When a player is drafted or signed by a major league organization for the first time in their careers, they will more often than not sign a minor league contract. This contract is renewable before each season by the organization for the first six seasons of the player’s career.
When a player is called up to the major leagues, their minor league contract is “selected” by the major league team. This selection is the process of a player transitioning from a minor league contract to a major league contract. These two types of contracts are very different in many ways including salary, benefits, free agency rights, and much more.
Contract Terms
A rookie MLB contract is for six years and organizations will determine a player’s salary for each of his first three seasons. Usually, the club will set the salary figure near or at the league minimum.
For each day a player spends on an MLB roster during the season, they will accrue service time. Once a player has reached three years or more of service time, they will be eligible for salary arbitration.
Players in their first three years of service time are in the renewable phase of their rookie contract. As stated, the MLB organization will determine their salary for each of these first three seasons.
The process of renewing a player’s contract during this period is called, “tendering.” By tendering a contract, an MLB organization is renewing the player’s contract for the upcoming season. If a club “non-tenders” a player, that means the player’s contract will not be renewed for the upcoming season and they will instantly become a free agent. Teams can non-tender players during any off-season during the six-year rookie contract.
MLB contract structure by year:
Year 1-3: Contract renewable (club tender)
Year 4-6: Salary arbitration eligible
Year 7+: Free agency eligible
League salary minimum by year:
2022 $700,000
2023 $720,000
2024 $740,000
2025 $760,000
2026 $780,000
Strategy/Examples
Pitcher Blake Snell was called up to the Tampa Rays for the 2016 season. His salary figures for the first three years of his career were $507,500 in 2016 (league minimum), $545,000 in 2017 ($10,000 above league minimum), and $558,200 in 2018 ($13,200 above league minimum). In 2018 Snell was an All-Star and won the American League Cy Young Award.
In some instances, players and clubs will agree to contract extensions before the player is eligible for free agency (after their sixth MLB season). It benefits teams who want to secure a player in the long term and they will “buyout” the salary arbitration process and potential free agent years. On the player’s end, they get a guaranteed salary for years to come and financial security.
One example of a deal is the contract between Ozzie Albies and the Atlanta Braves. In 2019, Albies had one year of MLB service at the time of the contract, with the Braves having five more seasons of team control (2 of renewable contracts and 3 arbitration).
They agreed to a deal worth $35 million over 7 years and included two team options that would bring it to be valued at $45 million over 9 years. The Braves, by extending Albies when they did, bought out the remaining years of his rookie contract as well as the first four years he would have been eligible for free agency.
Summary
The MLB rookie contract provides pros and cons for the player and the club. On the player’s side, they get a substantial pay raise from their minor league contract but have limited to no negotiation power for their first six years in the MLB.
For clubs, they must give the player a bump in pay and provide better benefits but for the most part, the clubs will receive more value as they hold young stars for six seasons of team control.
Similarly, they hold the heavier hand when negotiating contract extensions and extremely team-friendly deals, such as the Ozzie Albies/Atlanta Braves example.
Related Links:
https://www.spotrac.com/mlb/san-diego-padres/blake-snell-18356/
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