The qualifying offer is a competitive balance measure that was implemented as part of the 2012-16 Collective Bargaining Agreement and restructured under the 2017-21 Collective Bargaining Agreement.
(Under the terms of the 2022-26 Collective Bargaining Agreement, MLB and the MLB Players Association had the opportunity to agree on the implementation of an International Draft by July 25, 2022, which would have eliminated the qualifying offer system starting with the 2022-23 offseason. The two sides did not agree by the deadline, though, meaning the system will remain in place until the end of the current Collective Bargaining Agreement.)
In the qualifying offer system, clubs wishing to receive compensatory Draft picks for the loss of a free agent can make a one-year "qualifying offer," worth the mean salary of MLB's 125 highest-paid players, to their impending free agents prior to the onset of free agency if and only if:
1. That player has never received a qualifying offer previously in his career.
2. That player spent the entire season on that team's roster (in-season acquisitions are ineligible).
A player can accept or decline the qualifying offer, during which time he can negotiate with other teams to survey his market value. Should a player decide to accept the qualifying offer, he is signed for the following year at that predetermined rate (i.e., the mean salary of the league's 125 highest-paid players). If a player rejects the qualifying offer, he is free to further explore the free-agent market.
Note: Teams became subject to the above parameters beginning between the 2017 and 2018 seasons.
Compensation for losing players who reject their QO
If a team gives a qualifying offer to a player who then signs elsewhere, the club that lost the player is eligible for Draft pick compensation in the next year's MLB Draft.
• Competitive Balance Tax payors: If the team that loses the player went over the CBT threshold, the compensation pick will be placed after the fourth round has been completed. The value of the player's contract doesn't matter in this case.
• Revenue-sharing recipients: If the team that loses the player is a revenue-sharing recipient, based on its revenues and market size, then the selection -- if and only if the lost player signs for at least $50 million -- will be awarded a pick between the first round and Competitive Balance Round A. If the player signs for less than $50 million, the compensation pick for those teams would come after Competitive Balance Round B, which follows the second round.
• All other teams: If the team that loses the player does not receive revenue sharing and did not exceed the CBT salary threshold the previous season, its compensatory pick will come after Competitive Balance Round B. The value of the player's contract doesn't matter in this case.
Like standard Draft picks, compensatory picks in a given tier are ordered in accordance with the previous season's standings. If a team with MLB's worst record and a team with a .500 record both lose a free agent that signs for more than $50 million, the team with the worse record would receive the higher of the two compensatory picks.
Penalties for signing players who reject their QO
Any team that signs a player who has rejected a qualifying offer is subject to the loss of one or more Draft picks. However, a team's highest first-round pick is exempt from forfeiture. (Players who are unsigned after the start of the MLB Draft in the year that follows the rejection of their qualifying offer are no longer tied to Draft pick compensation and can be signed without their new club needing to forfeit a Draft pick.)
Three tiers of Draft pick forfeiture -- based on the financial status of the signing team -- are in place to serve as a penalty for signing a player who rejected a qualifying offer:
• Competitive Balance Tax payors: A team that exceeded the CBT threshold in the preceding season will lose its second- and fifth-highest selections in the following year's Draft, as well as $1 million from its international bonus pool for the upcoming signing period. If such a team signs multiple qualifying-offer free agents, it will forfeit its third- and sixth-highest picks as well.
Examples: A team with one pick in each round of the MLB Draft would lose its second- and fifth-round picks. A team with two first-round picks and one pick in each subsequent round would lose its second-highest first-round pick and its fourth-round pick.
• Revenue-sharing recipients: A team that receives revenue-sharing money will lose its third-highest selection in the following year's Draft. If it signs two such players, it will also forfeit its fourth-highest pick.
Examples: A team with one pick in each round of the MLB Draft would lose its third-round pick. A team with two first-round picks and one pick in each subsequent round would lose its second-round pick.
• All other teams: If a team does not receive revenue sharing and did not exceed the CBT salary threshold in the previous season, it will lose its second-highest selection in the following year's Draft, as well as $500,000 from its international bonus pool for the upcoming signing period. If one of these teams signs two such players, it will also forfeit its third-highest pick and an additional $500,000.
Examples: A team with one pick in each round of the MLB Draft would lose its second-round pick. A team with two first-round picks would lose its second-highest first round-pick.
(Note: Each pick in the first 10 rounds of the Draft has an assigned value, and the total for each of a club's selections equals what it can spend on signing bonuses for players selected in those rounds without incurring a penalty. When a team forfeits a Draft pick, it also surrenders the accompanying bonus pool money associated that pick, independent from any money forfeited from its international bonus pool per the rules below.)
History of the rule
Under the 2012-16 Collective Bargaining Agreement, a club that signed a player who rejected a qualifying offer had to surrender its best unprotected pick -- any pick that didn't fall in the top 10 -- in the subsequent MLB Draft. If the club's best pick fell in the top 10, it had to surrender its next-best pick instead. If a club signed more than one player that rejected a qualifying offer, it had to surrender its best and second-best unprotected picks.
Free-agent compensation picks were awarded after the natural first round of the Draft and before Competitive Balance Round A.