CLEVELAND -- Coming off a trip to the World Series, the Indians were already viewed as one of the American League favorites for next season. On Thursday night, Cleveland stepped out of its financial comfort zone, made a statement and strengthened its footing even further by reeling in free-agent slugger

CLEVELAND -- Coming off a trip to the World Series, the Indians were already viewed as one of the American League favorites for next season. On Thursday night, Cleveland stepped out of its financial comfort zone, made a statement and strengthened its footing even further by reeling in free-agent slugger Edwin Encarnacion .

A source told MLB.com's Jesse Sanchez that the Indians have reached an agreement with Encarnacion on a three-year contract that includes a fourth-year option. The deal is worth $60 million guaranteed, which includes a $5 million buyout for the $25 million option for the 2020 season. The Indians have not confirmed the deal, which is pending a physical.

In all likelihood, the deal will not be made official until after the holidays, which is common for contracts that are agreed upon at this time of year.

• Hot Stove Tracker

With Mike Napoli hitting free agency this winter, the Indians' clear offseason need was power for the heart of the order. The most logical place to add -- given the construction of the Tribe's roster -- was at first base and designated hitter. That made Encarnacion the perfect fit for Cleveland, though it still seemed like an improbable pairing given the club's financial limitations.

Right now, though, the Indians know they have an advantage not only over their AL Central rivals -- the other four teams are in various states of transition -- but are returning as the AL champions for 2017. With one of the game's top rotations, an elite bullpen anchored by Andrew Miller and Cody Allen , and a lineup that should have a healthy Michael Brantley back in the fold, it was an opportune time to spend on a marquee bat.

In Encarnacion, Cleveland is getting one of the best power hitters in the game.

Encarnacion, who will turn 34 on Jan. 7, hit .263 with 42 home runs and 127 RBIs last season for the Blue Jays. Over the past five years, the first baseman has hit .272 with a .912 OPS and an average of 39 homers and 110 RBIs per season. During that five-year span, the three-time All-Star ranked second in the Majors in home runs (193) and RBIs (550), third in Isolated Power (.272), fifth in slugging percentage (.544) and sixth in OPS+ (146).

All of Edwin Encarnacion's HRs since 2008 overlaid at Progressive Field. @Indians pic.twitter.com/1yfcNjOguM — Daren Willman (@darenw) December 23, 2016

Encarnacion has also proven that he can hit both lefties and righties. Since 2012, his .909 OPS against right-handers was third best in the Majors among right-handed batters, trailing only Mike Trout and Miguel Cabrera . Right-handed power will be welcomed in the Indians' lineup, which ranked 13th in the AL last year in home runs (91) by right-handed hitters.

Last season, Napoli offered right-handed power out of the cleanup spot, belting 34 homers and collecting a team-high 101 RBIs for Cleveland on a one-year contract. After Aug. 15, and including the postseason, the first baseman slumped to the tune of a .163 average and .281 slugging percentage. That two-month slump raised questions about whether extending Napoli a multiyear contract would be a good move.

After the World Series, Cleveland declined to offer Napoli a one-year, $17.2 million qualifying offer but maintained an interest in re-signing the slugger on a one-year pact. As talks stalled on that front, the Indians turned their attention to the premier crop of free-agent sluggers, with Encarnacion as the primary target.

Encarnacion reportedly turned down a four-year, $80 million offer to return to the Blue Jays, who quickly moved on with the free-agent signings of Kendrys Morales and Steve Pearce . With Mark Trumbo , José Bautista , Chris Carter and Napoli still on the market, Encarnacion's potential landing spots diminished. The Indians remained in contact, hoping his asking price would come closer to their operating range.

By signing Encarnacion, the Indians will lose the 25th overall selection in the MLB Draft. Cleveland initially had the 27th pick, but moved up two spots after the Cardinals ( Dexter Fowler ) and Rockies ( Ian Desmond ) made signings that cost each team a Draft selection as well. The Indians do have an extra Draft pick in Competitive Balance Round B (70th overall) in June.

With Cleveland, Encarnacion will presumably split time between first base and DH with Carlos Santana , who shared those spots with Napoli last year with the Tribe. Over the past two seasons combined, Encarnacion has spent more time as a DH (171 starts) than at first base (133). Encarnacion had zero Defensive Runs Saved at first across the '15-16 seasons, compared to minus-13 in the '13-14 campaigns. He also posted a positive UZR/150 rating in each of the past two years in the field.

The addition of Encarnacion will likely push Cleveland's Opening Day payroll to around $120 million, barring any subtractions via trade. That kind of signing, combined with the lost Draft pick, makes it clear that the Indians want to capitalize on their contention window. The Tribe also put that on display in July, when it dealt four prospects to the Yankees in order to acquire Miller.

Fantasy spin | Fred Zinkie (@FredZinkieMLB)

Encarnacion remained a force in 2016, mashing 42 homers with an AL-best 127 RBIs. And even with his highest K rate (19.7 percent) since '09, the slugger managed a solid .357 OBP with help from a strong 12.4 percent walk rate. Moving from one high-scoring lineup to another, he should continue to compile elite counting-stat totals after averaging 110 RBIs and 90 runs per year since 2012. And with more homers on the road (101) than at hitter-friendly Rogers Centre during that span, he also looks poised to stay strong in the power department.