As expected, new rules impact free-agent market
Fewer players subject to compensation, but teams must weigh loss of own Draft picks
If it seems you heard more than ever about Draft-pick compensation for free agents this winter, well, it might be because you did. New rules governing Major League Baseball free agency and the First-Year Player Draft resulted in a new set of dynamics as clubs weighed the costs of signing players.
Kyle Lohse, one of the top free agents on the market this winter, remains unsigned with Spring Training under way. Michael Bourn, one of the top hitters, agreed to a deal on Monday. It's not all that unusual for some big-name players to be unsigned after the new year begins, but mid-February is another matter. And it's worth noting that both Bourn and Lohse, as well as Rafael Soriano, who also waited quite a while to sign, have had Draft-pick compensation attached to them in the first year of a new system.
In past years, the system was similar to what it is now, but not identical. Free agents were designated as Type A, Type B, or no-compensation (prior to the 2006-07 offseason, there was also a Type C). For Type A and Type B free agents, a club had the option of offering salary arbitration. If the player accepted arbitration, it was tantamount to agreeing to a one-year contract, with the salary to be determined.
If the player declined arbitration, he stayed on the market, with the former team receiving compensation if he signed elsewhere. A team losing a Type A free agent received two Draft picks -- one from the signing team and one in a compensatory "sandwich" round. A team losing a Type B free agent gained only a sandwich pick, with the signing team not losing a selection. Last winter featured a modified, transition system in between the old system and the new one.
Under the terms of the new Collective Bargaining Agreement, the structure has changed. The old Type A and Type B designations are gone. When a player reaches free agency, his former team may make him what is known as a qualifying offer, worth the average amount of the previous season's top 125 salaries -- $13.3 million this offseason.
If the player accepts the offer, again he is considered to be signed to a contract for the next season. If he declines, the team that signs him gives up a Draft pick, while the team losing the player gains one -- though not the same pick.
The signing team gives up a first-round selection, unless it possesses one of the first 10 selections. In that case, the team gives up its next selection after that. The team losing the player, meanwhile, gains a sandwich pick at the end of the first round. This applies as long as the player signs before the start of the next Draft.
"We were balancing losing that Draft pick for a middle reliever in the past if he qualified in the Elias rankings," Braves general manager Frank Wren said on MLB.com's Hot Stove show. "So I think the system has whittled down that pool to a more workable number. So I think that's a positive. If you're willing to offer somebody $13.3 million for one year, you think they're a formidable player."
As Wren noted, the new system has reduced the number of players who end up subject to compensation. Players who might make much less than $13.3 million were often offered arbitration. Last winter, 37 players (13 Type A and 24 Type B) were offered arbitration. The year before, it was 35 (14 Type A and 21 Type B).
By comparison, nine players received qualifying offers this winter: Bourn, Josh Hamilton, Hiroki Kuroda, Adam LaRoche, Lohse, David Ortiz, Soriano, Nick Swisher and B.J. Upton. Lohse remains unsigned. Kuroda, LaRoche and Ortiz re-signed with their 2012 teams, while Bourn, Hamilton, Soriano, Swisher and Upton changed teams. Swisher and Bourn both agreed to deals with the Indians, who had a protected first-round pick. The signings will cost Cleveland its next two picks.
Additionally, as of this year, a player traded during the season before he reaches free agency cannot receive a qualifying offer. A team can no longer trade for a player during a season and be compensated with a Draft pick if he signs with another team.
But the more significant change was to the Draft itself; or more specifically, to the signing of Draft picks. As of the last Draft, teams are permitted a "bonus pool" of money for signing players, based on the number of picks that team owns, the position in which it drafts and the amount spent in the previous year's Draft. That pool covers all bonuses signed for players drafted in the first 10 rounds, as well as all bonuses of more than $100,000 given to any draftee from any round.
Note the first factor in the pool amount, because it's the critical one for these purposes. When a team loses a Draft pick as free-agent compensation, it loses the ability to spend that pool money.
In past years, a team that forfeited its first-round pick had an avenue by which to make up for that lost talent. It could draft a player in a later round who fell due to bonus demands, and pay him the money that would otherwise have been spent on a first-rounder. There were suggested slots, but no hard-and-fast rules, and no total bonus pool. It was possible to get first-round talent in a later round if a team was willing to pay first-round money.
Now, that option has for all practical purposes been removed. If a team doesn't have the pick, it's not permitted to spend the money. That change has affected the weight that teams put on Draft-pick compensation for signing free agents.
"You make those determinations," Wren said. "Sometimes those determinations are not as easy as others, depending on how you value the player, how big a role he plays on your team, where you're picking in the Draft. If you're picking in, say, the top 15, in an unprotected pick, are you willing to give that up? If you're picking 25-30, are you willing to give that up? I think there's a lot of variables depending on the team."