the extension market? Increased risk has always factored into pitching extensions, but the standard five-year, $30-35MM extension could soon be busted as well. Can, say, Mike Minor (2.138) take down more guaranteed money than did Chris Sale just last year? That depends on the countervailing wills of the player and the club. But after Freeman's deal, Minor (and others like him) certainly can plausibly insist that the prevailing model is not the only way.


22 Responses to Freddie Freeman And The Changing Extension Market Leave a Reply

  1. jimithin9 1 year ago

    Gotta work Longoria’s extension into the conversation here!

    • Jeff_Todd_MLBTR 1 year ago

      I’d say he fits in the Braun category, except his first deal was signed only 6 games into his career. The 2nd deal was signed w/4 years of control left on the original deal, and at a point at which he’d established himself as an elite player.

      • GrilledCheese39 1 year ago

        Saw you mentioned Pedro Alvarez in there.. Any prediction on what the price could be on a hypothetical extension?

        • Jeff_Todd_MLBTR 1 year ago

          I’d certainly hate to throw out a number without doing a detailed analysis. Even then, I’m not sure how useful it would be.

          With the Bucs’ spending habits and value focus, a guy like Alvarez could potentially end up as an example of what I pointed out in the article: whatever we might think constitutes the market rate for a player, extension negotiations are a one-on-one affair. It only takes one of thirty clubs to give more years or money to a free agent, but extensions only happen when a player is willing to take what the team is willing to offer (if anything).

          He is somewhat less desirable as an extension candidate than a guy like Freeman. Though his power is undeniable, he has not quite matched Freeman’s 2013 in terms of overall value. He’s slightly older at 27 and has the strikeout/lack of OBP issues. FWIW, Oliver/Steamer projections like him to remain a 3-3.5 win guy, while PECOTA forecasts a slight drop in power w/continued OBP issues.

          So, with no basis but my own supposition, I’d suggest that it could be a situation where the team says: “Here’s what we’re willing to do. May not be ‘market’, and you can surely make more if you wait, but we’re only interested if we get a legitimate discount.”

          In that hypothetical, it would come down to whether or not the player is willing to take the risk. Alvarez already has earned $10MM, and stands to get another big arb payday next year, so he isn’t exactly desperate to get his first big score.

          Sum: who knows, but that’s one way in which, I think, the “old model” of extensions could still be relevant.

          • johnsilver 1 year ago

            Adam Dunn without any plate discipline ring any bells?

          • Jeff_Todd_MLBTR 1 year ago

            What he loses in OBP to Dunn, he probably makes up by playing a serviceable 3B. He obviously doesn’t seem destined for superstardom, but Alvarez is a plenty useful player.

            (Side note: Dunn’s defense rated so poorly in 2009 that he landed below replacement level, per B-R, despite a .928 OPS.)

          • johnsilver 1 year ago

            I understand, though do wonder how long he + defense will hold up. He is a big man.

            Frank Howard type is another he reminds me of Jeff, though Hondo was an OF defensively. The offensive end and approach is an almost identical match and moreso than that of Dunn.

            He is one of the Boras clients IMO who should seek a LT deal as I don’t think his career will be a long one and not saying that to be spiteful, or mean. Just that his good years will be short is my 2c and hope that he signs a LT deal, or at least one to carry through his arbitration and 1st couple of FA years.

    • Jeff_Todd_MLBTR 1 year ago

      Added a note to the piece to the same effect as my comment. Thanks for pointing out.

  2. bjsguess 1 year ago

    I think Cameron is dead on with most things … but not on this.

    It’s hard to compare this deal to many of the others cited simply because the dollars and years weren’t close. Most of the other deals involved buying out 2 years of FA. This deal starts earlier and lasts longer than most of those comps. The closest comp really is Andrus. Just one year later which team would take on that contract without any additional cash coming from the Rangers? I’d guess nobody.

    It’s not the end of the world when Brett Anderson has his elbow blow up. If he never pitched another day in his career after signing that extension the total risk was $12.5M. AND they were able to secure 2 below market CLUB options. With Freeman you are talking about laying $135M on the line. That is a HUGE amount of money to commit to a player that was worth exactly 2.5 WAR over the course of his first 2 combined seasons. Put another way, it was easy to see the Anderson deal being very team friendly when he signed it. I don’t see how anyone could claim this as a bargain for the Braves.

    At the end of the day, if this is the new norm I’m predicting we see another change in direction. Clubs won’t be looking to secure their players at a young age. If the cost is paying a premium for their arb years + market rate for the FA years I just don’t get it. The risk is way to heavily slanted in the players favor. Sure if you go year to year you run the chance of a player blowing up and pricing him off your team when they hit FA. However, I’d take that risk knowing just how many players wash out after a good couple of seasons. Most teams can’t afford to have 3-5 $100M mistakes on their books. If this trend continues then that’s exactly what will happen.

    • Bob Bunker 1 year ago

      I completely agree with this. I don’t see the bargain side of the extension at all and if players continue to demand similar extension I could see teams just flatly refusing give out 135 million to guys like Freeman where best case he is worth 150 million and worst case he is worth 90 million and the team ends up paying far more than the player provides. Just doesn’t make sense.

      • Lance Pistachio 1 year ago

        It seems like the trend of teams extending their big stars before they hit free agency is driving up the cost on extensions overall.

        Or the Braves just overpaid. Time will tell

    • Jeff_Todd_MLBTR 1 year ago

      I don’t think that Cameron (or myself, for that matter) passed any real value judgment on the deal. He wasn’t necessarily saying it was “good” because it reflected what he terms a market correction. He was pointing out that it was more a correction than an outlier in comparison to past deals, which have ended up looking (arguably) overly team-friendly.

      That being said, I do agree that his point is somewhat overstated, which is really why I wrote this post. For the reasons you note, and those I gave, some teams in some situations will continue to demand significant discounts to give out extensions. How often players bite, and the extent to which the market rises as a whole, remains to be seen.

      Very different context due to age, but heck, the Sox just promised less cash to Pedroia (a fully established 5-8 win player) than Freeman got — and he was a year closer to free agency.

      • bjsguess 1 year ago

        Thanks Jeff. When I hear “correction” I immediately think that the transaction is more “right” than it was in the past. This is reinforced by Cameron citing all of those deals. That said, Dave (and you) weren’t saying this is how it should be – only that this could be a new trend that is developing.

        At the end of the day this all about risk. Teams have to weigh a players probability for injury or regression in ability against the potential upside they bring if they continue to improve. I see Freeman as being worth a minimum of $5M (his number this year). If he suffers a catastrophic injury this season that’s all you have to pay. If he plays like he did in 2011/12 then you are looking at maybe another $16M or so combined for the 2 years. If he continues to play like he did in 2013 that number jumps up to $23M combined for his last 2 years of arb.

        Then with FA I see his upside as $22M/year (consistent 4-5 WAR player). On the low-end, if he is just another average 1B – maybe $12M (think Adam LaRoche) annually. Again, I think you can split the difference with a slight favor towards the club since you are doing this 5 years in advance. That puts the value at maybe $16M AAV. That would peg his overall value at 8/$105M. Even that seems a little rich for me. I’d probably throw in some sort of an injury out at maximizes my exposure to the first 6 years in the case of a catastrophic injury. Give Freeman an opt-out as well around year 6 so that he can leave if he does turn into a superstar.

  3. jury_rigger 1 year ago

    The Andrus contract is terrible

    • kungfucampby 1 year ago

      It was so terrible for Texas I have no clue what they were thinking.

  4. ElGaupo77 1 year ago

    If the Braves manage his service time a little better this contract is a lot smaller. Losing the one year of control by bringing him up opening day his rookie year cost them about $15M.

    • Jeff 1 year ago

      If Heyward wasn’t brought up opening day, Braves miss playoffs in 2010. Contenders have to try to win now.

      • NL_East_Rivalry 1 year ago

        The year was weird when they brought Freeman in. Kimbrel, Minor, and Freddie were all ROY contenders and the Braves missed out of the play-offs. Gotta love it when a team just falls apart.

  5. Travis 1 year ago

    If the Royals are going to lock Hosmer up with Freeman type of money, they need to do it now. The main problem is that Hosmer is a Boras client and Boras likes to take his players to the free agent market. I feel that Hosmer is still a buy low option at this time, but may not be for long if his second half from last season carries over.

    • bjsguess 1 year ago

      Boras is always about maximizing his players earning potential. If the Royals offered this deal he should jump on it. It is already a significant overpay for Freeman and Freeman so far has demolished Hosmer when it comes to actual contributions.

      As for Hosmer’s 2nd half … it really wasn’t much better than his first.

      285/332/427
      323/379/473

      That looks significant but the real reason the numbers jumped … 310 BABIP vs 368 BABIP in the 2nd half. His ISO only rose from 142 to 151. His wRC increased from 46.1 to 47.4. Basically, when you normalize his BABIP the 2 halves are nearly identical … they are, for all intents and purposes, the same. Now, if you think that Hosmer is the kind of guy who will post BABIP in the 370 range then sure, count on a 2nd half repeat. Me? I’ll take the under on that. His career average was much closer to his first half number. Consistently posting a 370 BABIP is really the realm of speedsters (Trout) or outstanding hitters (like Cabrera).

      • Travis 1 year ago

        I like your numbers. You obviously have a copy of baseball prospectus and have done your homework. You don’t see a big difference in the first and second half numbers? You also have to consider he has only played two and a half years, he is still figuring it out. You have to also consider where he plays. Kaufman isn’t exactly a hitters park. I am not saying he is as good as Freeman, but he isn’t far behind. He also has a gold glove on his resume. Baseball numbers are fun, but there is more to it then that. Look how often he pulled the ball in the second half, look at how many more line drives he hit. Now consider, that he will also have a legitimate leadoff man in front of him, and two quality hitters behind him this year. Me, I’ll take odds on that 370 BABIP.

  6. Alex 1 year ago

    I’ve been reading MLBTRADERUMORS for 6 years and this is among my favorite, if not my favorite, post thus far. Excellently written and an interesting/provocative argument.

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