The wild free agent market and the “Billion Dollar Rebuild”

This is a follow-up to a piece from a year ago which recapped MLB teams’ spending in free agency since the 2017-18 off-season, i.e. since the Phillies began trying to compete again: The Billion Dollar Rebuild

To summarize that: after the 2017 season, with a well-regarded farm system and a long playoff drought that made both fans and the ownership group eager for a return to fun at The Bank, the Phillies began spending in free agency to fill out a core and compete again. The farm system though has delivered less than expected, meaning that they had to spend even more than they normally would to capitalize on the investments in Bryce Harper and others and field a competitive team. In fact, they’ve been the biggest spender in MLB over the past several years (by far). The Phillies were the only team to commit over a billion dollars since the 2017-18 offseason, or even close to it. And while they’ve had both hits and misses in free agency, they’ve also gotten more production from their signings than any other team over that time (also by far), at a value for dollar rate that’s been about on par with the league average overall. Given the underperforming farm system though even those returns left them just short of the postseason before last season.

Fast-forwarding a year, they finally broke through in 2022 and even made an unlikely but very exciting run before finally losing in the World Series. They headed into this off-season looking to build on that success and strengthen their position in a tough NL East.

The 2022-23 Free Agency market

In early December we published a sort of free agency user’s guide, essentially warning that recent history has shown not to expect much activity until later in the winter. Well, so much for that — the market was as hot and as early as any in recent memory. Team owners were fresh off a new Collective Bargaining Agreement in which they didn’t give up anything significant, and at least for the time being could look forward to a continuation of growing revenues and profits (though the much anticipated turmoil in regional sports networks is now upon us, so it will be interesting to see how that affects spending next year and beyond).

A handy indicator of the free agent market overall is how the top 50 FA’s fare (as ranked by MLB Trade Rumors). In any given year, the top 50 represent 80-85% or more of the total value in signed free agent contracts.

(BTW 49 of MLBTR’s top 50 have signed to date, with only #33 Jurickson Profar remaining)

The graphs below show how quickly the top 50 signed in each year, both in number of signings and the total contract value: both 2017-18 and 2018-19 were slow, but 2019-20 was a fairly active and robust market. Then 2020-21 reverted to again being very slow. That was followed by the unique 2021-22 off-season, where teams and players scrambled to lock down deals before the impending lockout on December 1st, and then those left without partners scrambled again to get ready for the season once the lockout was lifted in March.

This past off-season (orange line) was nearly as frenetic as last year’s, even without a lockout in the middle to wreak havoc.

A useful cut-off for measuring progress is the turn of the calendar year — it’s after the Winter Meetings, and in the middle of the holiday break:

This year 46 of the top 50 free agents were already signed by the end the year, representing a remarkable 92% of the total contract value. Over $2.9 billion had already been spent, more than the total spent in any recent off-season (or probably, any off-season).

The only recent one that was comparable was 2019-20 (the year of Zack Wheeler, Gerrit Cole, Anthony Rendon, and Stephen Strasburg), however the overall caliber of top FAs, and so the dollar amounts, were quite a bit higher this year.

MLBTR is just one set of opinions on what teams and players will end up agreeing on in contract terms, but it’s still instructive.

• In both 2017-18 and 2018-19, the top 50 free agents on average received contracts worth about 20% less than what was predicted.
• In 2019-20, maybe the predictions overcorrected based on the prior two years, but the total contract value was 12% more than predicted.
• In 2020-21, the MLBTR team nailed the aggregate payout for the top 50 exactly, at almost $1.2 billion, but of course even then there were significant differences among individual contracts.
• And in the crazy lockout-interrupted offseason of 2021-22, contract values ended up relatively close overall, only 4% below projections.

This year in aggregate, contracts overall were 7% more than predicted — even higher for position players (9% over), with less of an overage for pitchers (5%).

So teams paid more than expected for both pitchers and hitters, but it’s interesting how they “overpaid”:

• for pitchers, teams were willing to go higher on the AAV, but not willing to tack on additional years: the average contract had 3% fewer years than predicted, but at 8% higher AAV
• whereas for hitters, this is where teams tried to reduce the AAV impact, even if it meant adding years to a contract: 13% more years than expected on average, but at 4% lower AAV

2022-23 Free Agency spending by team

For the rest of this piece we’ll be looking at all free agent spending, not just the top 50.

The free agent market this off-season was headlined by Aaron Judge, coming off a new AL record of 62 HRs and an all-around elite season, and four of the best shortstops in the game: Carlos Correa, Trea Turner, Xander Bogaerts, and Dansby Swanson. The Phillies landed Turner for 11 years and $300 million, as well as starter Taijuan Walker (4/$72M). They also added relievers Matt Strahm (2/$15M) and Craig Kimble (1/$10M), and utility infielder Josh Harrison (1/$2M).

In total they committed $399 million to new free agents, the 4th highest total of this offseason.

Carlos Correa ended up re-signing with the Twins for 6/$200M, after deals with the Giants (13/$350M) and Mets (12/$315M) fell through when his leg injury at age 19 raised possible red flags for long-term durability.

The Yankees spent the most, with a big chunk of that going to retain Aaron Judge, and another big contract to land Carlos Rodon.

The Mets and Steve Cohen continued to aggressively add pieces for another strong run, and they committed over half a billion dollars, even while failing to come to an agreement with Correa.

San Diego also added Xander Bogaerts and others, and spent the third most, and the Cubs landed Swanson and rounded out the top five:

1. Yankees $575m (Judge 360, Rodon 162, Rizzo 40)
2. Mets $503m (Nimmo 162, Diaz 102, Verlander 87, Senga 75)
3. Padres $407m (Bogaerts 280, Suarez 46)
4. Phillies $399m (Turner 300, Walker 72)
5. Cubs $311m (Swanson 177, Taillon 68)

The rest of the NL East

While the Phillies and Mets were among MLB’s big spenders, with over $900 million combined in contracts, the rest of the division spent a total of only $54 million, meaning that the Phils and Mets alone accounted for over 94% of the division’s total:

The Braves spent the least of any team in MLB on free agents, committing a total of only $3 million to relievers Jackson Stephenson and Nick Anderson, and outfielder Jordan Luplow.

The Nationals and Marlins likewise spent very little, with the Marlins in particular signing former Phil Jean Segura (2/$17M), and pitcher Johnny Cueto (1/$8.5M). The Nats got pitcher Trevor Williams (2/$13M), frequent Phillie killer Dominic Smith (1/$2M), infielder Jeimer Candelario (1/$5M), and outfielder and one-time Phil Corey Dickerson (1/$2.25M).

Below is this year’s free agent spending, grouped by division, and split two ways:

Spending since the 2017-18 Offseason

Despite heavy spending this year by teams like the Mets, Yankees, and Padres, the Phillies remain well ahead in the total laid out in free agency over these past six off-seasons. Even if the Mets had signed Correa to the deal that had been announced (12 years, $315M), which would have brought their offseason’s total to a whopping $818 million, they would still trail the Phillies on this list.

This is total contract value committed for the 790 major league contracts signed over this time. So for example the 2018-19 column includes all of the $330 million in Harper’s deal. The ranking for each team is for the total committed over these six off-seasons:

Note also that the NL East, led by the Phillies and Mets, has outspent every other division over this period with $3.644 billion, almost a full billion ahead of the NL West ($2.669) and AL East ($2.652).

These are selective endpoints, of course. For many, or even most, teams, spending is cyclical, and the Phillies have been one of the teams in the spending phase over this period. However the combination of wanting to field a winning team, an underperforming farm, and an ownership group willing to spend to make up for that, have made the Phillies the biggest spenders of this era. With Steven Cohen and the Mets coming on the last two years, and the Braves winning primarily through their farm, the NL East has become the division to watch.

Below is a graphical view of the same numbers:

Return on the Investment

The Phils have committed the most total contract dollars in MLB since 2018, but what if we look at the salaries paid to those free agents so far — where do the Phillies rank then? We can compare what every team has paid in salaries to free agents they’ve signed since 2017-18. We can also compare the production they’ve gotten from those FA’s in 2018-22 using the WAR they’ve produced (valued at a standard dollar value per WAR).

Spending vs. wins, 2018-2022 seasons:

Some teams have been spending big, and none more so than the Phillies. In the meantime, teams like the Marlins, Orioles, Royals, and (especially) Pirates, have barely participated. And then there are the Rays, and to a lesser extent the Guardians, and you could also include the A’s, spending very little and winning anyway.

This is total dollars committed over the off-seasons from 2017-18 through 2021-22, vs. wins over that time:

This kind of graph is misleading in some ways, but the main point is clear — the Phillies have spent a ton relative to their results, even with last year’s run to the World Series.

We know why that is, of course — the farm hasn’t produced enough, and as a result, rather than only needing to add key pieces to round out a core, the Phillies have had to build most of their core through free agency.

Spending vs. Value produced, 2018-2022

Team wins are the end goal, and even more so postseason runs. But we can also look at the production they’ve gotten from the free agents themselves, and a handy metric for that is the WAR they’ve produced (valued at a standard dollar value per WAR).

In the graph below, salaries paid on these contracts, i.e. the total Average Annual Value (AAV)**, are along the x-axis. The value of the players’ production under those contracts is along the y-axis. Fangraphs has used the $8 million per WAR figure to value performance for each of the past five seasons.

Note our window here begins with the 2017-18 offseason, so the salaries here are those paid to free agents signed since then.

The diagonal line represents the standard estimate of $8M/WAR of production — teams above that line have gotten more value than that (i.e. paid less than $8M per WAR), and teams below the line have gotten less value.

In fact what teams have actually paid, overall, on the FA market these past 5 years is more than that standard $8M/WAR, or roughly $8.8M. i.e. if we divide the total spent in salary ($5,919 million) by the WAR produced by those FAs (672 per Fangraphs.com), the average has been about $8.8M per 1 WAR.

It’s hard to see the Phillies here. That’s because they’re literally off the chart, and we have to drastically expand the axes to fit them in. They’ve spent $498 million in salaries to free agents signed since 2017-18 (in total AAV over those years), and have gotten $455 million worth of production from them:

In terms of the cost for the production they’ve been getting on these deals, the Phillies have paid about the average, rounded here at $9M/WAR:

Again, the league on the whole is negative on these past five years’ signings (by $544M) because the average paid has been $8.8M/WAR (total salaries divided by total WAR), but we’ve continued valuing WAR at only $8M per to align with Fangraphs. If we used $8.8M/WAR instead, the -$544 would become 0 and every team’s Value vs. AAV would be more positive.

The same numbers in a graphical view:

Another way to look at this is to map teams along two axes: how much they’ve paid out, and their spending efficiency, i.e. their cost per WAR.

The Angels and Rockies have been by far the least efficient. For example since 2018 the Angels have paid $326 million to new free agents they’ve signed over that time, and have gotten all of 5.6 WAR for it (a rate of $58M per WAR). If they had managed to get even an average return, that would have meant an additional 31 WAR over these five years, or theoretically 31 more wins, an average of 7 additional wins per 162-game season.

At the other end of the spectrum, the Rays have only spent $71M to free agents and have gotten 24 WAR, or a rate of only $3M/WAR. Even at that modest level of spending, that’s 16 more wins than what the average return would have gotten them.

Spending vs. Value Produced — Phillies

The Phillies’ signings at the start of this period didn’t turn out so well: Arrieta, Hunter, and Neshek (in his return after being traded in ‘17) were all under water. Santana was positive over the length of his deal (the table is based on Santana’s entire three-year contract, since that’s what the Phillies were signing up for at the time), but for just 2018, it was $20M AAV and $20M of value. That deal had other consequences that aren’t reflected here — for example if they still had J.P. Crawford would they have signed Didi Gregorius the first time, let alone the second?

More recent signings have been much more successful. Harper was producing well even before his 2021 MVP season, and Wheeler’s very good 2020 and Cy Young-level ‘21 have also improved this picture considerably. J.T. Realmuto then added his very good 2021 and a 2022 season that was good for 7th in the NL MVP voting.

The 2021-22 class is off to a rough start though — a decent season by Kyle Schwarber was more than offset by Familia/Knebel/Hand (a combined $22 million in the red), and a season to forget from Nick Castellanos (a whopping -$26 million all by himself).

Spending vs. Value — by when signed

For example Harper has been +$34M ($119.2 in WAR value vs. $85.6 in salary) so far in his first 4 years here, and that +$34M is all in the 2018-19 column, where it’s offset by Andrew McCutchen (-$19M), and David Robertson (-$17M), for a total of -$2M to date for that year’s signings.

Spending vs. Value — by season

This is all of the last 5 off-seasons’ signings (same as above) but split by how they did in each season. For example while Harper has been +$34M over the first four years of his contract, in just the 2022 season he was -$6 ($19 in WAR value vs. $25 AAV), and the 2022 column here includes Harper’s -$6 last year, Realmuto’s +$29, Castellanos -$26, etc.

[Harper’s WAR, like everyone’s, is based on the regular season only, so he doesn’t get credit for his postseason heroics here.]

Best and worst contracts over this period

Finally, a quick review of the best and worst contracts since 2017-18, in terms of Value vs. Salary:

10 best in Value vs. AAV, to date

The Wheeler, Realmuto, and Harper contracts all make the 10 best list, more than any other team. The Rangers made out great with both Lance Lynn and Mike Minor, and the Rays don’t spend much, but when they do they spend it well.

With any of these that last into players mid- or late thirties, including Realmuto and Harper, we know the back end won’t look this good, but we couldn’t have asked for much more from the first few years:

10 worst in Value vs. AAV, to date

Let’s make that 13 worst, so can include two Phillies contracts.

There are caveats here, of course — WAR is a handy way to measure production, but it can be wonky for relievers in particular, and looking at all years combined can miss out on single-year contributions, like Will Smith helping the Braves win the WS in 2021.

Summary

• We are wrapping up one of the most heated, and likely the most expensive, free agent market in the game’s history. Given uncertainties with its broadcasters, it remains to be seen whether teams will tighten purse strings going forward.
• Since the 2017-18 offseason, the Phillies have signed free agents to almost $1.5 billion worth of contracts, over $250 million more than the #2 team (Yankees).
• Of the free agents signed since 2017-18, the Phils have paid them more in salary than any team since then (by far), and have gotten more production from FAs than any team (by far).
• That’s a result of coming out of their rebuild with less cheap talent from the farm than they expected, but plowing ahead anyway to try to build a winning team.
• They’ve had hits and misses on those contracts, and overall have paid about the league-average rate in terms of cost per WAR.

Looking ahead, the back end of many of these contracts will almost certainly not look as good as the first years have, particularly for Harper, Realmuto, and Turner. In recent years we’ve been able to reasonably say that salary inflation will mean that those contract tails won’t hurt much, but with turmoil creeping into MLB’s financials that becomes less certain.

Regardless, we’ve known for a while that a team like the Phillies can use its financial leverage for a while to bulk up its talent base, but that sooner or later they will need the farm to start producing more cheap talent.