MLB Trade Rumors

Rob Manfred addressed a key point of the league’s economic structure in an appearance at the World Congress of Sports this evening. The MLB commissioner expressed support for a limitation on contract length, calling it a desire of ownership groups around the league (link via Evan Drellich of the Athletic).

“A reform that has been of interest to ownership for a number of years is a limitation of contract length,” Manfred said in response to a question about a potential upper bound on long-term deals. “Obviously players love it, it gives them financial security for a very long period of time. The difficulty — and I think players will come to appreciate this as time goes by — those contracts result in a transfer from the current stars to yesterday’s stars. At some point, that has to be true. And I think it is an issue that is important for us to stay focused on, because it creates inflexibility that affects the quality of the teams that you put on the field.”

The notion of a maximum contract length drew a sharp rebuke from MLBPA executive director Tony Clark. “The public statements from Rob Manfred about the owners’ desire to limit guaranteed contracts is just one more in a series of statements attacking fundamental aspects of baseball’s free market system and the freedom of clubs and players to structure deals in the best interests of all parties,” Clark told Drellich. “The ability of individual clubs to act in their own self-interest in determining how best to put an exciting product on the field for their fans is not something that should be restricted. Anyone who believes that players would ever endorse an assault by management on guaranteed contracts is badly mistaken.”

It’s not shocking to hear of league interest in capping contracts, nor is it a surprise Clark framed that notion as a non-starter. Any kind of contract length cap would have to be collectively bargained. It’s impossible to envision the union entertaining that possibility during the next round of CBA negotiations four years from now.

Debates about contract length have been prevalent since the advent of free agency. Teams’ risk tolerance to commit to players deep into their 30s waned as research mounted about the likelihood of the aging curve sapping production towards the end of a deal. There’s certainly some truth in Manfred’s assertion that the back end of long-term contracts (particularly free agent deals) tend not to offer clubs’ a great return on investment.

However, overpaying for diminished production towards the back of a player’s career is a risk/reward calculation for clubs. Teams are left to weigh long-term downside versus the short-term benefit of adding a player for potential prime seasons during the early portion of a contract. Accepting some potentially unproductive seasons towards the back of a free agent deal is often the tradeoff for upgrading the roster in the short term. A contract length limit would have some element of protecting teams from their own decisions.

The game’s current economic structure is built on the premise that free agency is a right secured by players later in their careers. Pre-arbitration and arbitration salaries are designed to pay players at below-market rates for their first six-plus years. While some players debut young enough to hit free agency right as they’re entering their prime, the majority of first-time free agents get to the open market in the middle or at the tail end of their expected best seasons.

In many cases, teams are disincentivized to extend long-term contracts in recognition of the risk of diminished performance down the line. However, in some instances, the existence of another measure designed to limit spending paradoxically pushes clubs in the direction of longer-term deals.

Teams’ luxury tax calculations are based on the average annual salaries of their contractual commitments. In the past few offseasons, some high-spending franchises have elected to stretch deals over an extra season or two in order to reduce the AAV and associated tax hit. The Phillies’ deals for Bryce Harper (13 years, $330MM) and Trea Turner (11 years, $300MM), Mets’ contract with Brandon Nimmo (eight years, $162MM), and Padres’ agreements with Xander Bogaerts (11 years, $280MM) and Yu Darvish (five years, $90MM) are examples to varying degrees.

MLB was reportedly planning to intervene on contract length at one point last offseason. The New York Post’s Jon Heyman wrote that San Diego was preparing to offer Aaron Judge $400MM over 14 years, a deal that would’ve run through age-44. Judge returned to the Yankees regardless, but Heyman reported that the league would’ve viewed that contract as a circumvention of the luxury tax had it been accepted. How the MLBPA would have responded is unclear.

That intervention would have been specifically about a team going too far (in MLB’s view) to massage its tax bill. It would not have had anything to do with a categorical limit on contract length. San Diego’s 14-year extension with Fernando Tatis Jr. garnered league approval a few years ago, as it “only” ran through Tatis’ age-35 campaign.

A limit on contract length is not without precedent within the North American sports landscape. The collective bargaining agreements for the NBA and NHL each have variable maximum contract lengths based on whether a player previously played for the team signing the deal (and in the NBA’s case, an age-based provision). Those leagues each have salary caps, though, reflecting lesser leverage on the part of their respective Players Associations than the MLBPA has. The MLB players union surely won’t have any interest in entertaining this question so long as they have negotiating leverage.