Why are MLB’s free-agent contracts often beating projections this offseason?

They paid how much? For that guy? Free-agent prices in baseball seem astronomical, which isn’t only a bar-room conversation but might be something that’s driving smaller-market teams to use trades as their main way to add talent. But when back-end starting rotation options are pulling in deals in the $30-40 million dollar range, it does inspire agita among fans and front offices alike.

It could still be a good sign for the sport, though. To figure out what the rising cost of a player in free agency really means for baseball, we have to recap the prevailing way that pay is modeled in the public.

The work of predicting what a player will make on the free agent market — no matter how you execute it — comes down to finding comparable players and assigning their pay to a new free agent (with inflation added). The Athletic’s Tim Britton does a great job of that in his contract projections, though that’s oversimplifying his great process. Over at FanGraphs, the readers may use a slightly different approach. They’re accustomed to looking at a player’s projected production in one number (Wins Above Replacement, which sums up everything a player does on the field in one framework) and then having an idea of what the market has paid for that production (how many dollars per win, in other words).

Both approaches have worked in the past. Both approaches are actually not that dissimilar if you think about it. And both approaches have come in low this year.

Actual prices have trumped the FanGraphs crowd projections by 22 percent so far. The 13 players Britton projected that have signed have done so for about 13 percent higher than his projections judged by average annual value alone. So, even taking aside how it might be surprising that a fifth starter like Martín Pérez “should” be worth close to $10 million on the open market using our previous models, we’re seeing that it’s possible he’ll sign for more than even the best market predictors think.

But why is the market even higher than we already expected so far this year? There are a few possible answers.

The need for new models

At least when it comes to turning FanGraphs’ projected production into pay on the field, there’s been one model in the past, no matter if you’re a role player or a star. There’s no salary cap in baseball, so it’s a free market of players matched to salaries. The idea is that there’s a cost for a win of production, no matter how you get it. But fitting one six-win player into one roster spot is obviously not the same as fitting three two-win players into three roster spots — especially if you think your player development system can produce a role player worth at least one win.

The market has, over the years, shown us that teams are willing to pay more (even on a per-win basis) for the top players than for role players. That has led some to argue that we should use a stepped model, where the first win costs a certain amount that is less than the wins on top of that. If you look at the deals for players who are projected to put up fewer than two wins (which is the benchmark for an “average” player), you do find that some of those deals have come in lower than expected. Austin Slater was projected to get $4 million by the crowd and got $1.75 million from the White Sox, Thairo Estrada was projected for $6 million and got $4 million, and so on. But even there, you have deals like the ones Michael Conforto and Blake Treinen signed with the Dodgers that went over.

All in all, the role players have been 19 percent over their crowd projections — not as much as the top guys, but also not enough of a difference to say that this effect is the main one.

Inflation everywhere

Baseball’s revenues have grown at an average rate of 10 percent a year since 2001, or 6.4 percent if you leave the anomalous 2020 and 2021 seasons out of the data set. U.S. inflation has averaged 2.5 percent per year over that same time frame. Of course, you take into account inflation no matter how you predict salaries, but U.S. inflation over the past three years is the highest it’s been over any three-year set since 2001. Perhaps the answer to why these salaries are up is the same as why the price of any commodity is up: The dollar is worth less than it was before.

There’s still a complicated interplay between inflation at large and growth in the game. We did not see an explosion of salaries in baseball in 2022 despite an 8 percent inflation rate, and that’s maybe because teams were still hurting from 2020. It wasn’t until 2023 was in the books that baseball, as a sport, brought in more revenue in unadjusted dollars than it did in 2019. Maybe it took until owners could say that the sport was back on track, and once again growing at three times inflation like it did earlier this century, to open up the payrolls. This looks like a more “normal” relationship between baseball growth and national inflation (with 2020 and 2021 taken out to better reflect “normal” outcomes).

A moment of labor peace

It’s an adage that there’s nothing the market likes less than uncertainty, and it’s probably true of baseball’s owners. Not being able to map out the next few years in terms of fixed costs and fixed revenues might make a team shy when it comes to inking a large, long contract with a free agent. That makes sense. And right now, baseball is in the comfy spot when it comes to the relationship between management and labor: year four of a five-year collective bargaining agreement that went into effect on March 10, 2022. At least, at the conclusion of the 2025 season, there won’t be any surprises when it comes to player compensation, no new quirks to figure out. No news there is good news.

Looking back, the average salary in baseball does tend to rise over the course of a CBA, with the exception being 2021, the last year of the previous CBA. There are obvious non-labor-related reasons that could have been the case, though, and salaries tend to rise in general. But, after COVID-19 and then a labor battle, all is quiet on this front, and that might have a positive impact on player salaries.

Growing ease about television deals

With the old television model encountering its death throes — Bally going belly-up is only just a part of a larger issue with the regional sports network issue — there’s been some unease in certain ownership groups. These television deals were fixed income, and losing them put a hole in budgets. We’ve seen teams like the Detroit Tigers, Cleveland Guardians and Minnesota Twins show some payroll stagnation even as their teams were competitive on the field, and they’re among the teams that had television deals that were thrown into a crisis when broadcasting partner Diamond Sports Group went bankrupt.

The good news here is multifold despite the storm clouds. For one, baseball has picked up where some of those broadcasting partners have left off and is already broadcasting for seven teams. Those teams now have a sense of their new normal and can return to business with balance sheets in front of them instead of question marks.

More big-picture, though, is that there might be some optimism that a better business model is coming when it comes to baseball’s television rights. It might be better for the consumer — fewer blackouts, as The Athletic’s Evan Drellich pointed out — and it also might give the sport more leverage in talks with the exploding number of different places they can put their product. A sport with all its games available for sale and all of those streaming platforms out there could optimize the sale of its inventory.

“I’d like to have all the rights available,” commissioner Rob Manfred said at the owners’ meetings. “I’d like to talk to the people who are buyers. I’d like to cut them up into packages and sell them, as many of them as possible, nationally, and then have a plan to deal with what’s left over.”

Stratification growing

All that said, it isn’t really the teams with iffy television situations that are out here beating the projections on free-agent deals. Of the 16 teams that ended up with a downgrade in television income due to their regional sports network situation, the largest deal handed out has been Nathan Eovaldi’s three-year, $75 million deal from Texas. There’s Yusei Kikuchi’s three-year, $63 million deal from the Angels, Michael Wacha’s three years and $51 million from the Royals, Shane Bieber’s two-year, $26 million contract with Cleveland (who also shed salary in a subsequent Andrés Giménez deal), and then it’s a bunch of smaller deals for backups, part-timers and relievers. Some of those deals are still beating projections, but it’s still tough to say they’re driving this effect.

The Yankees, Mets, Dodgers and Giants have spent nearly $1.5 billion so far in total outlays. And since so much of the conversation between agents and teams works on comparable players, what Blake Snell signs for is directly important when the Yankees talk to Max Fried. Two lefty starters at the top of the market, with extremely comparable work over the past three years, both beating their contract projections and going to big-market teams? That speaks more to an arms race between extremely profitable teams at the top than the general health of the entire sport.

There are still some big free agents left on the market, though. It’s possible — maybe even probable — that players like Alex Bregman, Corbin Burnes, Pete Alonso, and Jack Flaherty go to new teams that haven’t spent a ton yet, perhaps even some teams that are dealing with television rights issues. If they also beat their projections, we might just be looking at a market that’s taking a lurch forward because of a complicated mix of factors that are both good and bad for the sport. It’s not usually easy to pin down one reason for a large effect like this, in the end.

(Top photo of Brandon Gomes, Andrew Friedman, Blake Snell and Scott Boras after Snell agreed to a five-year, $182 million deal with the Dodgers: Harry How / Getty Images)