One of the consequences of the Orioles' signing of Ubaldo Jimenez is that the Orioles will forfeit their first-round pick in the June 2014 amateur draft. The Cleveland Indians, Jimenez' 2013 team, offered a one-year contract at the "qualifying offer" amount, and Jimenez rejected that offer. Consequently, Cleveland would be awarded a supplemental draft pick between the first and second rounds, and the team that signed Jimenez would forfeit one of their draft picks according to a well-documented and specifics-laden formula. This penalty - the loss of a draft pick - is pretty obviously deterring teams from signing mid-level free agents, such as Jimenez. But is the draft-pick penalty right and just? Should a player have a harder time signing a contract, merely because his former team wants compensation? Should a team be penalized for trying to improve itself by signing an unemployed player, merely because his former team pretended to want the player? Is there any valid reason for teams signing a free agent to lose a draft pick? I think not.
In order to understand how the current rules came to be, we have to review the past. Until 1975, players were bound to the team for which they had contracted to play, or to which their contact was assigned, based on a single sentence in the standard player contract:
If prior to March 1, the Player and the Club have not agreed upon the terms of the contract, then on or before 10 days after said March 1, the Club shall have the right by written notice to the Player to renew this contract for the period of one year. [Bill James, The New Bill James Historical Abstract, The Free Press, 2001, p. 284]
Until 1975, this sentence (the "Reserve Clause") had been interpreted so that the renewed contract also contained this sentence, and so the renewed contract could be subsequently renewed, and so on in perpetuity. But on December 23, 1975, arbitrator Peter Seitz cast the deciding vote in favor of pitchers Andy Messersmith and Dave McNally in their grievances. The ruling, as I understand it, was that period of one year meant one year, and that after one year the Club no longer had the right to unilaterally renew the contract. This decision opened the free agency floodgates.
Major league baseball had been operating under what I shall call the "perpetual reserve clause" for over seventy years. Once a Club signed a player, that player would play for that team for essentially as long as the team wanted. Clubs had been counting on that practice while they were planning and building their teams. When the rules were suddenly changed, it was agreed that a team losing a player after he his one-year renewal season - a player it legally had no right to but which by practice it had been allowed to retain - should be compensated.
The first compensation was in the form of amateur draft choices. A team signing a free agent - I haven't found out which free agents were eligible for compensation - surrendered a draft choice to the team that lost the free agent. This was a direct compensation from the team that signed a free agent to the team that last a free agent. But there was a perception that the draft choice wasn't a sufficient compensation for the free agent. So, beginning in 1982, the free agent compensation draft was instituted. This was a pure compensation system - the team signing the free agent didn't necessarily lose a player or draft pick, and the team losing the draft pick received compensation. This was problematic - teams that didn't sign free agents felt it unfair that they would lose a player. So, after 1985, the free agent compensation draft was eliminated and compensation went back to draft choices.
Under this system, a certain percentage of free agents at each position were classified as 'A', 'B', or 'C' free agents. A team potentially losing a classified free agent could offer salary arbitration for one year to a free agent, and if (1) the player rejected the offer and (2) signed with another team, the team losing the free agent was awarded compensation. You're all familiar with the details of this system. The system had several major problems - (1) the compensation for a type 'B' free agent - a draft pick from the signing team - was too high, and deterred teams from signing type 'B' free agents; (2) because the classifications were based on positions, the compensation for middle relief pitchers was too high; (3) the compensation from teams that signed multiple free agents was perceived as inadequate; (4) the compensation to teams which lost multiple free agents, especially to different teams and especially if some of the lost players were middle relievers, was too high; (5) teams could acquire free agents late in the season and receive compensation for them.
But all of the elements of this system were at least secondarily intended to compensate the team that lost a free agent. There is an element of the new system which entirely intended to punish a team that signs a free agent. When a team signs a free agent who receives a qualifying offer, that team loses a draft choice, but the draft choice doesn't get transferred to the team that lost the free agent. It's just lost. It's a pure punitive deterrent, intended to discourage teams from signing free agents. And it works. As of this writing, at least four free agents who would cost the signing team a draft pick - Kendry Morales, Nelson Cruz, Ervin Santana, and Stephen Drew - remain unsigned. Teams which these players would help are unwilling to surrender a draft pick - and its corresponding pool money - to sign them.
And that's not fair to the players, the teams, or the fans. Players who are not employed by any team should be able to sign a contract with whichever team they want. Teams should be able to improve themselves by any legal means, without arbitrary punishments. And fans should have the opportunity to root for successful teams, teams which are doing everything they can to put a successful team on the field in the present without being hamstrung in their future development. Free-agent compensation should be limited to supplemental draft picks; teams should be allowed to sign any free agent without penalty.
One final point. Free agency has been around now for nearly forty years. Teams have had plenty of time to adjust to it and to take it into account when building a team. The very idea that a team which wants to keep a player beyond the terms of his current contract should be compensated when he goes somewhere else should be reconsidered.