The new free agent compensation system eliminates the risk for teams looking to net a draft pick -- or three.
I've long been critical of the latest Collective Bargaining Agreement between the owners and Players Association for being a short-sighted, poorly conceived money-grab that sacrifices certain long-term concerns about the health of the game in favor of maximizing immediate revenues. While baseball is swimming in cash thanks to its tremendous TV deals, this prediction has largely been borne out so far. Indeed, revenue is up and pesky expenses on things like amateur players are down, but the results have been to strengthen the most profitable teams rather than ensuring additional competitive balance around the game.
We've seen this in the amateur draft and international free-agent signing systems, as lower-revenue teams like the Tampa Bay Rays and Pittsburgh Pirates have had their flexibility to add amateur talent severely curtailed by the spending caps and penalties MLB has imposed (caps which could eventually drive more two-sport athletes away from the game and high schoolers toward college, by the way). Essentially, this forces teams to redistribute the money they were using to sign amateurs to players already in the big leagues. That money is, of course, largely uncapped, meaning that low-revenue clubs are at a distinct disadvantage.
Now, one of the other new features of the CBA has kicked in. With the arrival of the free agent compensation system, we see another component of the agreement helping high-revenue clubs at the expense of smaller markets. Under the old CBA, the top free agents were grouped into Type A and Type B groups. To receive compensation in the form of draft picks for losing a player, the departing free agent's original club had only to offer them arbitration. Type A free agents were supposed to net the first-round pick of the signing team along with a sandwich pick between rounds one and two of the amateur draft. Type B free agents simply rewarded the original team with a sandwich pick while taking nothing from the signer.
Under the new deal, clubs must make a "qualifying offer" of one year and approximately $13 million to a free agent to receive compensation; the Type B classification is entirely gone. While this solves the problem of relievers being unduly penalized by the compensation system (giving up a first-round pick for something as random as a middle-reliever was a risk teams were increasingly unwilling to take), it has also drastically reduced the number of free agents who could net compensation. This year, only nine players received a qualifying offer, Josh Hamilton, David Ortiz, Rafael Soriano, Nick Swisher, Hiroki Kuroda, B.J. Upton, Kyle Lohse, Michael Bourn, and Adam LaRoche. Of these, Ortiz has already re-signed with the Red Sox, while LaRoche and Kuroda are good bets to re-up with the Nats and Yankees respectively.
Consider what the Yankees were able to do, by making a full third of the qualifying offers. First, they're among the clubs most likely to have expensive free agents to whom qualifying offers will be directed going forward (as will the Red Sox). Given their financial strength, they are far better positioned to absorb the one-year financial hit that an accepted qualifying offer would represent. Offering arbitration under the previous system carried the risk that the player could (and likely would) receive a vastly-inflated salary either through the negotiating process or an actual hearing, whereas the qualifying offer is what it is. There's little risk to the Yankees or Red Sox to make the qualifying offer and take the extra draft picks if their guys sign elsewhere. Think about that: the Yankees are poised to receive three extra picks in next year's draft and, putting aside any self-imposed budgetary constraints, will still be able to replace all three free agents with similar or better options from the open market.
Consider their position on Nick Swisher, who will be 32 next year and has been worth roughly four wins above replacement per season for the last three years according to FanGraphs. In other words, he's a very good player who would ordinarily prove difficult to replace. However, the Yankees could allow him to leave and sign (say) Torii Hunter, who is older but had a much better 2012, and has also averaged almost four wins above replacement over the last four years, without giving up a draft pick of their own. Likewise, the Yankees could allow Soriano to walk and pick up someone with a more reasonable price tag like Jonathan Broxton. And they could sub out Kuroda for Edwin Jackson, although that would be a downgrade.
The point is, Brian Cashman has effectively gamed this system so that New York can benefit in the short and the long runs, competing again for the A.L. East title while getting more chances to draft and develop the next generation of great Yankees. That's not the problem this system was put in place to solve; rather, it's a problem that MLB will struggle to fix down the road, as high-revenue clubs continue to enjoy a huge competitive advantage in this brave new world.