Teams made their qualifying offers to potential free agents this week and these players now have until Monday at 5:00 p.m. to either accept or reject these offers. 13 players were extended the offer and looking at those players and the teams they come from, it isn't difficult to see a few troubling issues in this current compensation system.
Draft pick compensation is generally assumed to be one of the many ways that the league tries to promote parity. On the surface, that seems like a reasonable assumption. It gives teams who find themselves at risk of losing a player to a hefty free agent deal a slim chance to retain that player for another year and rewards them with an extra draft pick if they don't. As I discovered last off-season while looking at the case of Michael Bourn and the Mets, the cost in draft compensation to a team that signs away another team's free agent can add up to between $14 million and $3 million averaging out at $7.73 million (plus inflation). That added cost applies to every team but the player's original club, giving them an advantage in the bidding to retain their own star.
Given that, this system appears to be a good way to help small market clubs even the playing field against the big market ones, but in two off-seasons, the rule has had the exact opposite effect.
Conversely, three teams that can reasonably be called small-market, the Reds, the Indians and the Royals, each extended one offer and just one team with a losing record extended one (the Mariners). Last off-season the results were very similar. The Rays were the only truly poor team to extend a player the offer and the Red Sox were the only team with a losing record to make one.
Instead of improving parity and helping the smaller market clubs keep the big boys from raiding their roster, the qualifying offer system helps teams with the money to extend lots of offers make the most of their superior buying power. You don't have to look any further than the World Champion Red Sox to see exactly how this presumably unintended consequence turns the rule's good intention completely around.
Following their disastrous 2012 season, the Red Sox needed to address a number of holes on their roster. They needed an everyday first baseman, an outfielder, a starting pitcher and a shortstop. Even with a protected first round pick, the Red Sox shunned top free agents like Zack Greinke and Josh Hamilton, who had received a qualifying offer. Instead they signed four players- Mike Napoli, Stephen Drew, Shane Victorino and Ryan Dempster- to short term deals and used the qualifying offer to help them keep David Ortiz through 2014. A season and a World Series Championship later, two of those four key free agent signings are back on the market and the Red Sox have the advantage in re-signing them and the chance to gain additional picks if they sign elsewhere.
Few teams value the draft more than the Red Sox, and Boston ran wild exploiting the loopholes in the previous CBA to add extra picks. Just two seasons into the new CBA, the Red Sox front office seems to have found another way to game the system. If free agent Jacoby Ellsbury leaves Boston this off-season, he is expected to be replaced in center by prospect Jackie Bradley Jr., who the Red Sox drafted with the 40th overall pick in the 2011 draft, a pick they received as compensation under the previous system when Adrian Beltre signed with the Rangers. Like Stephen Drew and Mike Napoli this season, Boston signed Beltre to a one-year deal for 2010 following a poor performance in 2009 and he bounced back enough to justify a five-year/$80 million deal with the Texas. Three seasons and a new CBA later, little has changed. The draft pick that Boston earned from Beltre netted them a player to replace Ellsbury and Ellsbury, Napoli and Drew will, in turn, give them up to three chances to find another Jackie Bradley Jr.
The current draft compensation system heavily incentivizes teams to make deals like the ones Boston gave Beltre, Drew and Napoli. In exchange for taking on the uncertainty of signing a bounce-back candidate, teams can earn the added bonus of a supplemental pick if such a player performs well enough to attract a multi-year deal later. The problem with this incentive is that cash-poor teams are much less capable of assuming the risk associated with such deals and then also less able to chance a qualifying offer if that risk pays off. Even if a team like the Rays or Athletics recognizes this potential value, they may not be able to exploit it.
On the other side of the equation, teams with better records pay a progressively lower price for signing qualified free agents. The 11th pick is the first unprotected pick in the draft and last season, its value was on the higher end of the $7.73 million average of picks 11-30. The small-market Brewers, with the 12th pick in the draft, would therefore pay close to twice what the Red Sox will pay in draft compensation, should they decide to sign a qualified free agent. Thanks to the three qualifying offers Boston extended, they could lose their top pick and still end up with three picks before the second round, negating all of the lost draft pick's impact.
Whatever the intentions behind the qualifying offer system, its real effect is to help bolster the draft presence and re-signing power of the richer and more successful teams. These teams can routinely turn risky "pillow contracts" into draft picks and sign the best free agents at fraction of the penalties a team that finishes ten spots behind them must pay. With the well-heeled clubs like the Yankees, Rangers and Phillies all looking to make big moves this off-season, this draft compensation is particularly important to the upcoming free agent market. These clubs have the resources to take chances on players like Dan Haren, Josh Johnson and Jhonny Peralta on a short-term deals, and in complete opposition to its goals, that is exactly what this current system encourages them to do.