22 February 2014

It's Time to End the Punishment for Signing Free Agents

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.


Anonymous said...

what you don't say is those players were offered $14 million to stay, no chump change

Jon Shepherd said...

You have to consider that the 14 MM offered is only active for a week when there is no movement on the FA so players and agents are not sure of real value. Joe is right...the system is unfair to players. Of course, that is par for the course with MLB.

Liam said...

Another issue with the system is that it often helps the rich more than the poor. I think there's a certain expectation that the comp picks will help small market teams remain competitive after losing big name free agents to wealthier teams who can afford them, while handicapping teams who choose to build through free agency.

In reality, big-market, successful teams often have more qualifying FA's and its the smaller market teams who are further prevented from entering the FA market. They Yankees gave up a few draft picks this winter but they also got comps back for Cano and Granderson and maybe Hughes.

Unknown said...

#Liam - under the 2013 system, the Yankees surrendered the compensation picks they were awarded for losing Cano and Granderson. They signed three punishment-eligible players (Ellsbury, McCann, Beltran) while losing two (Cano, Granderson) - they lost their first-round pick and the two compensation picks.

Matt Perez said...

I'm a fan of making teams lose a pick for signing free agents. Free agency is heavily dominated by a few teams already. Without the loss of a pick it would look even more lopsided. And if teams got a pick for losing a guy but didn't lose one for adding a guy then that would be huge for the haves.

I do think that changes should be made. Players should be able to exercise the option for the whole offseason. Teams should be able to renounce the option but then they don't get compensation if a guy signs elsewhere.

Also, there should be a limit on how many players can be offered compensation by a team (say three players every five years). That way the Yankees and Red Sox can't just sign guys to one year deals and get a pick. Guys who get offered compensation need to be keypieces. Guys like Cano and Ellsbury but not Granderson, Cruz and Morales. And probably should get more than a single first round pick (encourage teams to keep their best players rather than trade them).

But I'd rather keep the punishment and work in the system.

Unknown said...

#Matt Perez - I can certainly agree that teams that sign free agents should not be awarded compensation picks for losing free agents. I remain unconvinced that a team should be punished for trying to improve their team by signing an unemployed player that their previous employer offered a one-year contract to. To me, it's irrelevant that some teams are better able to sign players above the level that another team can.

To me, the idea that a team somehow has rights to a player beyond the terms of its agreed-upon contract is a legacy of prevailing conditions of a century ago. It's as inappropriate today as the idea that batting average tells you all you need to know about a hitter, that wins tell you who the good pitchers are, or that fielding percentage is the only meaningful defensive measurement.

Jon Shepherd said...

MLB has a long history of poorly implemented and poorly reasoned approaches to evening the playing field. Look at the Pirates situation, they could not assume the risk that offering AJ Burnett 14.1 MM would entail. It simply was too much money, so they got nothing out of it even though they are the epitome of a team that, according to the spirit of compensation, needs compensation.

Free agency, the draft, IFA pools...they are all poor ideas poorly executed.

Ra said...

Your claim that a team offering a $14.1MM qualifying offer "pretended" to want the player is disingenuous at best, a sever distortion intended to confuse the readers at worst

Ra said...


Jon Shepherd said...

Richard - It is actually a pretty fair statement and one that has been used a good deal in the past several weeks describing the Indians' interest in Jimenez. Cleveland's beat writer Paul Hoynes has been all over this about their interest.

Unknown said...

i lean more towards separating the draft and free agency completely, but am open to some sort of system that provides compensation/deterrent. but one problem with the current system is that a team signing a QO free agent gets punished twice (losing the pick and the slot money).

i think an easy fix that would help the current system is to have the signing team lose their draft pick, but keep their slot money, which would allow them to still reach for higher impact talent in later rounds.

Matt Perez said...

It's questionable whether Burnett really deserved a QO. Cruz and Morales clearly didn't. Santana and Drew did deserve one but should have accepted (at least in retrospect). Grandy got lucky to get a deal that was better than the QO.

It wasn't a no-brainer to give Burnett a QO.

#Joe - Fair enough. I agree that you could tweak revenue sharing to ensure competitive balance. Make it so that all revenue sharing money can only be spent on players/prospects and that teams can store money from year to year.