05 February 2010

International Draft Addendum: Free Agent Compensation Part II

This is the final part of a series looking at a potential international draft and free agent compensation.

Aspects that work well?
1. Subdivision of positions.
It makes sense to value players by subgroups.
2. Taking into account the value of a player for his current team.
At bats and innings pitched connotes a players worth to his own team.

Why is the current system not very accurate?
1. Poor statistics are used.
The numbers used are either of dubious use (fielding percentage, chances) or are rather useless (RBIs, winning percentage).
2. Undervaluing/overvaluing certain positions.
A major issue often encountered are free agents who flounder around due to unrealistic compensation statuses attached to them. For instance, Jose Valverde is struggling to find a decent market for his services because he is a type A reliever, but no team is willing to offer both the cash and loss of their first unprotected pick for him. The same thing happened to Orlando Hudson, Adam Dunn, and Juan Cruz last year.
3. Potential over-compensatory approach for players on disabled list.
There really is little reason why a player like Erik Bedard would qualify for compensation even though he has only seen 164 IP over the past two years. Being able to stay healthy should be a consideration as it affects a player's future cost.

But what is the major failing of the system?
Value lost is not value gained. Losing a top free agent results in getting two players who are, at best, 4 years away from the free agent signing to making a difference on the big league club. This is the most glaring issue with the current approach. The other failings need to be corrected, but making the adjustment closer to real time is a better solution.

After the jump, a better way to identify type A and B classifications and a more fair way to compensate.

How to better classify free agent classes:
Use a condensed statistic like WAR. This system would use all of the attributes from the current one and place them in a more defensible construct. It also incorporates health as a attribute as opposed to assuming a players health is a constant. For defense, the system should use a three year weighted average to determine UZR for fielders. Assume all catchers are average defensively until a dependable measurement technique is devised to measure that.

What is a more fair way to compensate teams?
Get rid of the draft pick compensation scheme. It makes no sense. I think the best way to do it is to issue a signing tax on any type A or type B free agent on the team that signs the player. A type A player contract would be taxed 20% and a type B player contract would be taxed 10%. The tax would be paid from the signing team to the one who lost the player. That team has the option of beginning the program that year or waiting until the following off season to begin. This tax money must be spent on a free agent and must be at least on a 1:1 dollar shared ratio. Any unspent money is forfeited back to the player on which the tax was issued.

For instance:
Lets say Mark Teixeira signed an 8 year deal for about 180MM. That is a yearly average of 22.5MM. Assuming that yearly sum is what the Yankees are willing to offer him, under the new scenario he would be paid 18MM with 4.5MM being sent to the Angels. This would happen in years n to n+2 or n+1 to n+3. The Angels would have that 4.5MM allotment to spend on 9MM or more for a single free agent. If they only spend 8MM on a free agent assigned to this allotment, they can only receive 4MM in compensation and 0.5MM goes to Teixeira.

Why would this be good for teams?
Compensation for a type A players generates on average about 5.6MM in value. In order for a team to get similar compensation a player would need to sign a 3/27MM contract. That is about what an average baseball player would sign for if 1 WAR is worth about 3.5 to 4MM. That seems about right. The better the player, the higher the compensation. The value of that compensation is also more immediate and more dependable than draft picks would be.

Why would it be good for players?
It would probably push for players demanding long term contracts as well as forcing teams to spend money on MLBPA free agents. Money cannot disappear from the market if a team wishes to get compensated. It also encourages the teams to sign a player for 3 years so they can fully really that compensation. Likewise, a team/player is only taxed for three seasons and it is based on his lifetime contract, so it is not a great burden.

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