MLB Moves to Overhaul Free Agency in Latest CBA Proposal

With July just days away, we’re entering one of the most exciting stages of the major league season, where the playoffs will be in full view, All-Star Week festivities are just around the corner, and the trade deadline is fast approaching. Unfortunately, that doesn’t absolve us from imagining the dry world of the player compensation scheme, and what may be final as MLB and the MLBPA negotiate a new collective bargaining agreement. Last week, MLB released a new proposal that would drastically overhaul the way major league players are paid. By my count, this is the league’s third proposal this month, following its detailed draft of the potential salary cap and a separate draft that would make major changes to the acquisition of veteran talent since the draft was first established in 1965.

Any discussion of baseball’s finances is often emotionally charged among fans, so I will freely acknowledge my biases as a prelude to analyzing the league’s proposal. When I pay money to go to a baseball game (which I admittedly make less than I did before I covered sports professionally), I pay that money to watch the players play baseball, more than to watch the owner own the team. Even my ol’ critics had a Panini sticker book back in the day. Now, the teams certainly bear a lot of costs to get those players on the field, but the biggest costs – that is, the big stadiums they play in – are the ones borne mostly by taxpayers. If MLB has a revenue problem, that strikes me as something ownership needs to fix. If Bob Castellini and Bob Nutting are suffering because Steve Cohen and Guggenheim Baseball Management have access to potentially far more powerful income than they do (never mind that the owners of the Mets’ and Dodgers pay more for their teams because of those income streams) and someone needs to write Castellini and Nutting a check, I’m not sure why it should be Shohei Oha or their future version of Francisco. the owners.

That being said, let’s get to the meat of the deal.

The biggest proposed changes are those that would alter the length and maximum number of free agent contracts. The maximum free agent contract length can be five years, a big change from the open-ended version that has always existed in free agency. Teams can offer a sixth year to their players. In addition, the first-year free agent salary will be capped at 15% of the salary cap (16% for the player’s current employer), and can only increase by 5% each season. Break down some numbers and the player who hits free agency this year will only be eligible for a five-year, $202 million contract. Players who sign with their current team will be limited to a six-year, $265 million contract.

These caps were proposed as part of the salary cap, a salary cap that likely already removes much of the free agent salary cap. But the proposal also hurts free agents by greatly reducing their security. For an elite free agent getting a five-year contract, five years of spectacular play will never lead to a higher salary than a year-over-year increase in overall caps, while an injury or slump could hurt them significantly in the sixth year. A direct transfer of risk from owners to players, with nothing actually being given away.

The free agent salary cap could also affect good players who aren’t in the ultra-elite ranks of Soto or Ohtani, even those who don’t make more than $40 million a year right now, roughly the annual maximum of a five-year deal under the proposal. Think Trea Turner. He received an 11-year, $300 million contract with the Phillies before the 2023 season. That works out to “only” $27 million per year, well short of the annual cap we’d see under MLB’s proposal. But Turner’s salary was only $27 million a year because it was part of an 11-year contract. At the time, ZiPS revealed that 78% of Turner’s value would come in the first five years of the deal. That suggests that if the contract is only for five years, the offer compared to his 11-year contract would be five years, $235 million. The Phillies wouldn’t be allowed to sign that deal under this proposal, and that’s for 2023 dollars rather than 2027 dollars, which aren’t that important.

The maximum contract length only applies to the years covered by free agency, so a player with less than a year of service time can still sign a contract extension that includes a maximum of 12 years (six cost-controlled years if the player is under 30 in the sixth year, a five-year contract limit, and an additional year allowed for players to sign with their existing team).

Free agency restrictions are the topic here, but there are a few things in MLB’s proposal, some of which give players some leverage, even if they’re on the youth side.

In its opening proposal, the MLBPA proposed reducing the time of service required to reach free agency from six to five years for players 30 or older, a request that was almost immediately followed by MLB’s draft proposal, which would delay the start of the free agency clock for many players by a year or two (and in the case of Bryce Harper, three). The league’s proposal would adopt an accelerated free agency timeline, although according to the MLBPA’s proposal, the first year of free agency would come with some strings attached. Teams will be allowed to retain a player for one final season for a salary equal to the average of the 125 highest-paid players from the previous year, in the same way current qualifying offers are calculated. This offers the potential for increased compensation compared to the last year of arbitration for many players, although there may be a few champions who would do better in the arb given their exemplary performance.

Under this framework, the qualifying offer (and the free agent compensation it was tied to) would eventually be dusted off in history, something players have long sought given how QO suppresses the value of second-tier free agents. And the proposal would eliminate deferred compensation, its mixed benefits; owners have generally done very well here, at least if they don’t sign Bruce Sutter, but the end of the deferment will also limit the ability of players like Ohtani to structure their contracts to avoid a big tax hit if they play in high-tax states like California.

Although its impact is small compared to the total dollars, the proposed increase in the league’s minimum wage gives the players at least something they want. For players with zero or one full year of service, the minimum wage will go from $780,000 in 2026 to $900,000 in 2027, a 15% increase. Even in constant dollars, this is a gain, as the $700,000 minimum as of April 2022, the first year the CBA expires, would be worth about $811,000 in May 2026 money. Players with less than two years of service time will also receive a $100,000 bonus in pre-arbitration bonus money (which could increase from $50 million to $65 million) if they play a full season in the majors. Players with two years of service time who are not eligible for arbitration will receive a small bump to $1 million. Even here, however, the league is undermining the union, which has proposed a minimum league salary of $1.5 million starting in 2027. I believe in the MLBPA fighting for more pay for players with less service time, as they are the most underpaid players for the wins they produce.

And in the proposal, the Prospect Promotion Incentive, which currently uses draft picks to incentivize teams to call up the best prospects on Opening Day rather than participate in service time streams, would give these teams an opportunity for additional draft picks. As it stands, teams receive an additional draft pick if a PPI-eligible player wins the Rookie of the Year award or finishes in the top three in Cy Young or MVP voting and accumulates a full year of service time. The proposal would give those teams an international draft pick in addition to the domestic draft they currently receive, and teams with PPI-eligible players who finish second or third in Rookie of the Year voting and fourth or fifth in Cy Young or MVP voting would receive an international draft pick.

Locked down to the basics, this proposal, as before, is less an attempt to resolve baseball’s money disparity than a way to force players to pay money. It could make low-income teams financially competitive with high-income teams, and give owners more cost certainty, while shifting significant amounts of long-term risk to players, with fewer concessions in return. The final CBA likely won’t have these exact terms, but the proposal suggests that if MLB has a revenue distribution problem, the owners believe the way to solve it is to limit how much of that revenue can reach the players.

Before I go, I want to break the fourth wall for a minute to talk about the last comment section when I wrote about the MLB proposal. Usually, we have a good comment section. But in the past week, there have been a lot of rude comments directed at other commenters, and I’ve had to delete more comments than I have on the last year’s worth of my articles combined. Vigorous disagreements are okay and part of a healthy environment, but insults are not. Please respect your students.