Is Collusion The Reason For Baseball’s Frozen Hot Stove?
Spring training has finally arrived, yet half of MLB Trade Rumors’ top ten free agents remain unsigned. Let’s take a look at what’s going on in the market.
Spring training has finally arrived, yet half of MLB Trade Rumors’ top ten free agents remain unsigned. Much has been written and said about the possible reasons. Some have even claimed it could be due to collusion. That is, owners conspiring and agreeing among themselves to not sign players. The supposed goal would be to suppress salaries.
Agent Brodie Van Wagenen of CAA implied this in a recent statement he posted online when he declared “the behavior of owners… feels coordinated.” He claimed that players were “outraged” and wanted “radical change” and that a “boycott of spring training may be a starting point.” The Major League Baseball Players Association, however, quickly shot down that suggestion.
It does beg the question, though, is there something nefarious going on? I can’t prove that collusion isn’t happening. No one can because you can’t prove a negative. I will, however, offer some insight into what is going on in the market. These factors, individually or collectively, could explain why the Hot Stove has been mostly frozen.
1. Luxury Tax Concerns
A number of teams, including the Yankees and Dodgers, have announced their intentions to get under the $197 million Competitive Balance Tax threshold. This desire is very understandable. Repeat offenders like New York and Los Angeles would be taxed 50% on every dollar that they spend over the cap. The Yankees have paid the luxury tax for 15 straight years, so can you really blame them for wanting to break that cycle?
The Yankees are usually active in the free agent market. Unfortunately, people have come to depend on them to actually drive the market by bidding up prices. But is it really reasonable to expect one team to sign players to nine-figure salaries every single year?
2. Qualifying Offer Penalties
Nine players received $17.4 million qualifying offers. Each of them rejected it, opting to become free agents. Five of them remain unsigned. It could be due, in part, to the attached penalties.
Luxury tax offenders would lose their second-highest and fifth-highest draft picks and $1 million of international bonus pool money for signing a player who received and rejected a qualifying offer. If the signing team contributes to revenue sharing but didn’t exceed the CBT threshold, then the team gives up its second-highest draft pick and $500,000 of international bonus pool money.
I’m sure you can see the problem here. Big-spending clubs are penalized heavily, which acts as a deterrent. Meanwhile, small market teams receive compensation when they lose a player to whom they had extended a qualifying offer. This acts as a disincentive for them to retain their own players.
As with the luxury tax rules, the union agreed to the qualifying offer system when negotiating the new CBA. None of this was unilaterally imposed by the owners.
One tweak that does benefit players is that you can now receive only one qualifying offer during your career. Moving forward, players who receive a qualifying offer may want to consider accepting it. This would allow them to play on a one-year contract equal to the average annual value of the top 20% of contracts. They could then enter the free agent market one year later without the penalties attached.
3. The Benefits Of Youth
It’s been long known that players tend to reach their peak performance around the age of 28. Players rarely have their best career year after the age of 30. Stars who have landed big free agent contracts in recent years all posted their best seasons before signing. So can you blame owners for being hesitant to pay big money for a player’s decline?
They still do, despite evidence that they shouldn’t. But with so many young players making such a tremendous impact on the game, is it any wonder that more teams seem to lean toward giving playing time to their young prospects? Every franchise wants its own homegrown Mike Trout, Aaron Judge, or Bryce Harper. And they’re wanted during their peak, not decline.
The Yankees have one championship to show for fifteen straight years of luxury tax penalties. The Dodgers have also carried a high payroll recently, but have zero titles to show for it. Meanwhile, the last several World Series champions have won largely because of their homegrown prospects who blossomed into stars. The Houston Astros and Kansas City Royals are great examples.
4. A Weak Free Agent Class
Let’s take a look at MLB Trade Rumor’s top ten free agents. This list shows their accumulated Wins Above Replacement from 2014-2017, their WAR ranking, and contract status. (Note that pitchers and position players have separate WAR rankings.)
1. Yu Darvish (9.7 WAR, #40) – 6 yrs/$126 million ($21 million AAV)
2. J.D. Martinez (15.2 WAR, #39) – 5 yrs/$110 million ($22 million AAV)
3. Eric Hosmer (9.5 WAR, #90) – 8 yrs/$144 million ($18 million AAV)
4. Jake Arrieta (19.2 WAR, #6) – unsigned
5. Mike Moustakas (7.4 WAR, #114) – unsigned
6. Lorenzo Cain (20.5 WAR, #11) – 5 yrs/$80 million ($16 million AAV)
7. Wade Davis (10.8 WAR, #30) – 3 yrs/$52 million ($17.3 million AAV)
8. Lance Lynn (10.3 WAR, #34) – unsigned
9. Greg Holland (4.2 WAR, #149) – unsigned
10. Alex Cobb (5.5 WAR, #97) – unsigned
Despite a weak class, the players who have been signed have done very well financially. We have no way of knowing precisely what offers the remaining unsigned free agents have received. It has been reported, though, that the Cubs contacted Jake Arrieta before finalizing the deal with Darvish and presumably offered him similar terms.
An additional nine-figure contract was issued as well. The Angels inked Justin Upton to a five-year extension worth $106 million. There were also a number of shorter-term contracts that were agreed to in the $12-$20 million per year range. In a nod to the ever decreasing innings by starting pitchers and subsequent increased reliance on a strong bullpen, many top relievers were snapped up quickly this winter.
5. Waiting For Next Year
A final element that factors into the slow-developing Hot Stove is the monster free agent class on the horizon. Bryce Harper, Manny Machado, Josh Donaldson, and potentially Clayton Kershaw are due to hit the open market next year. All are in high demand and are expected to create bidding wars for their services.
By getting under the cap now — and thereby resetting their luxury tax — teams like the Yankees and Dodgers are poised to spend big one year from now. After a slow-thawing Hot Stove this year, we may very well see record-setting contracts dispensed next winter.
Thawing Of The Frozen Hot Stove
When I sat down to begin writing this article, only three of the top available free agents had been signed. But then the Eric Hosmer and J.D. Martinez deals followed within 48 hours. Their contracts were roughly in line with what they had been projected to garner.
Collusion? I see no evidence. How could there be when a quartet of nine-figure deals were made, with more still possible? What is apparent is that a large number of teams had been actively pursuing available players to fill holes, while most of the top available free agents played it cool to get the best possible deal. Isn’t that the way the system is supposed to work?