The Free Agent Compensation Mess

The Reds' Todd Frazier was acquired via compensation
pick in the 2007 draft.  Photo courtesy of David Slaughter.

One of the biggest features of the latest CBA is a revised free agent compensation system.  The short version, as I understand it, is that if a team makes a "qualifying offer" to a player, which is defined as at least a one-year offer at a certain rate based on current player salaries (last year, it was ~$14 million), his team can receive compensation in the form of a draft pick if he turns it down and signs with another team.  The draft pick usually will come from the team that signs the free agent.

This offseason we've seen a group of free agents really struggle to find employment.  It's a big list: Nelson Cruz, Stephen Drew, Ervin Santana, Ubaldo Jimenez, Kendrys Morales...  All of these players are mid-tier free agents, and all are players who turned down qualifying offers from their teams in order to pursue larger contracts on the open market.  Like we saw in past years, these players all appear to be encountering a significant challenge: these are not top-tier talents, so teams don't want to give up their first round pick to sign them on top of paying their salaries.

The Nelson Cruz example is particularly interesting because he ended up having to settle for a one-year, $8 million contract after turning down a $14 million contract earlier in the offseason.  And ultimately, the main reason he actually got a deal seems to be that the Orioles had already given up their first-round pick to sign Ubaldo Jimenez, which made signing Cruz far less of a consequence for them.  Now, granted, his agents probably misread the market for him; apparently, teams are realizing that low OBP, poor fielding sluggers aren't worth as much as teams used to pay for them.  But this was a pretty big mistake.

Earlier this week, Tangotiger noted that MLBPA has decided not to challenge the compensation system until the next CBA.  I can understand that on some level--trying to renegotiate in the middle of the agreement might make negotiations of the next CBA a challenge.  But the system really seems very unfair to these few players who have to deal with the compensation pick.  It's not just this offseason, either.   I remember Orlando Hudson having similar issues some years ago.

I've always liked the principle of compensation.  It's best merit, in my view, is that it's a small token of recognition that small market teams, in particular, can't always keep their players.  Therefore, when a team loses an important free agent, they get slightly better draft position to help them begin to recover.  A 30-something pick isn't great shakes, but teams have scored some nice players with compensation picks.  Todd Frazier, for example, was the product of a compensation pick under the old system when the Reds lost Rich Aurilia to free agency.  I also like the idea of a qualifying offer: rather than trying to rank players by the TERRIBLE free agent system, the qualifying offer lets the market determine a player's value.  Teams (presumably) won't give a qualifying offer if the player isn't worth it, and so you're effectively letting the market determine if a player is good enough that the team deserves compensation.  To me, that's pretty elegant.

So how do we fix it?  To me, the problem is that the team has to surrender their own pick in order to sign a free agent.  I'm sure there's some important reason for this, but it seems to me that if we just got rid of that component--there would be no cost to the team that signs the player beyond the player's salary, just a bonus mid-30's pick to the team who lost the player--the system would serve its purpose and work quite well.  

As it is, the penalty of the pick means that some players get a raw deal, and teams are less likely to sign mid-tier free agents to improve their teams.  Seems like a lose-lose to me.