The impact of socioeconomic background on the timing of long-term contracts in Major League Baseball

Restrictions on player movement prevent Major League Baseball players from hitting the open market as free agents until they have accrued 6 years of MLB service. A common trend in recent years has been an uptick in long-term contracts being signed by players in their pre-free agency years. While some degree of risk-aversion is likely for all players, MLB players come from drastically varying socioeconomic backgrounds, especially as the game has become increasingly global. In this paper, we use hand-collected data on familial backgrounds to test for impacts of socioeconomic background on the timing and salary of long-term contracts signed by MLB players. Our sample consists of 215 long-term contracts and extensions signed between 2008 and 2022. We estimate that pitchers with college-educated parents and professional athlete relatives are more likely to delay the signing of long-term contracts until they hit free agency. Moreover, we find evidence that higher levels of parental education positively impact the total and average annual value of contracts for pitchers. We do not find evidence of effects of socioeconomic background on the timing or terms of long-term contracts for hitters, which may be attributable to differences in injury risk between pitchers and hitters. These findings have implications for teams, players, and agents engaged in negotiations. Given that our findings also highlight inequities in outcomes among players of varying socioeconomic backgrounds, we suggest that loss-of-value insurance is a tool that could potentially mitigate these inequities.