Introduced as a more straightforward method of free agent compensation than the old Type A/Type B free agent designations, the qualifying offer has led to its own set of controversies over its five offseasons of existence. Some players and agents felt that the attachment of a first-round draft pick to the signings of players who turned down the QO had an undue influence on the markets for these free agents, so it wasn’t any surprise that the collective bargaining agreement agreed upon between Major League Baseball and the MLBPA last December contained significant changes to the qualifying offer system.
Since the new CBA wasn’t ratified quickly enough for the new rules to come into effect last winter, the coming offseason will be our first look at the new (and, in theory, improved) qualifying offer system and its impact on the free agent class. With fans of several non-contending teams already looking ahead to 2018, we’re due for a refresher on how the new QO process works and what it will mean for your favorite team’s efforts to retain players or pursue new ones on the open market.
At its heart, the qualifying offer remains the same — a one-year contract offered to an impending free agent who has been on that team’s roster for the entirety of the 2017 season. (So, pending free agents like Yu Darvish, J.D. Martinez or Jay Bruce cannot receive the QO since they were only acquired partway through the season.) The one-year deal is worth the mean salary of the game’s 125 highest-paid players, and MLBTR’s Tim Dierkes reported this year that the value will be $17.4MM. With such a notable dollar figure involved, teams are still likely only to issue qualifying offers to the upper tier of free agent players, especially given the new CBA’s stricter luxury tax penalties.
Our first major difference is that a player who has been issued a qualifying offer during a past free agent stint is no longer eligible to receive another one. For instance, the Tigers surrendered a draft pick when they signed Justin Upton two winters ago since Upton rejected the Padres’ qualifying offer. If Upton decides to exercise his opt-out clause this offseason and hit the open market again, he is no longer eligible for the QO, and thus Detroit won’t get any draft compensation if the star outfielder signs elsewhere. Upton is the most prominent player that will be impacted by this new rule, since of the past QO recipients who will or could be free agents this winter, Upton is the only one performing well enough to have been a lock for another qualifying offer this winter.
Teams have until five days after the conclusion of the World Series to issue qualifying offers to free agents, and these players will now have ten days to decide whether or not to accept (up from seven days in the previous CBA). This gives players and their agents a bit of extra time to access the market and see if a larger deal if out there, or if the best bet is to take that ~$18MM payday and test free agency again in the 2018-19 offseason, hopefully on the heels of a better season.
If a player rejects the QO and goes on to sign with another team, here’s where the new rules differ greatly from the 2012-17 CBA. In the last five years, a team with a player who rejected the QO would’ve received a compensatory draft pick between the first and second rounds of the following year’s amateur draft, while the team who signed the QO player would’ve given up their first-round pick (unless their selection fell within the top 10 picks in the draft, in which case the signing team would’ve surrendered their next-highest choice).
Now, however, the new rules factor in contract size and team situation. Here are the compensatory scenarios for a team that issued a qualifying offer to a player and saw him sign elsewhere…
- If the team was not a revenue sharing recipient or the free agent signed for less than $50MM guaranteed, the team will receive a compensatory pick after Competitive Balance Round B, which takes place just prior to the draft’s third round. (The Competitive Balance process itself underwent some changes in the new CBA.) This is essentially the “default” compensation for teams losing QO free agents, since most teams won’t meet either of the following two sets of criteria.
- If the team losing the player received revenue sharing in the previous season and the free agent signed a deal at least $50MM in guaranteed money, the team will receive a compensatory pick after the first round of the draft. According to MLB Network’s Jon Morosi (hat tip to MLB.com’s Anthony Castrovince), 16 teams are revenue-sharing recipients and could qualify for the higher pick — the Astros, Athletics, Braves, Brewers, Diamondbacks, Indians, Mariners, Marlins, Orioles, Padres, Pirates, Rays, Reds, Rockies, Royals and Twins. (It’s worth noting that the new CBA specifies that Oakland will be gradually phased out as a revenue-sharing recipient over the next two seasons.)
- If the team paid the luxury tax in the previous season, the team will receive a compensatory pick after the fourth round of the draft.
Furthermore, there are also new rules for a team that signs a free agent who declined a qualifying offer…
- If the signing team received revenue sharing and didn’t exceed the luxury tax threshold in the previous season, the team only has to surrender its third-highest pick in the next draft. If this team signed more than one QO free agent, it would give up its fourth-highest pick for the second signing, fifth-highest pick for a third signing, etc.
- If the signing team contributes to revenue sharing but didn’t exceed the luxury tax threshold in the previous season, the team gives up its second-highest draft pick and $500K of international bonus pool money in the next int’l signing period (which opens on July 2). If this team signed more than one QO free agent, it would give up its third-highest pick for the second signing and so forth, though it doesn’t appear as if that team would lose any additional international pool money would also be involved.
- If the signing team paid the luxury tax in the previous season, the team gives up its second-highest and fifth-highest draft picks and $1MM of international bonus pool money in the next int’l signing period (which opens on July 2). According to FOX Sports’ Ken Rosenthal, if this team signed more than one QO free agent, it would give its up third-highest and sixth-highest picks for the second signing, and so forth. Five teams look to be paying the luxury tax this season — the Dodgers, Yankees, Red Sox, Tigers and Nationals.
The old qualifying offer system’s effect on mid-tier free agents and how teams and players learned to adapt to the system evolved over all five offseasons of its existence, so it may be some years yet before we see how these new rules impact the free agent market. On the surface, the new rules look like a boon for players, as the new costs for signing a QO free agent aren’t as punitive as the loss of a first-round draft pick.
Likewise, teams are also likely to feel freer about making signings. The loss of international pool money isn’t likely to be too big a deterrent. (For a team like the Orioles that seemingly doesn’t care about int’l spending, it’ll basically be no deterrent at all.)  It also seems as though teams that lose their bonus money to sign a QO free agent can recoup those funds in trades, since international bonus slots can be dealt. What happens to the international pool money forfeited by teams for signing a QO free agent, you might ask? It will actually go towards funding other teams’ international signings; the money will be evenly distributed among the bonus pools of the teams that didn’t give up that $500K-$1MM to land a qualifying offer free agent.
As we saw at the last trade deadline, however, the most interesting wrinkle to the new rules is that teams may now also be more open to dealing pending free agents that likely would’ve normally been retained and issued qualifying offers. The Rangers, for instance, are a team that contributes to revenue sharing but isn’t over the luxury tax limit, so they would’ve received only a pick after Compensatory Round B if Yu Darvish had turned down the QO and signed elsewhere this winter. Since the trade package the Dodgers offered for Darvish was much more valuable than just a single sandwich pick, it made sense for Texas to accept a deal. That might have been a closer call if they still had a first-round compensation pick coming their way.
I love how these new rules will allow a team like Arizona to pursue a reliever like Holland or Davis this offseason without giving up more than their 3rd highest draft pick. That makes a huge different for a team trying to replenish its farm system and also remain competitive.
This is why, at this point, I expect the Pirates to keep Cutch and let him play out next season.
They can wait it out and see if they can get him signed to a team friendly extension (if the position player market continues to dry up) and if not, they can get a late first round pick for him.
Said late round pick is rarely cashed in for a good player, tho. 10-15% chance of just getting an MLB player, let alone a good one.
Holy hell, wish I had not drank before reading this. I think the new system will keep from the bickering of FA every year and teams only extending the ones they truly want, instead of extended to all and hoping for picks.
Agree. Golly, look! Lawyers!
Wow, and here I thought the new and improved MLB QO rules for FA would be simple like its predessor.
predecessor*
Way more complicated than it needs to be. I’ll waste no effort trying to remember it all and I’ll just pretend everyone gets/loses a 4th round pick with any QO situation.
The MLBPA has been one of the toughest unions out there for years now, this reinforces that. They won this by a landslide. This is only one small step removed from totally unrestricted free agency at the end of a contract.
Smaller market teams relied on the ability to be able to turn premium assets into new talent. Most of them will never be able to pull off keeping their superstars, and now there is zero disincentive to keep bigger teams from simply poaching all the talent from the top two tiers of players.
The players make out like bandits in this and the rich teams are laughing at how much easier it is going to be for them to stock up on talent.
“The MLBPA has been one of the toughest unions out there for years now”
Almost seventeen years ago Alex Rodriguez signed a deal with the Texas Rangers for ten years and $252 million.
Since that time, MLB revenues have gone up more than ten fold. No one who has examined this issue places a current dollar value on the A-Rod deal at less than $600 million.
The MLB players union is as weak as every other union in the USA.
So how does inflation make the union weak? Your argument make no sense.
Oh I see, you’re trolling. There is no correlation between the value of A-Rod’s deal and the strength of the union. Unions do not supplant economic law, i.e.: supply and demand.
Almost as soon as the ink dried on that contract, it became an albatross on the Rangers. That winter was the culmination of market value salaries outpacing revenue growth, causing many teams to hamstring themselves. While it might have gone on the other direction, if anything it was necessary for revenue growth to outpace salary growth, in order to balance that out.
Also, that Rodriguez contract proved to be something of an outlier. The PROPER way to compare revenue growth to salaries is to look at AVERAGE salaries, not the full size of the single biggest deal in the sport.
Also also, the league has placed a cap on the spending of top tier teams in the name of competitive balance. Competitive balance is good, but it has a side effect of removing money from the pool that would go into salaries. So it isn’t that the players are getting screwed, but rather that teams such as the Dodgers and Yankees are being forced into sitting on more revenue because they don’t have the ability to spend that extra money without prohibitive penalties.
Your comment does not fit in with what we have seen. While in theory granting greater compensation to teams helped small market teams restock after losing superstars, in practice large market teams lost major FAs as much as small market teams. The trouble is that this created an incentive for rich teams to cycle out stars (for the comp picks) and they could easily replace that talent with other signings. For example, at the end of the A/B system the Boston Red Sox intentioned took advantage and used the system to stockpile extra draft picks.
So no, this does not hurt small market teams, because small market teams weren’t benefitting in the way that you seem to think. If anything, this is the first time the comp system has differentiated between teams that need help from those who do not, so while the rewards are lightened at least small market teams will actually have a true advantage under this system.
I would think that this new QO system would be a deterrent to high spending teams to sign more free agents. May not be their first pick, but two (2nd and 5th) picks and $1M of International bonus pool money seems like it would be a deterrent. Guess we will find out.
Combined with the taxes – and they rise astronomically and quickly – every big market team has been highly incentivized not to fall into that bracket of paying tax penalties.
The players have shot themselves in the head. You will soon see players like Jeremy Hellickson signing one year deals for five million or less as big market teams avoid them like an ebola infection and teams like Pittsburgh squeeze them collusively.
With every new Q O deal-the bottom line is-we the fans lose-the Rich players and owners WIN. Simple as that! Costs fans more at the gate and for t.v. Rights. When are fans going to say enough? Poor players can hardly get by with $18 M -has to be raised -How do we expect them to live on that pittance ?They used to cry they have to make more because the average career was only 3-5 years, but at a minimum of $100,000 a year and progressing from there-they earn more then any average Joe I know .
Poor Hellickson only $5M -a year. I’ve worked hard everyday of my life for 63 years -and won’t come close to $5M in total-never mind 1 year!