Simple proposal to fix qualifying offer rule

by
January 6, 2013

In football, teams have the ability to mark one of their players with the “Franchise” tag. One use of the franchise tag is to delay a player’s free agency for one season by paying him the average of the top five salaries at his position. Teams cannot apply the tag to the same player two seasons in a row.

Under the new CBA in baseball, teams have the ability to extend a “Qualifying Offer” to a free agent. The amount of the offer must be greater than or equal to the average of the top 125 contracts for the previous season. In 2012, that was $13.3 million. As you’re likely aware, if the player signs with another team, the original team receives a supplemental first-round pick in the draft. The signing team loses their first-round pick and the spending allocation associated with it.

The new system has left a few free agents out in the cold. For example, Kyle Lohse has reportedly received no offers.

So why mention football’s franchise tag? Because it has one feature that MLB could implement immediately with very little pain (except to this season’s batch of qualified free agents): it cannot be applied to the same player two seasons in a row. This makes a couple subtle, but important, changes to the incentive structure around qualifying offers.

First, it encourages all but the best players to accept the qualifying offer. Let’s say the average value of the surrendered draft pick plus spending allocation is $5 million. Teams should be willing to sign players for what they are worth minus that $5 million. In Lohse’s case, if teams believe he is worth a three-year, $40 million contract, they should be willing to offer $35 million over those three seasons. That’s less per season than the qualifying offer, so he might be inclined to accept, assuming he has an accurate understanding of his own value and is comfortable with the risk.

At the same time, it also encourages teams to use the qualifying offer only on elite talents and players they want to retain on a lucrative, yet cost-controlled, one-year contract. Using the example above, the Cardinals were able to comfortably offer the $13.3 million to Lohse because he announced he was looking for a four-year contract exceeding $50 million. The Cardinals would have struggled to find the budget to keep Lohse, so if the odds of him accepting the offer were higher, they probably would not have made it.

There is one glaring drawback to this rule proposal. Low-budget teams like the Rays and A’s are rarely willing to pay any player the average of the top 125 contracts. Similarly, teams like the Yankees and Dodgers can extend offers much more freely than the average team. If they accidentally end up with too much depth, that’s a good problem. However, this is a structural problem related to league inequality that already exists under the current rules.

With this proposal on the table for discussion, what are some other simple ideas the MLB and MLBPA should find easy to stomach?


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@Bobbleheadguru
9 years ago

Interesting analysis… one other thought:

What about a “transparent” sign and trade option after the qualifying offer is extended and rejected?

For example allow the Yankees to sign Soriano, then trade him to the Tigers for a propect. Neither team is impacted by draft under this scenario.

As it stands right now, there is bad blood between the Yankees and Soriano and the Tigers would likely be very interested if the price were less than a 1st round draft pick and the big contract. All parties are stuck.

In theory the Yankees and Tigers could do this… but it would seem like collusion to some if an explicit rule were not established and followed by all parties.

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pft
9 years ago

The fix is simpler than that. Get rid of the penalty for signing FA.  Continue to give the team that lost a player who refused a qualifying offer an extra pick like they are doing.

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Brad Johnson
9 years ago

pft,

That’s an option, but it seems like the goal of that particular rule is to disincentivize teams from signing multiple top free agents. Or at least increase the cost of doing so.

This is something that was a feature under the previous system as well, so it seems like the MLB finds it important.

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@Bobbleheadguru
9 years ago

Brad,

An excellent example of your point is Anabel Sanchez. He gained at least $15MM simply by being traded mid-season.

Will we see situations where players from bad teams in their last year demand to be traded… perhaps even sit out of games?

What’s a few weeks worth of salary compared to $15M?

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Brad Johnson
9 years ago

I think it would take awhile for that behavior to be considered socially acceptable. The first movers would be penalized by fewer suitors and lower offers because they aren’t “team players.”

It’s funny how “baseball is a business” is mostly a one-sided affair.

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ughhhh
9 years ago

So what is the problem? Four guys out of how many overvalued themselves and you want to overturn the CBA that was just agreed upon? Maybe a few players and agents need to get a grip on reality. If these guys want to play ball they will. They may have to suffer through the indignity of 30-40 mil instead of 50-60 but they will get signed.

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Brad Johnson
9 years ago

Is it reasonable for a small minority of free agents who have the misfortune not to be traded midseason to be penalized relative to others?

We’ll see how much this affects their earnings potential. If it’s just a matter of $5 million or so, then it’s no big deal. But if players are losing over $10 million because of compensation, then something needs to be fixed.

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