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The defending American League champs have added a big new bat to their lineup, and all it cost them was the largest contract in franchise history.

Thursday night, the Cleveland Indians reportedly agreed to terms with free agent slugger Edwin Encarnacion. It's a three-year contract with an option for a fourth season. The team has not yet confirmed the signing.

Prior to the Encarnacion deal, the largest contract in Indians history was the four-year, $57 million deal they gave Travis Hafner back in 2007. Jason Kipnis is currently on a six-year deal worth $52.5 million that is also among the richest in franchise history.

Encarnacion, 34 next month, steps right into the lineup to replace Mike Napoli, who is currently a free agent. Like Napoli, Encarnacion will slot in as the cleanup hitter and share first base/designated hitter duties with Carlos Santana. It's a very straightforward one-for-one swap.

Edwin Encarnacion is the newest Cleveland Indian. USATSI

This past season, Encarnacion hit .263/.357/.529 (133 OPS+) with 42 home runs in 2016. He has hit at least 34 home runs in each of the past five seasons. No other player can make that claim. Encarnacion's 193 home runs from 2012-16 are the second most in baseball behind Chris Davis (197).

The Indians will forfeit their first-round pick in the 2017 draft, the 25th overall selection, to sign Encarnacion. Cleveland's window to win is right now, and giving up a relatively low first-round pick to add a significant offensive threat is a move that's easy to understand.

The Blue Jays, meanwhile, will gain a supplemental first-round pick for losing Encarnacion, who rejected the qualifying offer. That pick will likely be in the range of 28th to 33rd overall.