Why Are Baseball Teams Spending So Much Money?

ASSOCIATED PRESS –Aaron Judge, Carlos Correa and Trea Turner combined for almost $1 billion in contracts. Xander Bogaerts, Jacob deGrom, Dansby Swanson, Carlos Rodón, Brandon Nimmo and Willson Contreras added up to another billion.

And that’s just nine players. Just one lucrative slice of baseball’s December spending spree.

What a difference a year makes.

By the numbers: MLB's HISTORIC free agent spending spree! 👀💰 pic.twitter.com/X0BTfjLyer

— theScore (@theScore) December 19, 2022

It has been an epic holiday season already for several teams and players — a year after Major League Baseball locked out its players in an ugly labor dispute that delayed spring training.

Judge decided to stay with the New York Yankees for baseball’s biggest free agent deal ever, a $360 million, nine-year contract. Correa has a pending $315 million, 12-year agreement to join the New York Mets, and Turner signed a $300 million, 11-year contract with Philadelphia.

Including Wednesday’s transactions, big league teams have handed out more than $2.8 billion in finalized contracts to major league free agents this offseason. That dwarfs the winter spending at this point in each of the last five years.

Through Dec. 20, 2021, that number was $1.9 billion. It was $187.4 million in 2020 — when teams were coming off the abbreviated season caused by the coronavirus pandemic — $1.6 billion in 2019, $655.95 million in 2018 and $413.25 million in 2017.

When finishing contract talks, Aaron Judge says Hal Steinbrenner first offered the Captain role.

"That is such an incredible honor." pic.twitter.com/1I7ICGQo04

— YES Network (@YESNetwork) December 21, 2022

“Whether it’s ownership, whether it’s teams that fell short in the playoffs, teams that did well in the playoffs, teams that are ready to take a step from maybe a three-, four- or five-year rebuild, you look up and there’s few teams that are taking a step back,” Padres general manager A.J. Preller said during baseball’s winter meetings.

“Almost everybody (is) looking to advance forward. And that, along with some really quality players, is why it’s a very aggressive market.”

HOW DID THIS HAPPEN?

The March labor agreement that set industry rules through 2026 is one factor behind the increased spending, but there are several more forces at play.

The labor deal included an expanded playoff format, leading to more TV money for owners, and cleared the way for advertising on uniforms and helmets for the first time.

Under the five-year agreement, the luxury tax threshold rises to $244 million by the final season and tax rates remain unchanged at the initial, second and third thresholds. A new fourth threshold was added — supposedly aimed at Mets owner Steve Cohen — but it looks as if the billionaire views that hefty tax bill more like a nuisance as he pushes his team’s payroll to near $400 million.

The Mets have committed $800 million in free agency.

Their payroll next year will be nearly $500 million, including $110 million in luxury tax payments.

And since 50% of the luxury tax money goes to other teams, Steve Cohen will pay other MLB teams $55 million in 2023.

Insane. pic.twitter.com/3pCNt6vqic

— Joe Pompliano (@JoePompliano) December 21, 2022

If a more punitive threshold system, like a salary cap, had been instituted — almost certainly a popular concept among some owners — the spending likely would have been more muted this offseason.

Labor peace, of course, is good for business in general, but MLB also is in the process of dispersing the $900 million it received from The Walt Disney Co. for its remaining share of a streaming service technology company. That money is expected to go out to clubs before the end of the year.

MLB had new streaming network packages on Apple TV+ and Peacock last season, and it announced in October that fans watched more than 11.5 billion minutes of game action on MLB.TV during the regular season, a record for the streaming package.

This year’s World Series had lackluster TV ratings, and in a cord-cutting era, there are major questions about the viability of the regional sports networks that carry baseball games.

Attendance was down 5% from its pre-pandemic level, but the spending indicates at least some optimism about baseball’s health.

It’s also reflective of an unusually deep free agent class. Judge is the reigning AL MVP, and Turner, Correa, Bogaerts and Swanson are All-Star shortstops. Justin Verlander won the AL Cy Young Award with Houston last season, and then signed an $86.7 million, two-year contract with the Mets.

WHAT’S NEXT?

Looming over all this spending is Los Angeles Angels star Shohei Ohtani, who can become a free agent after the 2023 season. If Ohtani gets to free agency, he likely would smash each of baseball’s financial records for player contracts.

Ohtani, who turns 29 in July, hit .273 with 34 homers and 95 RBIs this year. He also went 15-9 with a 2.33 ERA in 28 starts.

We've seen some big contracts get handed out in #MLB free agency these last couple weeks. What Shohei Ohtani command on the open market when he's a free agent next year? pic.twitter.com/tJUPAYYM9M

— Dan Patrick Show (@dpshow) December 15, 2022

San Diego Padres third baseman Manny Machado can opt out of his $300 million, 10-year deal after the upcoming season, giving up $150 million over the final five seasons, and he almost certainly is monitoring all the money being handed out this offseason.

“People are discussing who are the free agents in ’24 and ’25 now because it’s like all a big puzzle,” San Francisco manager Gabe Kapler said. “So what happens this offseason is definitely going to impact what happens two offseasons from now.”

Machado’s decision is likely one reason why San Diego gave Bogaerts a $280 million, 11-year contract.

Also worth watching are baseball’s small-market owners, most of whom have been standing quietly off to the side since the end of the season. There is undoubtedly some private grousing going on behind the scenes, especially over some of the longer deals that dilute the intended effect of the sport’s tax system.

“We have a level of revenue disparity in this sport that makes it impossible for some of our markets to compete at some of the numbers we’ve seen,” MLB Commissioner Rob Manfred said during the winter meetings.