The biggest Reds news of 2016: their TV deal is about to expire

Photo Credit: Lynn Friedman

It's a challenging time for the Cincinnati Reds.  Coming off back-to-back losing seasons, there doesn't seem to be much reason for immediate optimism.  Even the front office is no longer bothering to predict great things.  In a recent interview, Reds President Walt Jocketty called 2016 a "transition year."  The front office is usually the last to admit they're not bound for contention, so we shouldn't expect much from the team next year.  All signs point to a fire sale this winter, and the question is more "how much" than "whether" in terms of the Reds converting their higher-priced veteran talent into cheaper and controllable prospects.  I'm hopeful that the next year will bring some exciting trades, at least.  I do worry that the Reds waited too long to sell off some of their top guys.  Chapman has only 1 year of control left and thus won't command the return the Padres just got for Craig Kimbrel.  Frazier probably peaked last summer.  Et cetera.  But there's still value to be had (and dealt).

There is one acquisition sitting on the horizon, however, that seems guaranteed to bring a nice boost to the Reds' bottom line: their television contract expires after next season.  Baseball's TV bonanza started, more or less, when the Dodgers received their other-worldly TV contract a few years back.  Ever since, we've seen team after team secure outstanding contracts that substantially boost revenues.  While there has been some cause for concern that this bubble might someday burst, there hasn't been any indication of that so far as I've seen.

Currently, the Reds' TV contract with FSN Ohio is reportedly for about $30 million per year.  That figure stands to increase with the new deal, but not to the tune of anything approaching the $8+ billion contract (total) the Dodgers received.  In fact, it might be laughably smaller: Cincinnati is the smallest TV market in all of baseball, according to Nielson's 2014-2015 Local Television Market Universe estimates:

Designated Market Area (DMA)	TV Homes	% of US
1. New York	7,442,270	6.539
2. Los Angeles	5,523,800	4.854
3. Chicago	3,477,250	3.055
...	...	...
21. St. Louis	1,226,860	1.078
22. Pittsburgh	1,173,320	1.031
...	...	...
35. Milwaukee	893,210	0.785
36. Cincinnati	876,290	0.770

This improves, of course, if one adds Indianapolis (#27 with 1,082,690 homes) and Louisville (#49 with 656,900 homes) into the Reds' territory.  I'm not positive whether those packages would be part of the same deal or not.  Probably?

In any case, it remains to be seen how much extra money this new deal might provide the team.  An estimate a year and a half ago had the deal at $75 million.  I don't have any way to judge how accurate that is, but if true it would provide the Reds an extra $45 million to play with per season.  One has to expect that not all of that will make it to the team payroll, but it should still pay for most of Joey Votto's and Homer Bailey's contracts, which collectively range from $41 million in 2017 to $48 million in 2019. Effectively wiping those deals off the books, while still permitting the Reds to (hopefully?) benefit from their contributions on the field, would be huge.  The Reds have seemed pretty much at maximum budget from the moment that Homer Bailey signed his extension.

My hope is that they at least see an increase of $20-$25 million in their TV deal, which would be enough to cover Joey Votto.  Getting that money back to play with the rest of the roster could net them 6-7 wins per year in free agent salaries, and even more value if invested in young, extendable talent.  Time will tell.

...of course, the problem is that it's unclear who those young, extendable talents might be.  Anthony DeSclafani?  Eugenio Suarez?  Jesse Winker?  Robert Stephenson?  Some soon-to-be-acquired talent?  It remains to be seen.  But the Reds clearly will need a major infusion of talent to get back to being competitive with the likes of the Cardinals, Cubs, and Pirates.

Hat tip to a commenter on this article at fangraphs, who pointed out the Nielson DMA ratings.

Why Mike Leake Should Threaten to Accept a Qualifying Offer

Mike Leake has millions on the line.
Photo Credit: Keith Allison

As of right now, we are just over 24 hours until the non-waivers trade deadline, and Mike Leake is still a Cincinnati Red.  The Blue Jays' acquisition of David Price is a blow, as the Jays had been connected in the rumor mill to Leake over the past few days.  Now, that's at least less likely to happen.  I'm sure that there still are suitors out there for Leake, and odds are that he will be moved.  But if I were Mike Leake, I'd be nervous.

The reason?

Mike Leake is a very solid pitcher.  He has been routinely worth between 2 and 3 wins over the past three seasons, and can absolutely be a valuable part of a contending team's rotation.  But he's not an ace, and will always have to answer skeptics due to his smaller size profile and low velocity.  He doesn't rack up strikeouts.  He gets ground balls, avoids walks, and fields his position well.  A free agent this offseason, Leake has earned a pretty nice payday.  I think he can reasonably look for a 3+ year contract at $10-13 million per season.  2016 will only be his age-28 season, and he has no history of injury, so I think clubs will be happy to pay him to lock down 180+ innings per season.

Aside from a late-season injury, there is really only one major pitfall that could derail his payday: compensation.  If the Reds fail to trade him, they will have the option to make him a qualifying offer, which will be somewhere close to $17 million for one year.  If he declines, then whatever team signs him will have to give the Reds their first-round draft pick in the 2016 draft as compensation for signing him.  If the Reds trade him, however, the team that acquires him cannot receive free agent compensation.

I like the principle of compensating teams who lose free agents.  The problem is that bonus to the team losing the free agent is paid by the team that acquires him.  Therefore, the acquiring team has to include the loss of a first-round pick as part of their calculations of how much they're willing to spend.  As a result, many mid-tier free agents in recent years have had a hard time finding a job, and ultimately had to accept a below-market deal, as a result of this compensation pick.  It directly cuts into their potential earnings, and ultimately has kept players from playing baseball.

So, if I'm Mike Leake, I would tell the Reds front office that I intend to accept a qualifying offer.  No player has ever actually accepted this offer (which boggles my mind), but even the threat of it might spur the Reds to action.  Bronson Arroyo commented that he'd strongly consider signing a qualifying offer as he approached free agency two years ago.  The Reds opted not to make an offer, and Arroyo went on to sign a 2-year, $23.5 million contract with the Diamondbacks.  If I were Mike, I'd make the same threat.  The Reds would most likely respond by either trading him now, or simply not making the offer this fall; I'm guessing that they are still too cash-strapped to risk it.  And letting Leake walk without getting anything for him would be completely unacceptable.  That leaves trading him as the most viable solution.

Whether he'd actually accept a qualifying offer, in that scenario, is another question.  The threat might be all that matters.

Reds spend second-least on free agents in baseball

Over at MLB Trade Rumors, Jeff Todd summarized the spending by all 30 MLB teams on free agents this offseason.  The Reds signed exactly one player: Burke Badenhop to a $2.5 million deal.  That ranks second to last in all of baseball:

Full story here!

Reds do nothing at trade deadline.

So the trade deadline has come and gone, and we have no news of any sort coming out of the Reds front office.  There were rumors that the Reds were in the mix for Alex Rios (who was not traded), and were dangling Mat Latos (I wonder if folks have injury concerns?) and Ryan Ludwick (who would take him?) on the market.  In the end, though, it looks like there won't be a big blockbuster deal of any sort for the Reds until the offseason.  Yes, there can be smaller deals on players who squeak through waivers.  But we won't see big impact deals.

Normally, I am not the sort who will argue to do something for the sake of doing something.  But in this case, I think the Reds really needed to make a decision: are they going for it, or are they done?  For reference, here are BPro's playoff projections, which have usually been among the more optimistic for the Reds this season:

15% isn't completely out of it.  But this is a team that had 50/50 shot as recently as the all-star break.  They've really collapsed, and frankly I think a 0.500 team is more indicative of what the Reds are than where they were at the all-star break.  Maybe I'm just feeling pessimistic.

In any case, here are the Reds options:

They're Going For It

If the Reds are going for it, I think it's almost impossible to look at their current active roster and think that what they have will be enough.  They are currently starting Skip Schumaker, Bryan Pena, and Chris Heisey in three of their starting spots.  I can live with Heisey in left field because of what he does with the glove, but Schumaker and Pena are not acceptable solutions for a playoff team.  It's no surprise, then, that the Reds' offense has been miserable for the past several weeks.

To have any kind of reasonable shot at the playoffs, they needed to add a significant bat.  There really just was no alternative.  I don't know what was available, and maybe there wasn't much out there.  But if you want to go for it, but can't find a good bat, then I think you have to conclude that the Reds aren't going to make it.  In which case, they should go for option two:

Concede the Season

The Reds do not have any major free agents leaving this fall.  But they have a large group of players who would leave the following season: Mat Latos, Mike Leake, Johnny Cueto, and Alfredo Simon.  Furthermore, they have at least one player who has played vastly above the level at which one could reasonably expect him to ever again in Alfredo Simon.  They also have a substantial increase in payroll coming in 2015, thanks to many of their young infielders coming up for arbitration eligibility, and several of their other players getting incrementally more expensive on their contracted deals.  With the market willing to pay for pitching, I think this was a missed chance to sell a part (especially Simon!), pick up some prospects that can help the team in 2015 and 2016, and, perhaps most importantly, re-tool the team to make it more financially viable and flexible next year.

But, they didn't do that.  So we're left with a season that is close to lost.  And really, I'm not sure how much better we can hope that the Reds will be in 2015.  So while I guess I'm glad they didn't do anything disastrous today, I think this was a missed chance to improve the Reds moving forward.

Broadcast Bubbles and the Reds' Upcoming TV Deal

David Lazarus thinks the current Dodgers situation could indicate that we're seeing the first signs of the baseball broadcast bubble bursting, per his LA Times article and conversation with Ben Lindbergh on Effectively Wild.  Here's an excerpt:

The problem for Time Warner is that the company shelled out a reported $8.35 billion for exclusive rights to distribute SportsNet LA. That whopping sum pencils out only if almost all other pay-TV customers in the region can be forced to pay an additional $4 to $5 a month for the channel. For Time Warner to cut the monthly rate or, God forbid, offer the channel a la carte, recouping that multibillion-dollar investment would become much more difficult if not impossible.

The Dodgers' TV deal is what has permitted them to sport the highest payroll in major league baseball this season, easily eclipsing that of the Yankees.  If their deal, in their enormous media market, does not pay off for Time Warner, then it could have ripple effects for the rest of MLB...especially teams that haven't yet gotten in on the broadcast contract bonanza.

Teams like the Reds.  And as I noted earlier this month, the Reds' payroll is set to spike pretty dramatically next season thanks to both escalating long-term contracts and the fact that several of their young core are about to become arbitration eligible for the first time. While Castellini and Jocketty have said they're not counting on a big broadcast deal when making their contract extensions, there's no question that a burst in the baseball broadcast bubble could have dramatic, negative consequences for the Reds if it happens before their current TV deal expires after the 2016 season.

Lazarus's comments on the Effectively Wild podcast were also pretty interesting.  My family is case in point of what he was talking about: we got tired of Dish Network bills in excess of $100 per month, and so we have dropped everything in favor of high speed internet alone, netflix, hulu, and for me, MLB.tv.  The MLB.tv package is basically a la carte product purchasing, and there's little question in my mind that this is going to be the long term solution for a lot of tv consumption.  It may take some time, but consumers won't settle for anything else.

Reds Payroll, Now and in the Future

With the start of the season, and in light of the Reds' latest long term salary commitment, I thought it would be interesting to take a look at the Reds' payroll for this and the coming few seasons.  First, based on this article from Deadspin, here are opening day payrolls for each team:

The Reds have pushed themselves up above the median, ranking 12th overall.  They are in a cluster of teams from the Arizona Diamondbacks (11th) through the Milwaukee Brewers (16th) that have pretty much average payroll.  This is a far cry from where the Reds used to be a few years ago, often in the lower third of payroll.

Why do we worry so much about payroll?  We hear a lot of talk about parity.  But nevertheless, there still is a clear relationship between team payroll and team quality:

There's scatter, but the regression line explains 32% of the variance between payroll and projected wins.  All but one team (the Phillies) with a payroll over $125 million is projected to win 83 or more games.  The two teams spending the least are projected to have terrible records.

Now, of course, there's a lot of scatter.  Teams spending roughly the same amount on player salaries may differ by 15 or more projected wins.  And these are just projected wins: inevitably, the relationship between actual 2014 wins and payroll will likely show even more scatter.

But the fact remains that teams that spend more, and especially those that spend more wisely, are projected to win more games.  Teams with higher payrolls can afford more talent, whether that's signing free agents or keeping their existing players.  Therefore, it makes sense to keep an eye on the Reds' payroll.

Here are the Reds' current payroll commitments for 2014, as well as the subsequent two seasons.  All data are from Cot's Contracts.

Reds 2014-2016 Payroll Commitments

Name	POS	ML Srv	Length / Total Value	2014	2015	2016
Votto, Joey	1b	6.027	10 yr/$225M (14-23)	$12,000,000	$14.00	$20.00
Phillips, Brandon	2b	9.022	6 yr/$72.5M (12-17)	$11,000,000	$12.00	$13.00
Bruce, Jay	rf	5.125	6 yr/$51M (11-16)	$10,041,667	$12.04	$12.54
Cueto, Johnny	rhp-s	6	4 yr/$27M (11-14)	$10,000,000	$0.80
Bailey, Homer	rhp-s	5.017	6 yr/$105M (14-19)+20 opt	$9,000,000	$10.00	$18.00
Ludwick, Ryan	lf	8.109	2 yr/$15M (13-14)+15 opt	$8,500,000	$4.50
Chapman, Aroldis	lhp-c	3.034	1 yr/$5M (14)+converted bonus	$7,835,772	$11.75	$15.67
Latos, Mat	rhp-s	4.079	2 yr/$11.5M (13-14)	$7,250,000	$9.67	FA
Broxton, Jonathan	rhp	8.02	3 yr/$21M (13-15)	$7,000,000	$9.00	$1.00
Leake, Mike	rhp-s	4	1 yr/$5.925M (14)	$5,925,000	$7.90	FA
Marshall, Sean	lhp	7.088	3 yr/$16.5M (13-15)	$5,500,000	$6.50	FA
Parra, Manny	lhp	6.063	2 yr/$5.5M (14-15)	$2,000,000	$3.50	FA
Schumaker, Skip	2b-of	7.051	2 yr/$5M (14-15)+16 cl opt	$2,000,000	$2.50	$0.50
Heisey, Chris	of	3.157	1 yr/$1.76M (14)	$1,760,000	$2.35	$2.93
Simon, Alfredo	rhp	4.142	1 yr/$1.5M (14)	$1,500,000	$2.00	FA
Ondrusek, Logan	rhp	3.125	2 yr/$2.3M (13-14)	$1,425,000	$1.90	$2.38
LeCure, Sam	rhp	3.072	2 yr/$3.05M (14-15)	$1,200,000	$1.85	$2.47
Santiago, Ramon	ss-2b	9.095	1 yr/$1.1M (14)	$1,100,000
Hannahan, Jack	3b	5.065	2 yr/$4M (13-14)+15 c opt	$1,000,000	$2.00
Pena, Brayan	c	6.081	2 yr/$2.275M (14-15)	$875,000	$1.40	FA
Cozart, Zack	ss	2.084	1 yr/$0.6M (14)	$600,000	$5.12	$7.68
Frazier, Todd	3b	2.071	1 yr/$0.6M (14)	$600,000	$6.48	$9.72
Mesoraco, Devin	c	2.028	1 yr/$0.525M (14)	$525,000	$4.64	$6.96
Hoover, J.J.	rhp	1.102	1 yr/$0.52M (14)	$520,000	$0.57	$1.20
Cingrani, Tony	lhp-s	0.163	1 yr/$0.5125M (14)	$512,500	$0.56	$0.62
Partch, Curtis	rhp	0.086	1 yr (14)	$500,000	$0.55	$0.61
Christani, Nick	rhp	0.039	1 yr/$0.5M (14)	$500,000	$0.55	$0.61
Hamilton, Billy	cf	0.028	1 yr/$0.5M (14)	$500,000	$0.55	$0.61
Marshall, Brett	rhp	0.033	1 yr/$0.5M (14)	$500,000	$0.55	$0.61
Soto, Neftali	3b	0.036	1 yr/$0.5M (14)	$500,000	$0.55	$0.61
Barnhart, Tucker	c	0	1 yr (14)	$500,000	$0.55	$0.61
Totals				$112,669,939	$136.33	$118.30

The data above assume that the Reds will not pick up any of their options, and thus just pay the buyouts.  More on that in a sec.  Also, the values in red are estimates of what these players might get in salary arbitration, based on either their current salary or a WAR-based salary estimate, and a 40/60/80% estimate for what players will get each of their three years in their arbitration years.

I think these numbers are a little concerning.  Right now, the Reds have three players set to be free agents following this season (assuming the Reds don't pick up the options they have): Johnny Cueto, Ryan Ludwick, and Ramon Santiago.  Roger Bernadina should probably also be on this list, but I accidentally omitted him.  In any case, collectively, those three are combining to make $19.6 M this season, compared to $5.3 M next season in contract buyouts.  That would seem to free up $14.3 Million.

Unfortunately, at the same time, the Reds have three important players who will be arbitration eligible for the first time next year:  Zack Cozart, Todd Frazier, and Devin Mesoraco.  The latter three are all somewhere in the vicinity of league-average players.  Therefore, even though they'll only make 40% of their free agent value, they will probably earn an extra $15 million by themselves.  There goes the savings.  And on top of that, just about all players with existing contracts get an incremental raise, along with players who are in their arbitration years (Aroldis Chapman, Mat Latos, and Mike Leake).

All told, the minimum salary commitments the Reds currently are dealing with have them at about $136 million in 2015, which is about $24 million more than the 2014 payroll.  And that's assuming they don't pick up Johnny Cueto's option!  That scenario seems unfathomable right now.  But picking up his $10 M option would bring payroll to $145.5 Million.  If they try to keep Ludwick, they're over $150 million.  All of this would appear to make the Reds pretty strapped for cash in the coming year.  And it doesn't get a lot better after that: while the payroll commitments drop in 2016, that would require that the Reds lose all of Cueto, Latos, Leake, Marshall, and Parra to free agency.  Between escalating salaries for the young guys, plus Votto and Bailey getting big jumps in their salaries, the Reds are going to need that TV deal to pan out for them to avoid having to gut the team.

We don't know what the Reds' financial situation really is, of course.  It could be that they're running (or anticipating) the kinds of profits that would permit this kind of payroll explosion.  But if this season goes poorly, and the Reds aren't as competitive as we all hope them to be, I would think some effort to trim payroll at the trade deadline might be in order.

Thoughts?  Will the Reds' TV contract let them keep this team together?  Or are we looking at the onset of a retooling period in the next few years?

Was Homer Bailey's Contract An Overpay?

The Reds locked up Homer Bailey this offseason,
but was the cost too great?
Photo credit: David Slaughter

The Reds' biggest offseason player move was unquestionably handing Homer Bailey a $105 million/6 year contract extension this offseason.  While this was exciting for most fans (myself included), reaction around the internets tended to lean toward this being a pretty substantial overpay.

I'm sure that people have done nice analyses of Homer's contract.  I didn't really look around at the time, though.  So, I decided to finally take a look myself.  Well, a few looks.  

Approach #1

The first approach I used is close to what I've been doing for years to understand contracts, and is inspired by people like tangotiger.  It works as follows.

1. Make a projection for a player during the contract.  I used 2014 Steamer and ZIPS projections for that (courtesy of FanGraphs), and then did a "standard" 0.5 WAR/year decline.  That might be generous aging for a pitcher given pitchers' inherent tendencies to break, but we'll run with it.
2. Come up with a cost per win translator for each year of the contract.  This is trickier than it used to be, because some of Dave Cameron's recent work has made it clear that the cost per win is not constant anymore; above-average players are getting more dollars per win than below-average players.  Fortunately, in that article he presented a regression line for this relationship, and it showed a really simple relationship: 2 WAR players (i.e. league-average) are getting $6M/win, 3 WAR players are getting $7M/win, 4 WAR players get $8M/win, etc.  I'm assuming that this "bonus" is set in the first year, such that players do not see their $/win decline as their performance declines.
3. Estimate salary inflation.  I'm guessing wildly here, but based on past increases, as well as the amazing amount of money coming into the game right now with all of the TV contracts, I'm estimating a fairly aggressive 10% inflation on the $/win of an average player.  I'm just going to assume that the extra million bonus a 3-WAR player gets per WAR is fixed and not subject to inflation.
4. Multiply the estimated WAR each year by the player-specific $/win numbers.  This gives salary value each year.  Then, you just sum up all of the years to get total contract value.

Here's what I got when I did this for Homer:

On the far left are years, my estimated average $/win with inflation, and Homer's actual salary.  I'm assuming the Reds will not exercise their part of his mutual 2020 option, so they pay the $5 million buyout.  Then you have the Steamer projected WAR, his $/win, and estimated salary.  Similarly, I report ZIPS estimated salaries.  Finally, on the right, I'm presenting a projection that would be required for the contract to make sense using my salary model.  In other words, this is apparently how the Reds are valuing Bailey.  Also, please note that I'm ignoring the fact that 2014 is Bailey's last arbitration year; we should really subtract $3 million from his total 2014 salary in each case to account for the fact that players make about 80% of their free agent value in their 3rd arbitration year.

It doesn't look like a particularly good contract, does it?  Steamer and ZIPS have his contract valued at between $50 and $67 million over six years.  Furthermore, Steamer's projection for 2014 is low enough that it doesn't even make sense to give him a 6th year.  The difference between the Steamer and ZIPS projections is entirely playing time: Steamer projects a 3.62 FIP in 173 innings, while ZIPS projects at 3.62 FIP in 192 innings.  Homer has thrown 200+ innings for two consecutive years, and has been very healthy in those seasons.  But just one trip to the DL would drop him into the 170-territory, and the floor in any given season is 0 innings.

To get the contract to make sense, you have to set his 2014 projection to 3.3 WAR.  That's not outrageous; Bailey was worth 3.7 fWAR last season (and 3.2 bWAR), after all.  But that was easily his best season thus far.  It's pretty hard to project that he'll do that again this season, at least based on standard player behavior.

On the other hand, what we're really dealing with here is a projected difference of 0.6 to 0.9 wins.  Given how large the error bars are on projections, this really isn't that bad.  If the Reds have special scouting information that indicates that Bailey really did take a significant step forward last year, and one that he's very likely to continue in future seasons, you could at least make an argument that this is a reasonable projection...

Approach #2

Dave Cameron recently posted a pair of new models that look at free agent salaries.

The first is a model that just takes total projected WAR in a contract and uses that to estimate a player's salary.  It's a simple regression equation, but it explains 95% of the variation in free agent salaries from the offseason.  Not too shabby!  Let's run it for Homer and our various projections:

This is a bit more encouraging.  Based on the regression equation, and our projection systems, Homer Bailey's contract estimate comes in at between $70 million and $85 million over 5 years (or six years, for that matter; he's projected to be replacement level in 2019).

I adjusted the Apparent Reds projection a bit here, because this regression model tends to result in higher estimated salaries than my first approach. Here, a projection of 3.1 WAR gets him where he should be for the contract to be an even value.  That's an 0.4 to 0.7 WAR difference from projections.

Approach #3

In that same article, Cameron also put together a salary estimation "toy."  It's very simple, not horrifically rigorous, but it works pretty well.  You can go to the article to read about it.  I applied it to Homer:

Cameron's toy suggests that, based on the Steamer and Zips projections, the market length of a salary like Homer's would be about 4 years.  But if we extend it to 6 total years, we get total estimates between $72 million and $81 million.  That's pretty close to the regression equation above.

The closest I could get his contract to the actual value was 3.2 WAR.  Push it to 3.3 WAR, and Cameron's toy extends him another year to 7 WAR, and the total contract value shoots to $115 WAR.  But again, the estimates are indicating that the +Cincinnati Reds are valuing Homer by about a half-win higher than the projection systems.

Conclusions

By the numbers, I think it's pretty easy to see why so many see this as an overpay.  Steamer, which has been the champion of pitcher projections the last few years, estimates his monetary value between 50% and 70% of the actual contract value, depending on which approach one takes.  That's a tough pill to swallow, especially when you consider that the salary models I'm using aren't making any allowances for the fact that pitchers are inherently more risky than hitters, aside from the projections.

That said, the other thing that this exercise impressed upon me was that the systems that I, at least, am using are highly volatile when examining long-term salaries.  For the most part, we're dealing with differences of just a half a win.  That's easily within our margin of error.  Any small difference in projection gets compounded with each year of an extension.  This is further enhanced by the fact that the cost per win changes with player quality.  As a result, a difference of less than a win in a projection can result in a $50 million difference in a contract valuation.  In Homer's case, that's half of his salary!

What do you think?  Is it reasonable to project Homer to have a 3+ WAR season in 2014?  Are these salary approaches so sensitive to small changes in player projection that they are almost useless?  Or was this a big overpay by the Reds?

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.