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The CBT’s Impact on the MLB Offseason

So far this offseason, we have seen a surprising development in how MLB front offices are structuring free-agent contracts for star players. Over the past decade and change, there have been countless examples of long-term contracts that simply haven’t panned out well for teams. Whether you want to talk about Albert Pujols’ deal with the Angels, Robinson Cano’s deal with the Mariners, or Jason Heyward’s deal with the Cubs, you could go on and on about how poorly those deals ended for those respective teams. Knowing how analytical front offices are becoming these days, you’d think that the result of all these aforementioned deals would make teams wary of handing a free agent a decade-long deal, right? This offseason has proved that hasn’t been the case.

Over the past two years, there has been no shortage of consternation between management and players. Whether it was the disagreement about player salaries during the COVID-shortened 2020 season or the tension-filled lockout before last season, the relationship between the MLB and the MLBPA was rocky, to say the least. But after all the CBA negotiations, labor peace was ultimately achieved, and the landscape was paved for the owners to open up their pocketbooks heading into this offseason.

Despite this, many remained skeptical that we’d see teams give the extra years and the extra dollars to players on the free-agent market. Coming out of the pandemic and lockout, the large majority of long-term deals we saw were signed by younger players with years of control like Wander Franco, Fernando Tatis, Julio Rodriguez, Spencer Strider, Michael Harris, etc to buy out arbitration years. There weren’t many players around the age of 30 signing those eight, nine, or ten-year deals we grew accustomed to in the early part of the 2010s. But that has changed so far this offseason as four players have already agreed to deals of at least 10 years. Why the re-emergence of the decade-long deal? The new CBA’s competitive balance tax implications are a big reason why.

Contrary to the other major professional sports in the US, Major League Baseball does not have a salary cap. However, in order to keep big market teams like the Yankees from lapping the payrolls of small market clubs, MLB instituted a measure to somewhat penalize exorbitant spending called the Competitive Balance Tax (CBT). The tax line is set at $233 million for the upcoming season, with escalating penalties based on how far (and how often) clubs spend over the threshold. MLB does not calculate tax payrolls based on year-to-year salaries (teams frequently disperse money unevenly throughout deals), but, rather, annual average values.

Because of this, by spreading out the money over more years, teams can lower their newly signed player's AAV. For example, let’s look at Carlos Correa’s new deal with the Giants. Many were surprised that the Giants were willing to give him a 13-year contract that will take him into his age 41 season. Many in the industry expected something to the effect of 10 years at most with around $350 million guaranteed. If the Giants would’ve offered 10 at 350, Correa’s AAV figure would have been $35 million, a significant impact on their CBT payroll. But by adding the additional 3 years, Correa’s CBT hit dropped to $26.9 million. That $8 million in savings allows the Giants more flexibility to stay under the thresholds that could result in penalties. The same can be said about the Turner, Judge, and Bogaerts deal as well.

While this initially sounds beneficial for the teams, you might still be asking how these contracts will look in 2032 for teams when the age regression likely takes place. The honest answer is they probably won’t look great. However, I believe teams feel like they are getting “surplus value” over the first few years of these deals from an AAV perspective. While Farhan Zaidi, Brian Cashman, Dave Dombrowski, and AJ Preller probably won’t admit it publicly, they likely view any value they get in the last few years from their newly signed players as a bonus. In Correa’s case, Giants probably view it more as a 10-year commitment at the $350 million figure. If he flames out in 2033 like Albert Pujols, Jason Heyward, and Robinson Cano did, they’ll likely release him. While they’ll hypothetically still take the $26.9 million AAV hit in ’33, ’34, and ’35, they’ll hopefully already have gotten their return on investment in the first 10 years of the deal.

Whether or not we see this trend continue in the future is yet to be seen. Will we see more teams manipulate the CBT penalties by offering 10, 11, 12, and 13 deals to players in free agency? Will MLB intervene and put a limit on the length of deals to prevent such action? It’s yet to be seen. But until anything is done about it, teams will likely continue to find loopholes to construct World Series-caliber rosters as efficiently as possible.

On the player's side, I don’t think the MLBPA has a big issue with it. For them, it’s all about maximizing their earning potential. Unlike the NFL, MLB contracts are fully guaranteed. Getting released after suffering a career-ending injury won’t change the amount of money these newly signed players will receive in their deals. Carlos Correa was getting $350 million regardless of if he signed a 10-year deal or a 13-year deal. In addition, he gets some level of certainty as to where he’ll be for the foreseeable future and doesn’t have to worry about an injury derailing his value if he were to go on the free agent market any time soon.

As with anything, change is inevitable in the modern landscape of sports. But this trend we’ve seen this offseason could have a monumental impact on the length of free agent deals in Major League Baseball for years to come.

Brendan can be found on Twitter @_bbell5

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