What early contracts tell us about the free agent market

This offseason continues to meekly crawl along as we get ready to flip the calendar. It’s December 22nd, and only six free agents have signed multiyear contracts. Only one of those six, new Mets catcher James McCann, signed ($40.6 million over four years) for more than $20 million.

The free agent standoff will eventually break, at least for the majority of players. One offseason routine that isn’t subject to an indefinite waiting game, however, is the arbitration process. The non-tender deadline passed earlier this month with the Cardinals deciding to tender contracts to John Gant, Jack Flaherty, Harrison Bader, Alex Reyes, and Jordan Hicks. (In related news, their lone non-tender, John Brebbia, signed a one-year deal with the Giants yesterday as he continues rehab from Tommy John surgery.)

Teams and players will exchange salary figures on January 15th and, unless both parties can come to an agreement in advance, arbitration hearings are set to begin in early February. Some players have already avoided arbitration with their respective clubs and presumably many more will follow suit in the coming weeks. The always invaluable MLB Trade Rumors is keeping a running tracker of such deals, which offers us (admittedly limited) insight into just how much market values are changing this winter given revenue decline in 2020 and an uncertain revenue situation for 2021. But as that MLBTR piece mentions, this is an especially difficult offseason to extrapolate much from arbitration avoidance contracts.

In many (but not all) cases, these deals — referred to as “pre-tender” deals because they fall prior to the deadline — will fall shy of expectations and projections. Teams will sometimes present borderline non-tender candidates with a “take it or leave it” style offer which will be accepted for fear of being non-tendered and sent out into an uncertain market. Speculatively, such deals could increase in 2020 due to the economic uncertainty sweeping through the game, although there are also widespread expectations of record non-tender numbers.

With that in mind, I decided to filter out any recent signee who didn’t meet the following two criteria: 1) contract value exceeding $1.2 million; 2) FanGraphs’ depth charts WAR projection exceeding 0.5 wins for 2021. After also removing players on the “Super Two” arbitration timeline, that leaves us a pretty small sample size of only 17 players, but the results are fairly consistent among those 17. I mapped out how many projected dollars-per-win players in each year of arbitration received in their new contracts.

First-time arb-eligible: $1.6M/WAR

Second-time arb-eligible: $2.5M/WAR

Third-time arb-eligible: $3.4M/WAR

Keep in mind that arbitration players are naturally going to receive lower salaries during their team-controlled years than they would on the free agent market. The Point of Pittsburgh found that standard arb-eligible players earned 25%, 40%, and 60% of their “market value” in their three years of arbitration. So with a little more math, we get the following market value estimations:

First-time arb-eligible: $6.4M/WAR

Second-time arb-eligible: $6.3M/WAR

Third-time arb-eligible: $5.7M/WAR

All three land somewhere in the ballpark of $6 million per win. Similarly, looking at free agents who have signed a one year deal worth more than $3 million this winter, their average price-per-win comes in at a little over $5 million. When I examined club and mutual option decisions in early November, I noted that the market was always going to be considerably more frugal than in years past.

This table is a big yikes if you’re the MLBPA. For context, the $/WAR ratio in a “normal” free agency cycle would probably be somewhere in the $8-10 million-per-win range, depending on how you calculated the final metric. Here, however, Starling Martin was the only player projected above $3.2 million-per-win who had his option picked up, and he still only checked in at $5.7 million. Based on these figures, it might reasonable to guesstimate that the value of a free agent will be roughly halved this winter.

We’ll likely have to wait until spring (once the bulk of the data has been collected) to better quantify the pandemic’s baseball market implications. For now, though, the vast majority of the free agent pool remains unsigned at a to-be-determined cost. A half-price reduction is beginning to look slightly over-agressive, but we’re getting a clearer picture of how to evaluate the free agent market as the offseason progresses.