How to correct MLB’s free agency issues in 12 easy steps

We are over a week into spring training, and there are 45 major league players still without a contract. This includes three of this year’s top five free agents, as ranked by MLB Trade Rumors back in November — and Manny Machado just signed with the San Diego Padres. It’s clear from the sheer volume of unsigned players and comments from those around the game that MLB’s free agency system is in need of repair.

First, let’s identify the problem

Three primary factors have led to so many players being left without a contract.

1. Stiffer penalties imposed on teams who surpass the luxury tax threshold (as part of the latest collective bargaining agreement) have had a chilling effect at the top end of the pay scale.

2. The widening disparity in pay between veteran free agents and players in their first few seasons has incentivized clubs to replace older players with younger, cheaper talent.

3. Tanking. Several teams around the game have all but given up on signing free agent players. There are 10 clubs who have not signed a free agent player for at least a $6 million salary this offseason.

In addition to the unsigned players, there were 77 players signed to one-year contracts, and another 93 players (and counting) signed to minor league contracts through February 25. The number of one-year deals is up from 53 a year ago. These 160 players will again be free agents after the current season if they don’t retire, creating an even larger glut of free agents on the market.

MLB commissioner Rob Manfred has recently issued statements denying that there is a problem.

“I think it’s important to remember that the Major League Baseball Players Association has always wanted a market-based system, and markets change, particularly when the institution around those markets change...The process of putting together a competitive team looks a little different. Fans have to get used to that different process and have a little faith in the people that are running their clubs.”

This has only further stirred unrest among the players, with talk of a labor stoppage if matters are not addressed sooner than later. While Manfred has focused on “pace of play” issues, the MLB Players Association (MLBPA) has countered with proposals to address free agency issues. Some of their proposals echo our own suggestions, but not all.

Here are 12 fixes that would improve baseball’s free agency problems.

Expand 25-man rosters

Expansion of active rosters from 25 players to 26 or even 27 members was almost included in the current CBA, but the sides ran out of time and the proposals were tabled. Creating another 30 to 60 MLB jobs could significantly reduce the glut of free agents who are presently unemployed. Then, limit rosters in September to 30 players instead of 40.

A universal designated hitter

Not only is the universal DH a change that is long overdue for the good of the game, it would lead to more jobs for veteran players who tend to fill these roles — or more competition for premium hitters with declining defensive skills, at the very least. It’s coming soon.

Introduce a payroll floor

Thirteen MLB teams have begun spring training with a payroll under $100 million for their 25-man rosters. Six teams are spending less than $70 million. The owners have previously offered to implement a minimum amount that teams must spend on player salaries, but this was tied to a hard salary cap. The luxury tax penalties are a compromise, while each round of bargaining has produced stricter penalties for the top spending teams. The players have opposed a hard salary cap every time, but have gradually given in to allow the upper limits to harden without setting a minimum payroll.

Adjust the luxury tax penalties

Under the current CBA, teams are penalized up to 92 percent at the very top of the scale for going over the luxury tax threshold in consecutive seasons. No teams are currently in that tax bracket, with the Boston Red Sox being the only repeat “offender” this season. Teams should be taxed on the amount that they are over the threshold rather than the number of consecutive years that they go over. A dollar-for-dollar tax on payrolls over $50 million above the threshold, down to 10 percent for those less than $10 million over, would be more fair.

Increase the luxury tax threshold

The luxury tax threshold has crept up very slowly as club revenues have soared at a far quicker pace. In 2017, five clubs paid a luxury tax, including the Tigers. In 2018, all five of those teams fell back under the threshold and reset their tax brackets. All but the Yankees remain under the threshold in 2019. Releasing pressure at the top end of the scale would allow for more clubs to spend larger amounts on salaries, with reasonable limits as explained herein.

Limit the length of contracts

In order to spread the wealth to more players, the system should loosen overall spending at the upper end, force greater spending at the lower end, and transfer more money from the highest contracts to the mass of veteran free agents. The NBA limits contracts to five years. The NHL has a seven-year limit. Length of contracts is perhaps a greater deterrent to smaller market teams from signing top stars than higher annual salaries. Many players could benefit at the expense of a few.

Restructure revenue sharing

All teams presently contribute about one-third of local revenues from gate receipts, concessions, and local television contracts to a pool which is then divided among all clubs. Dividing 50 percent of local television revenues would go right at the disparity (after all, it takes two teams to put on a show!). Let teams keep their gate receipts, which are the only major source of revenue that increases when a team is successful on the field. The shared revenues can then be distributed unevenly to level the playing field among all teams. This is one area where penalizing teams for exceeding the tax threshold would help the game, by denying any revenue sharing to those clubs.

Eliminate payment of compensation for signing free agents

Only seven players were given a qualifying offer of $18.3 million this year, with only one offer accepted. Three of the six players who declined qualifying offers remain unsigned. Penalizing teams for signing players and improving their rosters is fundamentally inconsistent with free market principles, and the current system adds more arbitrary criteria to the mix. The owners offered to end all compensation paid by clubs for signing free agents during the last round of CBA negotiations in exchange for an international draft, which the players rejected. Instead, a near-revolt among Latin players resulted in hard caps on international bonuses without a draft.

Expand arbitration eligibility

As part of the effort to reduce the gaps in salaries, increasing the number of players eligible for arbitration would relieve pressure on the bottom end of the scale. Reducing eligibility from “Super Two” status — roughly two years and 120 days of MLB service time — to two years would help. In addition, granting immediate arbitration eligibility for All-Star players would help to deter service time manipulation.

Introduce restricted free agency

If players were eligible for a restricted form of free agency after five years of MLB service time (if not sooner), more players would wind up with multi-year contracts, and more players may wind up signing extensions with the clubs that developed them.

Increase compensation for teams that lose qualified free agents

Giving teams compensation for losing players that they can not retain in free agency is a sound principle. A previous CBA provided supplemental draft picks after the first, second, or third round for teams who lost players after offering arbitration to Type A, Type B, and Type C free agents. Only teams that have the player on their roster for at least a full season should benefit, and clubs above the tax threshold should not. More players would receive arbitration offers and stay with their current clubs. Teams that cannot afford to sign those players would be compensated when other clubs sign them away.

Introduce a draft lottery

While there is only a marginal increase in success rates of higher draft picks, there is a distinct advantage to having the first few picks in any draft, with a curve that drops sharply from there. If there was a first round lottery among all the teams who missed the playoffs, without any weight or benefit given to the biggest losers, there would be no benefit — and no excuse — for teams that don’t try to improve their position in the standings, even short of making the playoffs. A step further would be to give the top picks to the teams who came closest but missed the playoffs, but let’s hold off on that for now.