Herrera was the last of the Royals' potential arbitration cases.
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Since general manager Dayton Moore took over in 2006, no Royals player has gone to arbitration.
Herrera replaces Wade Davis as Kansas City's closer after Davis was traded to the Cubs at the Winter Meetings. Herrera filled in as closer at times last year when Davis was injured and posted a career-high 12 saves to go along with a 2.75 ERA in 72 appearances.
Herrera, 27, was second in the American League in strikeout-to-walk ratio (7.17), and he was tied for fourth in holds with 26.
Since 2014, Herrera's 2.30 ERA ranks seventh among AL relievers, and his 209 strikeouts rank eighth.
Jeffrey Flanagan has covered the Royals since 1991, and for MLB.com since 2015. Follow him on Twitter @FlannyMLB. This story was not subject to the approval of Major League Baseball or its clubs.