Year: 2014

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 The cleanest comp — Justin Morneau's January 2008 extension with the Twins (six years, $80MM) — is unquestionably out of date.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.