Does it Hurt Financially,Too? Effects of Injury Proneness on Contract Design in Major League Baseball

This paper seeks to determine the financial costs of recent injuries and market expectations of players’ future attrition rates by investigating the impacts on free agent contract designs, as represented by the yearly salary and contract length. The empirical findings, derived from data about 698 free agent contracts in Major League Baseball between 2011 and 2018, indicate that injuries exert different impacts on salaries versus contract lengths. For example, free agents who recently injured an elbow or shoulder receive shorter contracts than those not injured in the previous season, but their salaries are not affected. Market expectations of player attrition in the upcoming season reduce both contract lengths and salaries. For players, these results reaffirm the importance of staying healthy and finding ways to signal the low likelihood of future injuries to ensure their remuneration. For managers, the results emphasize the need to track free agents’ health status carefully, especially to avoid a winner's curse.