On Extending Young Players and Reading the Economic Tea Leaves
· Yahoo Sports
This morning, uber-prospect Kevin McGonigle and the Detroit tigers finalized an eight year, $150m contract extension. The deal covers the 27-34 seasons, effectively buying out the first three years of McGonigle’s free agency, and includes escalators that could increase its value to $160m. Even assuming McGonigle breaks arbitration records (firmly on the table, given that he’s hitting .311/.417/.492 in his first 72 MLB PA with peripheral stats that suggest he really is that good), that values his age 27-29 seasons at $90-100m. He’s one of a spate of top prospects to sign for big money right at the beginning of, or even shortly before, their MLB careers so far this spring:
Several young but established big league stars have also extended recently, including Diamondbacks shortstop Geraldo Perdomo, Red Sox ace Garrett Crochett, and Orioles starter Shane Baz. The Jays were active in that market last year, signing Alejandro Kirk last season to a deal that now looks like theft after his breakout 2025 and then paying Vladimir Guerrero jr. what amounts to a retail price free agent deal to keep him in Toronto for the remainder of his career.
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The Jays don’t have any clear extension candidates right now. Daulton Varsho is the obvious name, but he’s having something of a weird start to the season with his speed, range and power significantly down so far but his contact rate and overall offensive production looking excellent. Combined with a potential offensive breakout being derailed by injury last year, he might be a guy where both team and agent decide to wait and see before valuing his free agency.
I still think this trend is of interest to us on this site, though, because it probably reveals something about the direction the economics of the sport and the process of collective bargaining between the MLB Players’ Association and the league are headed. The current Collective Bargaining Agreement (CBA) runs through the end of this season, at which point it’s been widely predicted that there might be a lockout. Owners are said to be upset about the lack of parity in payrolls, with the New York Mets’ $362.6m 2026 expenditure being more than five times the last place Cleveland Guardians’ $69.4m. Of course, one might reasonably then ask what the Guardians are doing with the roughly $200m disbursement of national and pooled local revenues each franchise receives, at which point owners tend to harumph and storm out of the room.
Regardless, it’s very clear that ownership intends to push for a salary cap. Progressively stricter luxury taxes have proven ineffective in curbing top team spending. Nine teams are paying some tax in 2026 and five are into the top tax bracket, including clubs like the Blue Jays and Mets that were not regular tax payers 5+ years ago. If a soft tax won’t stop spending, a hard cap is the only way to do it. On the other side, though, a cap has always been a firm red line for the union. They rely on high spending teams to set the market and to force cheap owners to spend. If owners are willing to press their case, there’s a risk of a lockout that could shorten or even scrap the 2027 season. Both sides are gearing up for a prolonged stoppage, with the MLBPA allocating 100% of player licensing revenues (the share the player gets when, e.g., you buy a replica of their jersey) in each of the last two seasons to build up a strike fund that’s now over half a billion dollars, while the owners have a war chest about four times as large.
There’s also a larger economic backdrop. The local cable sports market (referred to as regional sports networks, RSN), which is the backbone of MLB teams’ local revenues, is collapsing. Main Street Sports Group, which operates the FanDuel Sports Network RSNs that broadcast nine MLB teams’ games, has had to try to renegotiate rights deals it couldn’t afford to pay. Most of the teams eventually just transferred their rights to MLB.tv, which is partnering with ESPN to sell local streaming rights for roughly half of the league starting next season. Commissioner Rob Manfred is scrambling to redesign the league’s revenue model around streaming, but how well that will work isn’t clear, and he’s facing opposition from more successful teams that like owning their own regional broadcast rights. Owning a north American sports franchise has been a bonanza to TV money and skyrocketing franchise valuations over the last 30 years. Whether that will continue is at least a little murky. The potential for a lockout further clouds the picture. Attendance took a decade to recover from the 1994 strike. A prolonged 2027 lockout, at a time when the league is navigating the streaming transition, could be even more damaging.
GMs and agents are intensely aware of all of this, of course, which is why the recent extension spree is interesting. Early career extensions are a team friendly bet, in general, as players trade upside for certainty. They hit the market later and with fewer prime seasons remaining, taking the possibility of ever signing a true top of the market contract off the table in exchange for locking in set for life money now. That Scott Boras clients don’t take extensions has become a fan cliche because the hyper-aggressive agent pushes his guys to hit the open market, a bet that pays off more often than not. And now, the fact that agents are directing their clients towards extending shows that they’re leaning towards the safety side of that bet.
Teams are typically in a position to be less risk averse. A player only gets one career, and if something goes wrong that career can be cut short before they strike it rich. A team expects to operate indefinitely, and its revenue is stable as long as the fans show up. It’s still somewhat telling that they want to sign these deals, though. The Tigers clearly think locking in the right to pay McGonigle over $30m in 2034 is worth taking on that risk, which doesn’t point to an expectation that the top end of the free agent market is going to downshift in any huge way.
Overall, then, I think the signs are modestly pessimistic for labour, but arguably slightly optimistic for fans wanting to watch a 2027 baseball season. After all, negotiations need both parties to have a basically similar understanding of reality to work out, and it doesn’t hurt when failing to strike a deal has some painful consequences. The fact that a lot of extensions are getting done suggests that players and their agents are not expecting a world where salaries skyrocket while GMs don’t significantly fear the bottom of the free agent market dropping out. The league’s forced pivot towards variable streaming revenues has the potential to make viewership damaging antics by owners more damaging to everyone. Those factors in combination give me a little hope that reasonable positions will be taken and the gap can be bridged. Still, there are choppy waters ahead.