Free agent compensation under the new CBA

Prior to the 2012 baseball season, the Major League Baseball players and owners signed a new five year collective bargaining agreement which made several significant changes.

Among the changes are:

• Addition of another wild card team to the playoff format in each league, as we’re seeing now.
• Houston Astros moving to the American League West for 2013.
• Limits on the amount of signing bonus money that clubs can pay to draft choices and severe penalties for going over those limits, as we saw last June.
• Changes to free agent compensation, including elimination of arbitration for potential free agents, which we look at here.
• Increase in the minimum salary, blood testing for HGH, limitations on use of social media by players, rules on chewing tobacco, and other minutiae.

We provided an extensive description of all the changes here.

I’d like to focus on the new rules concerning free agent compensation. Although the major league playoffs aren't over yet, the season is over for 24 of the 30 major league clubs, and front offices are already scanning the list of potential free agent players and making decisions on which of their own players that might be free agents they’d like to have back.

One of the biggest changes in the new agreement is that a club will not be required to offer arbitration to potential free agent players that they have had under contract in order to receive compensation should those players sign with another club.

Instead of offering arbitration, clubs will have to make a "qualifying offer" of about $13 million for one year. The exact amount of the qualifying offer will be the same for all players, and is actually equal to the average annual salary of the top 125 paid players.

That offer must be made within 5 days after the end of the World Series, and the players will have until 12 days after the conclusion of the world series to accept or decline the offer. Those deadlines will fall within the first two weeks of November.

The Tigers’ potential free agents are Jose Valverde, Delmon Young, Anibal Sanchez, and Gerald Laird. There may be an outside chance that Valverde gets a qualifying offer, although his performance in 2012 would not justify a $13 million salary. Valverde is likely to get a multi-year contract for more total money, even if the annual salary is less. Dave Dombrowski has never been one to offer arbitration just to get compensation, and he isn't likely to do that with a qualifying offer this time around. The Tigers have always made closer a priority, but have never paid one more than Valverde's current $9 million salary.

Another change in the new agreement is that players who were acquired in mid season, such as Anibal Sanchez, will not be eligible for compensation. Dombrowski has said that he’d like to retain Sanchez, but Detroit will have to compete with other major league clubs for his services, and they will not be compensated if he leaves. The fact that Sanchez will not require compensation only increases his value to potential suitors.

The compensation scheme has also changed. No longer is the Elias Rankings Formula used to determine the value of free agent players. No more grading free agents as Type A and Type B. Any club that signs a player who has turned down a qualifying offer from his former club, regardless of position, will forfeit their highest available draft choice in next June’s Amateur draft. Only the top ten choices are protected from being lost as compensation.

A club that makes a qualifying offer to a free agent player who rejects that offer and signs with another club will receive a compensatory pick between the first and second rounds. The order of these compensation picks will be determined by team's winning percentage the prior season, choosing in reverse order. Should a club lose multiple players via this method, their compensation picks will be in succession.

The new agreement figures to dramatically reduce the number of players that are subject to compensation, and thus reduce the number of compensation round selections in the draft. In the past couple seasons, there have been about enough choices in the "sandwich" round between the first and second rounds of the draft to make up a full round of selections.

As an example, let’s look at the free agent closers. MLB Trade Rumors has a list of the 2013 free agents here. If you were a GM, would you offer any of these closers $13 million to stay another season? I wouldn't. Maybe Mariano Rivera, who will surely stay in New York. You can go through this list and identify the players that would be worth making a qualifying offer to, and can probably count them on both hands.

Speculating what the Tigers will do, I’d say they will not make qualifying offers to any free agent players, but will sign Gerald Laird to an extension and replace Valverde and Young through trades or the free agent market. They’ll make an offer to Anibal Sanchez, but the bidding will be competitive for his services.