Note: This is a three-part article series. It is important to know the data set analyzed dates are from 2015 to present day. Also, long-term extension for this purpose was defined as 5+ years.
In Major League Baseball (MLB), front offices are constantly looking for ways to build competitive teams while maintaining financial flexibility. One of the most effective strategies teams employ is signing players to contract extensions before they reach free agency. These deals can provide long-term stability for both the organization and the player while keeping payroll costs manageable.
Why Extend Players Early?
MLB players typically go through six years of team control before reaching free agency—three years at league-minimum salaries followed by three years of arbitration. During arbitration, salaries can escalate quickly based on a player’s performance. If a team waits until a player reaches free agency, they risk either losing them to a higher bidder or having to commit to a (typically) more expensive long-term contract. By signing young players to extensions early, teams can avoid the sharp rise in costs that comes with arbitration and free agency.
Early contract extensions also allow teams to maintain a competitive balance, particularly for small-market franchises that cannot afford to compete with big-spending teams in free agency. By securing talent before they reach the open market, organizations can level the playing field and avoid losing their best players to franchises in larger markets like Los Angeles, New York, etc.
Financial Benefits for Teams
- Cost Certainty – A team that locks in star before arbitration can predict its payroll more accurately. This helps with long-term planning and budgeting, mitigating risk.
- Avoiding Market Inflation – Free-agent contracts have been skyrocketing in recent years. By extending a player early, teams can secure talent at a discount compared to the open market. Players who hit free agency often demand significantly higher salaries due to market competition, sometimes pricing out their original teams.
- Club-Friendly Deals – Some extensions include team options, providing additional years of control at a reasonable price. This added flexibility allows teams to avoid overcommitting financially while securing prime years of a player’s career. Teams that capitalize on this approach can keep their core players intact without sacrificing future payroll flexibility.
- Maximizing Player Value – When teams sign players to long-term extensions early in their careers, they often get the best years of that player’s performance at a bargain rate. Most players peak in their mid-to-late twenties, and by securing them early, teams ensure they get production at below-market rates without having to overpay for declining years later in free agency.
Balancing Risk and Reward
While extensions provide financial benefits, they do carry risks. Players may suffer injuries, decline in performance, or fail to reach their projected potential. However, teams mitigate these risks by structuring deals wisely, often front-loading salaries or including incentives to reward sustained success. Additionally, some teams implement opt-out clauses to provide flexibility for both parties if circumstances change.
From the player’s perspective, early contract extensions offer financial security. Many young players don’t come from money, and securing a guaranteed multimillion-dollar contract before reaching arbitration can be life-changing. While they may sacrifice potential earnings in free agency, they gain long-term stability in return.
Conclusion
Contract extensions for young MLB players offer a strategic advantage in managing payroll costs while keeping star talent under team control. By investing early, organizations can avoid the unpredictability of arbitration and free agency, ultimately creating a sustainable model for long-term success. This approach is particularly crucial for small-market teams, allowing them to compete with larger-market clubs despite financial constraints.
As the league continues to evolve, expect more teams to follow this approach in building competitive rosters while maintaining financial flexibility. Teams that effectively balance risk and reward with early contract extensions will position themselves to sustain success in an increasingly competitive marketplace.
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