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The Qualifying Offer in Baseball: its intent and consequences

The qualifying offer has been a hot topic the last couple of offseasons as those who received it have seen their free agent markets dry up. Stephen Tolbert walks us through what we are seeing.

League Championship Series - Boston Red Sox v Houston Astros - Game Three Photo by Elsa/Getty Images

In 2012, Major League Baseball, along with the MLBPA, agreed to a new system for draft pick compensation as it relates to free agency. And thus, as a part of the 2012-2016 Collective Bargaining Agreement, the qualifying offer was born.

This system itself is pretty simple. If a team wants compensation for losing a free agent, that player must be offered a qualifying offer within 5 days of the end of the World Series. A QO is a 1-year deal worth the mean salary of the league’s top 25 highest paid players and can only be offered if:

  • The player has never received a qualifying offer.
  • The player spent the entire previous season on that team’s roster.

If the player accepts the offer, he has essentially signed a 1-year deal at that year’s rate. If he declines the offer, he becomes a free agent with draft pick compensation attached to him. This means his new team will lose a draft pick (which pick is determined by a few factors; revenue sharing, luxury tax status, etc) and his previous team will gain a draft pick as compensation. (That pick is determined by all the same factors but also includes size of contract)

Pretty straightforward. And, at least on the surface, logical in its design and originating intent.

But what have been the real world consequences?

Well for the truly elite players, it really hasn’t meant anything. For them, it’s a clerical step in the free agent process. Because first round picks are now protected from being lost, the very top players are getting their deals without much of a fuss. When you’re signing a guy to an 80, 100, 120, or 150 million dollar deal, losing a third round draft pick simply doesn’t register. If you think enough about a player to give him that kind of money, the draft pick is just the cost of doing business.

This year, that elite group includes Patrick Corbin and Bryce Harper. Manny Machado would’ve been in this group but was traded mid-season last year and was exempt from receiving a QO. All are expected to get big money deals (Corbin already has) and no talk of the draft pick has been mentioned in their rumors. It simply doesn’t register for guys at an elite level. In years past, that group included Yu Darvish, Eric Hosmer, Lorenzo Cain, Zack Greinke, Jason Heyward, Yoenis Cespedes, Hanley Ramirez, Pablo Sandoval, and on and on. All got their deals with the draft pick compensation attached to them treated as mere speed bumps.

No, the true repercussions of the qualifying offer system has mostly been felt in the middle class and lower class free agents. Guys who are solid players, who certainly can help a major league team win, but lack the overall value some of their more talented peers possess. This year, the best examples are probably AJ Pollock, Yasmani Grandal, and Dallas Keuchel. All good players, maybe really good players, but a step below elite.

Grandal had a really good season last year but a rough post-season. Add draft pick compensation to his profile, and you get a player who was expected to sign a deal around 70 million this offseason but instead signed for 1 year/18 million. Pollock is an OF on the wrong side of 30 with a significant injury history. Keuchel is a pitcher, which has its own knocks by itself, whose fastball keeps getting slower. They are good enough to demand sizeable contracts from potential suitors, but with enough questions marks to make those teams wonder if that money and the draft pick are really worth it. Last year, Mike Moustakas was another player caught in the limbo of the qualifying offer. A good-but-not-great player who started the off season with hopes of a deal upwards of 60 to 70 million. By the end, he re-signed with Kansas City for 5.5 million.

Unfortunately for veteran players, teams have realized just how valuable young, and controllable players are to their organizations. So when faced with the option of signing a much older, more expensive player who will also cost you a draft pick, teams run the cost/benefit and realize in a lot of cases, it really isn’t worth it. Or if it is worth it, it’s certainly not going to be at the prices the player is asking.

In this writer’s opinion, the qualifying offer system is a small example of a larger problem that the players union once again bought hook, line, and sinker. It, like so many of the rules in baseball, was sold by the owners as a competitive balance measure. You see, there are rich teams and “poor” teams in baseball, and the only way the “poor” teams have a chance is if players salaries get suppressed along the way so the “poor” teams can stay competitive. The truth is, of course, every team and every owner in baseball could afford a competitive payroll if they wanted. Don’t know if you heard but business is booming. Teams set their own budgets and if the ones who don’t want to spend on payroll are at a competitive disadvantage, then it’s on them. But these “competitive balance” measures are nonsense.

Call them a solution without a problem if you want...but really, they’re a solution to do a different problem.

You see, we have a draft bonus system that suppresses the earning potential of draft picks. We have an international bonus system that suppresses the earning potential of international free agents. Minor leaguers get paid nothing. We have the pre-arb and arbitration systems that suppress the earning potential of young MLB players, and now we have the luxury tax and qualifying offer systems that suppress the earnings of free agents. That’s every stage of a players career. All introduced in the name of competitive balance.

Isn’t it incredible every time the owners enact a rule to help “competitive balance” a side effect always seems to be paying the players less?

The only thing more incredible is how the union has repeatedly let it happen.

So yes, the qualifying offer system does what it set out to do. Offers compensation for teams who lose assets via free agency and penalizes teams who gain assets in free agency. But it does more. It effectively gives owners a value-based argument for paying free agents less than they’re worth. So is the system working? Probably depends on your perspective. Are you currently sitting in an owner’s box?