With the deal, the Pirates and Sanchez avoid having to sit opposite each other at the second baseman's arbitration hearing, which had been scheduled for Feb. 11.
Sanchez's contract includes two years guaranteed, with a club option for 2010 that could potentially become a guaranteed year if Sanchez meets certain performance criteria in 2009.
That 2010 option would cover Sanchez's first year of free-agent eligibility.
"I know it's a part of our overall strategy to try and find the reliable players that are willing to sacrifice a little bit of their pure financial upside for some security," general manager Neal Huntington said. "At the same time, we take significant risk and significant exposure from a financial standpoint, but we feel like we are getting enough back on the other end. In this case, that's being able to get back Freddy's first year of free agency."
Sanchez will earn a base pay of $4 million in 2008, as well as a $300,000 signing bonus. His salary will increase to $6.1 million the following year, in what would have been the second baseman's final year of arbitration eligibility.
The organization will also have the opportunity to exercise a club option of $8 million in 2010. However, that option will be automatically vested if Sanchez makes 600 plate appearances and earns a spot on the All-Star team in 2009, or if he makes 635 plate appearances during that season. That option also has certain performance-based incentives built into it that can potentially raise Sanchez's 2010 salary to $8.5 million.
Last season, Sanchez made 653 plate appearances, 22 more than he did in the previous season, which was his first as a full-time starter. His base salary a year ago was $2.75 million.
As part of his new agreement, Sanchez has also agreed to make an annual donation to Pirates Charities.
For Sanchez, the decision to potentially lose his first year of free-agent eligibility to remain in Pittsburgh is a direct reflection of the direction he sees the organization going.
"If I didn't see us winning in the future, this wouldn't have gotten done," said Sanchez, who last season, became the first Pirates infielder since Phil Garner in 1980-81 to be selected to back-to-back All-Star games. "I think we're on the right path. We've still got a lot of young guys and we need to just play together as a team, and I see it coming together in the next couple of years."
Sanchez has been with the organization since July 2003, when the infielder was acquired from the Red Sox at the non-waiver trade deadline. However, he didn't become an everyday starter until 2006, when he took over as the team's third baseman.
He has since become a two-time All-Star, and he added a National League batting title to his resume in 2006 when he hit .344 over the course of the season.
After nursing a sprained right knee out of Spring Training last year, Sanchez's full-time transition from third base to second was played out impressively. His .987 fielding percentage was third-best in the league, and he and shortstop Jack Wilson totaled more double plays than any other middle infield pair in the league.
On the offensive side, Sanchez has emerged as the most consistent piece in the Pirates' lineup over the past two seasons. After winning the league batting title in 2006, Sanchez finished the '07 season with a team high in batting average (.304), multi-hit games (51) and hits (183). His 42 doubles were also tops on the club, tying him with first baseman Adam LaRoche.
"I think just two years ago I was a utility guy on the bench, doing whatever I could to help this team win," Sanchez said. "And to be able to have the commitment from the organization that they want me here and they want me as a piece to their puzzle is very encouraging.
"It's no secret that I love playing here," he continued. "This is a place I feel comfortable playing at. It's kind of a no-brainer to sign this contract."
Sanchez also reported on Tuesday that his right shoulder has healed as expected and that there appear to be no setbacks after undergoing minor arthroscopic surgery on his right AC joint just days before the 2007 season ended.
Sanchez rested that shoulder for two months but has since returned to his normal offseason routine. He will report to Bradenton, Fla., when the pitchers and catchers do on Feb. 15.
With the deal, Sanchez becomes the fifth and final arbitration-eligible player in the organization to come to terms on a deal with the club this offseason. It also reflects new management's desire to begin the process of identifying key players that the organization would like to lock down through multiyear contracts.
Because baseball agents are now universally focused on preparing for arbitration cases, Huntington said that the club isn't currently discussing other potential long-term deals for other players on the team.
However, he did say that the door would be left open for other possible negotiations to be revisited between the time arbitration hearings conclude and the regular season starts.
"As you talk about this process, you want to sign the right player, not just every player that's arbitration eligible," Huntington. "This contract is a testament not only to Freddy as a player, but the person as well. A player like Freddy, a person like Freddy, we can never have enough of those."