When Nelson Cruz signed with the Orioles for one-year and $8 million dollars, he seemed to be admitting defeat. The market for baseball players beat him and it beat him badly. It is not entirely his fault. The market for players is moving quickly away from guys like Nelson Cruz and he hit free agency at what might be the liminal moment for immobile, power-only hitters. He also had the specter of the Biogenesis scandal over his head and a free agent market rich with outfield options working against him. However, the main thing that is being credited with destroying the market for Cruz and several other players is the qualifying offer. Keith Law of ESPN, for example, sees the deal that Cruz got as an example of the absurdities of the current system, a view that just doesn’t match up with the reality of the situation.
Really, we shouldn’t be all that surprised that Cruz got a one-year, $8 million deal. He is an aging slugger who doesn’t hit many line drives, doesn’t hit for average, doesn’t walk much and he can’t play the field. Add to that the Biogenesis suspension and the fact that his one plus tool- his home run power- might not play well in less hitter-friendly confines and suddenly, his one-year deal sounds about right. He is projected to be worth as much as 2.5 fWAR (Oliver) and as little as 0.9 fWAR (Steamer). If we use the $6 million per WAR model, he has a price range of about $6 million to $15 million before considering the steroids and the draft pick.
It is easy to see that he made a mistake by declining the offer now that he has lost $6 million, but it wasn’t so clear when he first turned it down. Power has traditionally commanded a high market value (see the Mark Trumbo trade, for example) and even though Cruz played in a pro-hitter park and got caught using PEDs, he seemed like a good bet to command a multi-year deal worth at least $10-$12 million a season. However, after watching what Michael Bourn, Kyle Lohse, Adam LaRoche and Rafael Soriano went through last offseason, he should have given the offer more careful consideration. After two offseasons, there seems to be a profile emerging for the type of player who would be better off just taking the offer.
Right now, Stephen Drew, Kendrys Morales and Ervin Santana are all unsigned and the qualifying offer is a major part of that story. All three could certainly contribute to a first-division club, but these players are also essentially average major leaguers. Oliver, Zips and Steamer all project Drew between 1.5 fWAR and 1.9 fWAR and while Steamer has Santana way up at 2.9, Zips has him at 1.7 and Oliver has him at 1.4. Morales is the worst of the bunch with projections at 0.5 (Zips), 1.5 (Oliver) and 1.7 (Steamer). If you are using the $6 million per WAR model, these players aren't worth $14 million and they won't get that annually on a multi-year deal. They would likely command deals that pay between $9-$12 million a year for several seasons, if not for the offer. Unfortunately, with the added cost of a draft pick, they are losing nearly a year worth of value at their market rate for any team that loses a first round pick. Even a second round pick is a hit of a few million dollars. For average players like these, turning down the offer might be much more risky bet than anyone seems to realize. A qualifying-offer player doesn’t need settle for a one-year deal of lesser value to wind up leaving big money on the table.
As a thought experiment on this issue, let’s consider Stephen Drew’s case for a moment. Drew was a 3.4 fWAR player last season for the Red Sox and unlike Cruz and Morales, he plays a premium position and he plays it competently. Tim Dierkes at MLB Trade Rumors put the ceiling for a potential deal for the shortstop at four-years, $40 million before the offseason began. That doesn’t look possible now, but it is a useful starting point.
If Drew could command four years, $40 million without the qualifying offer, he and agent Scott Boras should have realized that he was likely to see a hit of around $8 million from the qualifying offer. That brings his price down to four-years, $32 million, and an average annual value of $8 million dollars, just under the low-end of his projected value. That rate seems to place Drew right on the line where accepting the qualifying offer starts to offer enough of a reward to outweigh the risks of a one-year deal.
By accepting the offer , Drew would be shunning $18 million dollars in guaranteed income in this hypothetical situation, but he would only really lose out on that money if he gets injured or badly under-preforms in 2014 and winds up out of the majors the next season. Drew will be 31 this coming season and he has been a plus-hitter at the second highest spot on the defensive spectrum, so that scenario simply isn’t all that likely. Three more realistic possibilities for Drew illustrate the seemingly overlooked potential of the qualifying offer, helping us to understand where the dividing line should be drawn for players who should accept the offer and those who can comfortably walk away from it.
Scenario 1: The Best Case
If Drew takes the offer and outplays his projections to a reasonable degree, two things could happen.
Scenario 2: The Bad Break
If Drew gets injured and can never play well again, he is out that full $18 million sum, but that is a small percentage bet. The more realistic risk is that he has a down year or misses part of the season and has to settle for a small one-year deal, like the $3 million deal that Rafael Furcal just received after missing the entire 2013 season. He is now down $15 million, but he still has two seasons to make that amount before he can call it a loss. Earning a two-year $7.5 million deal for the 2016-2017 seasons with his age-32 season might be a long shot, but it isn’t out of the question. If he simply fades away on a series of one year deals after 2014, he probably loses around $10-$12 million dollars total from his decision to take the qualifying offer.
Scenario 3: The Projected
If Stephen Drew plays to his projections and nothing more, he shouldn’t see a tremendous drop in his market value. There will be some drop because he will be a year older, but approaching his age-32 season, Drew should still have the ability to generate a multi-year deal. He will be extremely unlikely to get a second qualifying offer in this scenario. The qualifying offer for the 2014 already exceeds his market value by a few million dollars, and the offer will keep distancing itself from his value each season. This is the most likely outcome and it has a good chance of producing the same overall earnings or even slightly more money than Drew can expect make this offseason, thanks to the $14 million already in the bank for the 2014 season. A three-year, $18 million deal is all it will take to match the value of the $32 million deal we started with and it isn’t impossible to imagine a 1.2-1.5 fWAR shortstop at 32-years-old landing that kind of deal.
By turning down the offer, Drew accepted a hit to his overall value in exchange to guarantee around $10 million more than he would make if he were to begin a sharp decline or get hurt next season. By accepting the qualifying offer, he would have risked that guaranteed income, but he would have stood to make a good deal more in additional salary if he surpassed his projections. The middle ground would be very close to the break-even point, though it would carry increasing risk every time that he had to find a new deal over the following three seasons.
Looking over these possibilities, it is understandable that Drew would choose certainty over the possibility of a higher potential payday, but the risk would have also been fairly justifiable. The relatively slim market for shortstops right now could tilt the scales enough to leave Drew regretting his decision to reject the qualifying offer, but he didn’t necessarily play the percentages poorly by doing so. He may have had a better-than-50-percent chance of earning more by taking the offer, but the odds might not have justified a $10 million bet. Players who project to be less valuable, like Kendrys Morales and Nelson Cruz, can’t say the same. For these players, the reward of an overpay in 2014 and the chance of hitting the market again without the qualifying offer attached would seem to greatly outweigh the risk of missing out on the additional money signing a multi-year deal now would guarantee. There appears to be a line around the around the 1.7- 2.0 fWAR projection range that separates those players who would do better accepting the qualifying offer and those who will earn enough guaranteed money to make the cost of draft pick compensation worth paying.
Age makes an enormous difference as well. A younger player should be able to command more years, which minimizes the impact of draft compensation and tilts the scales heavily towards the guaranteed money side. Again, Drew appears to be just about on the dividing line. He is entering his age-31 season, so a four-year deal appears to be the maximum teams would ever consider. At four years, the guaranteed money easily exceeds the rewards for risking a one-year deal. At three, it is very close to the tipping point where the money begins to favor the qualifying offer. By this logic, Ervin Santana should be alright, Drew is on the bubble and Kendrys Morales would have been better off taking the Mariners money for another year.
There are some issues in this line of thinking. It depends greatly on projections and each projection system has different numbers, which sets a different range for the balance between risk and reward. However, the logic of this thought experiment matches up reasonably well with the actual results we are seeing for qualifying-offer free agents. Cruz lost $6 million dollars by rejecting the offer. One of last season’s victims, Kyle Lohse signed a disappointing three-year deal for $33 million after rejecting the qualifying offer. Had he accepted, his 2013 performance (1.8 fWAR) would have made it tempting for the Brewers to extend the offer again. If that happened and he accepted again, he would have banked more than $27 million of the $33 million he will actually receive and still face a profitable offseason next year. If he was not extended the offer, he would have only needed to land a two-year, $20 million deal to top the deal he signed. Conversely, Adam LaRoche would have a tough time matching the extra $11 million over qualifying offer that he will make in 2014 after a down year in 2013. The Nationals first baseman probably wouldn’t have lost out on that much, however. Steamer projects him to be of comparable value to Justin Morneau who signed at two-years, $12.5 million deal with the Rockies and James Loney, who signed a three-year, $21 million deal with the Rays, so the loss would be tempered by whatever deal he could get this offseason.
The players that are suffering through qualifying offer purgatory are understandably upset with the new