Qualifying offers mean significant compensation changes

Ezra Shaw

Type-A designations and the Elias Rankings are no more, pushed aside in favor of an internally run system.

The last collective bargaining agreement was negotiated and signed last off-season, but some of the more significant changes didn't go into effect immediately. Because the CBA was finalized in the midst of the 2011-2012 off-season, the rules surrounding free agent compensation, though changed, had to wait a year to fully take hold. That makes this winter's free agent signing period vastly different from previous ones, and all because of the way compensation is handled.

In the past, free agents were given designations, such as Type-A and Type-B, by Elias. In a nutshell, an outside source had a formula that determined the value of free agents, and depending on the result, their loss would mean compensation in the form of multiple first-round picks, a second-round pick, or no pick at all. While it was, in theory, meant to reward small-market clubs who couldn't retain the players they produced, there were ways to abuse the system. That's how teams like the Red Sox, who traded away more in future contracts last August than some clubs even have on the books, found themselves with bevies of bonus picks at draft time. As much as teams like the Rays and Padres might have enjoyed their own compensation picks, it stung a little to see the reasons they needed compensation enjoying even more draft selections.

While vestiges of that remained last off-season, it's been stripped away now in favor of a system where baseball's own teams determine whether or not a player is worthy of compensation. Compensation through arbitration is no more, with qualifying offers the new way to determine compensation. In the past, arbitration was offered to a free agent, and, depending on their designation, compensation was in order should they leave. That arbitration figure was different for every player, in the sense that it was built out of their previous year-to-year contracts with the club, or however their prior free agent contract was valued. A player could only have his salary cut by so much through arbitration, guaranteeing him an offer of at least a certain amount, relative to his own earnings, should the club extend arb to him.

Now, qualifying offers, a similar but very different setup, are in place. Qualifying offers are the same for every player. The figure is based on the top 125 salaries in the game: this off-season, that is around $13.3 million. This means that many players who might have merited compensation, be it as Type-A or Type-B, will no longer be viewed as worth compensatory draft picks. In order to even be eligible, the player's team needs to think they are worth risking a one-year, $13.3 million offer. This eliminates essentially every player who had Type-B status in the past, and also does away with many who were considered Type-A. Relief pitchers are hit the hardest, as you are unlikely to find many relievers receiving one-year offers for $13.3 million. New teams are not going to want to give up a draft pick to sign them long-term in some instances (but, admittedly, not all instances), and the teams who can give the offer might not want to risk paying such a hefty sum for even one year, should the player accept the qualifier. Lastly, if the player wasn't on the same team all year, they can't even be offered the qualifier: that means that pitchers like Ryan Dempster and Anibal Sanchez, who normally would merit compensation, are a non-factor this time.

The difference in compensation picks is going to change the way the draft works. The Type-B level of players in the past are out, the loss of relievers won't be compensated nearly as often, and Type-A draft picks are no longer worth two compensation selections, instead, just one. Previously, the loss of a Type-A meant that the signing team forfeited its first-round (or first available, depending on whether their pick was protected or not) pick to the previous player's club. In addition, the previous team received a bonus sandwich pick in between the first and second rounds. Now, the team still loses its pick, but it vanishes into the ether: the teams that benefit from this vanishing act are those who move up by one spot in the draft order, while the compensated team receives only the sandwich-round selection.

This off-season, we're looking at few guarantees to receive a qualifying offer, and a similar-sized pool of maybes. The definite recipients are (or would be, if they don't re-sign first) Josh Hamilton, David Ortiz, Jake Peavy, Michael Bourn, Nick Swisher, Hiroki Kuroda, and Mike Napoli. Many of these players could end up elsewhere, but if not, $13.3 million for one year is a worthwhile risk, even if it represents a raise for someone like Napoli. The maybes are players like B.J. Upton, Edwin Jackson, Kyle Lohse, and maybe someone like Rafael Soriano, who has an opt-out of his deal. Should Soriano decline $14 million guaranteed in 2013, then the Yankees would be silly to not extend a lesser qualifying offer that could net them a draft pick should he leave.

For the sake of things happening that we don't predict, let's call it an even dozen potential qualifying offer recipients. They won't all get them, but not every Type-A eligible player received an arbitration offer, either. There were, however, far more of them in the past. Back in 2009, 26 players were Type-A, as designated by Elias. In 2010, there were 33 Type-A free agents. In 2011, 22. It's worth mentioning that in 2009, 10 of those were relief pitchers. This year, we're looking at one maybe from the relief world.

It's to be seen if this system works out better for small-market teams, but it's definitely different. The draft will see talent distribution each round change a bit, certain free agent prices will be more set, and the league finally gets to dictate the value of their own players entirely, rather than with some odd outside system telling us a decent reliever warrants the same compensation as a 200-inning workhorse or middle-of-the-order bat. That by itself is likely a good thing.

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