Inside MLB’s 2024–25 Free Agency recap

Inside MLB’s 2024–25 Free Agency recap

Fiscal Focus | February 18, 2025

Every offseason, Major League Baseball’s free agency turns into a financial frenzy — contracts fly, luxury taxes loom, and fans watch as stars choose new homes. But one of the most interesting things about the MLB that no one knows about is that there is no Salary Cap...

Let’s break down what happened this offseason:

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Offseason Recap: Big Spenders, Bigger Contracts

The 2024–25 offseason lived up to its proclaimed hype. Here is a recap of the top signings this winter

• Juan Soto, OF — New York Mets, 15 years, $765 million. (Soto inked the largest contract in professional sports history, featuring a $75 million signing bonus, and a big contract with more potential to grow. )

• Max Fried, SP — New York Yankees, 8 years, $218 million

• Willy Adames, SS — San Francisco Giants, 7 years, $182 million

• Blake Snell, SP — Los Angeles Dodgers, 5 years, $182 million

• Corbin Burnes, SP — Arizona Diamondbacks, 6 years, $210 million

• Teoscar Hernández, OF — Los Angeles Dodgers, 3 years, $66 million

It was another winter dominated by big-market franchises such as the  Yankees, Dodgers, and Cubs while smaller teams like the Guardians, Rays, and A’s stayed quiet, not because they wanted to, but because they had to.

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No Cap?

MLB is a unique sport in the fact that there is no cap on the amount of money an organization can spend to bring in players. That means there is no formal upper limit to what teams can spend on player payrolls. While this creates opportunity for massive deals, it can also create massive financial imbalance.

For example:

• Yankees 2024 Payroll (projected): roughly $306 million

• Oakland A’s 2024 Payroll: ~$63.4 million

That’s nearly a 5-to-1 spending gap — and it is perfectly deemed legal by the league.

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The Luxury Tax: 

To control excessive spending, MLB enforces a Competitive Balance Tax (CBT) — often known as the infamous luxury tax.

Here’s how it worked in 2024:

• Tax Threshold(starting point to determining penalties): $237 million

• Tiered Penalties(increasing tax rate):

  • 1st year over: 20% tax

  • 2nd consecutive year: 30%

  • 3rd+ consecutive year: 50%

• Surtaxes:

  • $20–40M over: +12%

  • $ 40 M+ over: +42.5% (and a possible draft pick loss)

But here’s the issue: wealthy franchises treat it like a foreseen cost in doing business. The Dodgers, for example, pay millions in tax each year — but get marquee players such as Shohei Ohtani and Yoshinoba Yamamoto, back to back start free agents.

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Small-Market Struggles:

Fans of smaller-market teams have most likely seen this pattern before: 

1. Draft and develop talented young players

2. Compete with low payrolls through efficiency

3. Lose stars in free agency once they become expensive

There’s nothing wrong with building through scouting and analytics, as seen in the famous movie Moneyball, but there comes a point where you just cannot beat another team's offer.

Even teams that make smart moves, such as the  Orioles and Diamondbacks, eventually hit a brick in the road unless they start spending. Both these teams have top-tier young talent on their team, but they know that once the rookie contracts expire, they will have to be prepared to offer them big. And most can't afford to. 

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 “Moneyball” 

The era of "Moneyball",  winning through data-driven tactics, aside from coaching, has not disappeared, but it’s been slowly dissolved. Every team now uses analytics, so being smart isn’t enough if you’re also poor. The edge is smaller. In today’s MLB, this shows that being smart is not enough, as you still have to keep with the fact you're poor

This creates the classic dynamic:

• Top-tier talent goes to big spenders

• Mid-tier players get squeezed, as teams prioritize cheap prospects or superstars

• Small-market teams sell hope but rarely hoist the title

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Why Doesn’t MLB Just Add a Cap?

There are two main reasons:

1. The MLB Players Association (MLBPA) strongly opposes a restirction, viewing it as a threat to player earnings.

2. The richest owners benefit from the current system and have little incentive to cap their own spending.

Instead, MLB has used:

• Luxury tax enforcement

• Revenue sharing between high- and low-revenue teams

• Draft pick incentives/penalties

But none of these truly level the playing field. At best, they slow down the big market teams.

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 Final Thoughts:

Baseball’s free market approach has always made it fascinating for some, and frustrating for pretty much most. Every winter, we see the same trends with the big players always going towards the bigger markets in Los Angeles and New York. The stars' salaries keep increasing to keep up with the times.

For fans, this means excitement if you rep teams like New York or Los Angeles, and endless rebuilds if you’re not. Until something changes structurally, free agency will remain a showcase not just of talent, but of how uneven the financial playing field really is.