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A free agent is a player who has played out his contract, or is no longer under contract with a team for some other reason, for example because he has has been released or because he has been sent to the minor leagues more times than is permitted. In Major League Baseball, a player can become a free agent if he has played at least six years without signing a new contract, or has been sent to the minors six times. A free agent is eligible to sign with any club he wishes.
Free agency only became widely possible following a decision by arbitrator Peter Seitz in the cases of Andy Messersmith and Dave McNally. The two had played the 1975 season without a signed contract and challenged the reserve clause that allowed teams to retain their services indefinitely in the absence of such a contract: Messersmith and McNally argued successfully that teams were limited to exercise this option for one year only, after which their contractual obligation should be considered to have terminated. Facing the prospect of masses of players becoming free agents in future years, major league owners set up rules to govern how free agency would take effect. Starting in 1976, a free agent reentry draft was instituted to govern which teams would be allowed to bid for the services of specific free agents.
However, the system did not meet the owners' goal of controlling the rise of salaries paid to free agents, so they tried to make them less valuable through other means, for example by instituting compensation for a team losing a prime free agent in the form of additional picks in the amateur draft, or through a short-lived free agent compensation draft that was in effect for a few years in the 1980s, or even by colluding not to bid on available free agents. These measures were strongly resented by the Major League Baseball Players Association and the issue was at the center of various strikes between 1976 and the early 1990s. Eventually, after owners lost every battle they fought against the rising tide, free agency became largely unrestricted once a player had put in sufficient years of service, with the only compensation for the team losing a player coming in the form of an additional pick in the amateur draft - but only if that team had offered salary arbitration to the potential free agent.
Before the Peter Seitz decision, there were isolated cases of players becoming free agents while still in their prime: Ken Harrelson became one when the Kansas City Athletics released him for perceived insubordination in 1967, while Catfish Hunter was declared a free agent by Seitz after the 1974 season because the A's were found guilty of a breach of contract. Another famous exceptional case affected Carlton Fisk after the 1980 season: he was declared a free agent because the Boston Red Sox had failed to mail his proposed contract before a legal deadline.
The largest contracts awarded in major league history have been generally obtained by free agents. This was true from the time free agency became a fact of life after the 1976 season and continues to this day. This explains why the Players Association has staunchly defended a free agency system that is as unfettered as possible, in order to maximize players' bargaining leverage.
There was originally a fear that free agency would simply allow the rich club to get richer by hoarding all of the desirable players, since they would no longer need to give up anything in return to obtain them, besides money. However, this did not happen, as free agency allowed all clubs to bid on available players, and generally let to more competitive balance than had been the case before free agency was instituted.
- Roger I. Abrams: "Arbitrator Seitz Sets the Players Free", in The Baseball Research Journal, SABR, Volume 38, Number 2 (Fall 2009), pp. 79-85.
- David Adler: "Biggest free-agent contracts in MLB history: A-Rod, Scherzer, more rank among players with largest deals ever received in free agency", mlb.com, October 31, 2018. 
- Ronald W. Cox and Daniel Skidmore-Hess: Free Agency and Competitive Balance in Baseball, McFarland, Jefferson, NC, 2006.
- Daniel A. Gilbert: Expanding the Strike Zone: Baseball in the Age of Free Agency, University of Massachusetts Press, Amherst, MA, 2013. ISBN 978-1-55849-997-3
- David J. Gordon: "Competitive Balance in the Free Agent Era: The Dog that Didn't Bark", in Baseball Research Journal, SABR, Vol. 49, Nr. 2 (Fall 2020), pp. 48-57.
- Paul Hensler: Gathering Crowds: Catching Baseball Fever in the New Era of Free Agency, Rowman & Littlefield, Lanham, MD, 2021. ISBN 978-1538132005
- Matt Kelly: "Sign and shine! 30 all-time free-agent gems", mlb.com January 24, 2017. 
- Gabe Lacques: "MLB teams live in fear of the 'albatross' contract. Yet such situations are largely a myth.", USA Today, February 14, 2019. 
- Sarah Langs: "12 free-agent deals that delivered instant payoffs", mlb.com, March 6, 2019. 
- Jeff Passan: "MLB free agency is under attack, and Jake Arrieta deal shows how players are losing", Yahoo Sports, March 12, 2018. 
- Joe Posnanski: "Making sense of unsigned free agents: Salary structure could be shifting away from big deals for aging players", mlb.com, January 20, 2018. 
- Manny Randhawa: "Most monumental free-agent decisions in MLB history", mlb.com, July 2, 2018. 
- Tracy Ringolsby: "Free agency has contributed to health of baseball", mlb.com, January 12, 2015.