During the last Collective Bargaining Agreement, Major League Baseball made some big changes to the draft pick compensation system. Under the old rules, teams qualified for draft pick compensation if they offered arbitration to any pending free agent. They could make this offer even if the player was acquired after the season, in the days before he became eligible for free agency.
The result was that people abused the system. Contenders could trade for players, knowing that they would just be getting a compensation pick at the end of the year when that player walked as a free agent. Then you had teams who were trading for players in September, and then after the season, for the sole purpose of offering them arbitration to get extra draft picks.
Thus, MLB changed the rules. Under the new system, a player has to be under team control the entire final season of his contract to be eligible for compensation. Gone were the simple offers of arbitration, replaced by a “qualifying offer”, which was a one year deal for a set amount each season. This year that amount is $14.1 M.
Here are the players who received qualifying offers this season.
Stephen Drew, Red Sox
Jacoby Ellsbury, Red Sox
Mike Napoli, Red Sox
Robinson Cano, Yankees
Curtis Granderson, Yankees
Hiroki Kuroda, Yankees
Nelson Cruz, Rangers
Kendrys Morales, Mariners
Brian McCann, Braves
Carlos Beltran, Cardinals
Shin-Soo Choo, Reds
Ubaldo Jimenez, Indians
Ervin Santana, Royals
To break that down, here are the potential comp picks by team, their opening day payroll, and the payroll rank.
Yankees (3) – $228.8 M (1st)
Red Sox (3) – $150.6 M (4th)
Cardinals (1) – $115.2 M (11th)
Rangers (1) – $114.1 M (12th)
Reds (1) – $107.5 M (13th)
Braves (1) – $89.8 M (16th)
Royals (1) – $81.5 M (19th)
Indians (1) – $77.8 M (21st)
Mariners (1) – $72 M (24th)
There are 13 potential compensation picks, and nine of those picks go to teams who began the season in the top half of the league in payroll. Six of those potential picks will go to the Yankees and Red Sox.
Think about the irony of this. The Rays can’t spend money, and haven’t won a World Series, yet they were one of the teams benefitting from the old system. They would trade for players in the off-season, risk an arbitration offer, and get extra draft picks. The end result was that the system was changed. Now we have a system where the Red Sox are coming off a World Series title — their third in ten years — and might have four first round picks, and a lot of money to spend in a new draft system where more money equals the best chance at top talent.
There was a problem with the old system, but the new system is worse. The new system prevented people from taking advantage of the old system, but in turn it really handicapped small market teams, and benefitted big spenders.
Let’s think about the qualifying offer for a second. Who is more likely to be able to offer that kind of money? A team spending $80-100 M per year, or a team spending $150-200 M per year? The Red Sox can potentially tie up $42 M in qualifying offers, and it doesn’t even amount to a third of their payroll next year. If the Pirates did that, it would amount to almost half of their payroll if they were spending $90-100 M. That’s not to say the Pirates can’t afford to make a qualifying offer. They definitely can, but it’s easier for big spenders.
Then there’s the concept of a qualifying offer. The players who are going to be worth $14.1 M are usually some of the best free agents on the market. Most of those players are going to be playing for contenders. You don’t find a ton of teams who lose a top free agent at the end of a horrible season. Usually those players are traded at the deadline for a better and more immediate return. The system now just benefits winning teams, and allows them to stay winners. That’s not a bad thing, but it makes it even harder to become a winner in the first place. A lot of teams can’t build by signing big free agents or trading prospects for big name players. They have to build through the draft and international markets. MLB has made it harder to build through these avenues, and it only gets harder when you’ve got the Red Sox and Yankees getting six extra draft picks.
It’s not just about the teams. The compensation system makes no sense for the players either. Ubaldo Jimenez and Ervin Santana both received qualifying offers. Matt Garza couldn’t receive a qualifying offer, because he was traded mid-season. But Jon Heyman has Garza projected to earn more than the other two pitchers this off-season, and the qualifying offers make a difference. If you look at the numbers, Jimenez and Santana both had better seasons than Garza. There are question marks about all three prior to the 2013 season (performance for Jimenez and Santana, injuries for Garza). However, there’s no reason why Garza should be getting more than those two, just because he was traded and the other two weren’t fortunate enough to be dealt. Basically Garza is projected to get an extra $10-20 M this off-season because he was playing for a bad team last year, and was traded to a good team mid-season. Meanwhile, Jimenez and Santana see their values depressed because they were helping their teams to a better record than the record the Cubs had when they traded Garza.
The difference in values is due to the fact that teams will have to give up their first round pick, plus a large amount of draft pool money, if they sign Jimenez or Santana. Under the old system, the signing team would give their first round pick to the former team, and the former team would also get an additional compensation pick after the first round. Now the former team only gets that pick after the first round, but for some reason the signing team still loses a pick. If the old team is getting compensated for losing a player, then why should another team be punished separately for signing that player? Again, this is something that hurts small market teams more than big market teams. The Yankees can afford to lose a first round pick, especially in a system where they might get three additional picks. The Pirates couldn’t afford to lose a first round pick, even if they were getting additional picks.
The new system doesn’t make sense for teams. It doesn’t make sense for players. It’s a total mess that only benefits teams like the Red Sox and Yankees. Not only do they get extra draft picks, but they also get free agents at cheaper prices due to the draft pick compensation involved with signing a player who received a qualifying offer.
This isn’t the first time I’ve written about this system being broken. I originally went with the title of “The Draft Compensation System is Still Broken”. Then I noticed that I had previously used that exact same title back in January, also in a First Pitch article. So I decided to take a different approach this time and present a simple solution that would actually be fair to all teams, along with being fair to all of the players.
Fixing the Compensation System
1. Come up with a ranking system where the top X amount of free agents get compensation. This shouldn’t be hard, since that is what happened under the old system. The only change I’d make from the previous version is that middle relievers should never receive compensation. That was a large problem with the old system, and the main avenue where teams would abuse the system to get extra picks. I also would say that this shouldn’t be a high amount. Maybe the top 20-25 free agents. Some of those players would be returning to their old teams, so you’re getting about 15-20 extra draft picks.
2. A player must be on a team by the playoff trade deadline to qualify for compensation. Teams are paying a premium to get those guys for the playoffs, so they should be compensated when those players walk at the end of the year. The Pirates, for example, gave up Dilson Herrera and Vic Black for Marlon Byrd. They only had Byrd for one month and the playoffs, but they paid a lot to get him for that time.
3. No qualifying offer is necessary. If a player is eligible for compensation, and he signs with a new team, the old team gets compensation. I don’t understand why the old team has to make some huge offer just to get compensated for a talented player leaving.
4. There is no penalty to sign a ranked free agent. The old team is getting compensated. Why punish the signing team just for being the team who signed that player? This also helps the players by avoiding situations where one player sees his value hurt and another doesn’t, all because the first player was unfortunate enough to be eligible for compensation. This will lead to the players getting more money overall, and realistically the owners would never allow that, so…
5. Teams can only sign one ranked free agent, not counting players who were previously on their team. This makes it impossible for one team to spend big on all of the ranked free agents. It spreads the talent around, and it drives prices down to make up for the fact that overall prices will be going up due to rule number four.
The system I presented will still lead to big market teams getting draft picks. But small market teams will also get draft picks. Small market teams can also sign a ranked free agent without worrying about losing a pick. And they can trade for help if they’re in a playoff run, knowing they’ll get compensated for making that move at the end of the season. On the flip side of that, rebuilding teams might get a slightly bigger return at the deadline with players eligible for compensation after the season.
Overall it’s impossible to create a fair system. The reason for this is because MLB has an infrastructure that favors big market teams. Free agency is built for big markets. The draft and international markets were changed to reduce spending from smaller markets. The system I presented benefits big market teams, but it benefits them in the same way it benefits small market teams. The only reason this is a problem is because big market teams see such a huge advantage elsewhere, while small market teams see their advantages taken away. I don’t see that changing.
So baseball is stuck with coming up with systems that are fair, but don’t solve the overall problem in baseball. This proposed compensation system might not be perfect, and it might still benefit big market teams, but it would be a massive improvement over the system that is in place right now.
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Tim started Pirates Prospects in 2009 from his home in Virginia, which was 40 minutes from where Pedro Alvarez made his pro debut in Lynchburg. That year, the Lynchburg Hillcats won the Carolina League championship, and Pirates Prospects was born from Tim's reporting along the way. The site has grown over the years to include many more writers, and Tim has gone on to become a credentialed MLB reporter, producing Pirates Prospects each year, and will publish his 11th Prospect Guide this offseason. He has also served as the Pittsburgh Pirates correspondent for Baseball America since 2019. Behind the scenes, Tim is an avid music lover, and most of the money he gets paid to run this site goes to vinyl records.