MLB Needs To Tweak Free Agency

Almost under our noses, the economics of baseball profoundly changed. The most overt changes came during the 2011 CBA negotiations, where two big developments happened: draconian amateur spending caps were implemented, and a $189 million salary + other stuff soft cap was implemented. But more importantly, the success of MLB Network, MLBAM, and other negotiated TV deals brought scores of millions of dollars of equally-divided revenue to major league teams.

The result is something that looks like a fairly level playing field. Roughly half of MLB teams now have payrolls over $100 million, and several others have the capacity to spend more if need be. Teams are taking that extra payroll room and spending on big extensions for home-grown players. You know who these players are, but some recent monster extensions include Justin Verlander, Joey Votto, Elvis Andrus, etc.

The bloodbath (from a Yankee perspective) week of extensions prompted Jonah at Grantland to declare that free agency is on a “march toward irrelevance.” The 2014 free agent class after Robinson Cano, who may be extended himself, is incredibly weak, and is comprised mostly of players on the wrong side of 30. There’s no sign that things are changing in the future, either.

On balance, I think that a more level financial playing field is a very good thing for Major League Baseball. It hurts a little bit to say that as a fan of the New York Yankees, but its true. Just a year ago, $189 million salary + other seemed like a ceiling that only the Yankees would run up against over the life of the CBA, but now its looking like level that a lot of clubs can spend at. And so far, they’ve chosen to spend by locking up their own players for a long period of time.

That said, I think that a robust free agency market is good for the game, and MLB should structure its labor market to encourage a healthy supply of players to hit the open market at a fairly young age. That kind of flexibility will help teams correct past mistakes, and not have to rely on either high draft picks or lucky/skilled amateur selection. Put differently: A world where everyone signs extensions is a world where bad teams are bad for a much longer time period. A breakout like the current Nationals team – a product of both aggressive spending in free agency and strong farm-raised players – would be less likely to happen.

Putting extreme financial differences on a march toward irrelevance is a good thing. But eliminating the churn and flexibility provided by free agency is not.

What can MLB do? I’d recommend three things:

Move up arbitration. One reason that players sign team-friendly extensions is that they are afraid for their financial future. This is in part due to MLB’s lopsdied financial structure: a second-rate pitcher like Phil Hughes in his fifth year makes a fortune enough to last a life time, while a second-year ace still worries about bankruptcy if his elbow blows out. By moving up arbitration years (maybe everyone becomes a Super 2?), players will have more incentive to wait out the big pay day.

Restricted Free Agency. Other leagues, the NHL in particular, have a restricted free agency system. Before a player is an unrestricted free agent, teams can make an offer sheet to the player before he signs a new contract. The team holding the rights to the restricted free agent can match any offer sheet, and receives compensatory draft picks if they lose the player.

Create a Long Term Injured Reserve. Let’s say that Alex Rodriguez never plays another game for a major league baseball team. His contract is covered by insurance. Under the status quo, the Yankees would suffer his cap hit no matter what, if he’s being paid by the team. This is a really bad idea. Now imagine that Mark Teixeira’s wrist gets really bad, and he also never plays another game. All of the sudden, you have a team with tons of dead cap space. That’s no good. Players in the NHL like Chris Pronger and Marc Savard will never play another game again, but their salary is allowed to be written off. Similar provisions are in place for players who miss significant chunks of the season.