Free Agency changed dramatically thanks to the 2012 Collective Bargaining Agreement (CBA). Prior to the current agreement, free agents were divided into tiers:
- TYPE A: Top 20% of players at that position. If they signed with a new team, the old team got the new team’s first round draft pick as well a compensation pick between the first and second rounds of the amateur draft.
- TYPE B: Top 21-40% of players at that position. If they signed with a new team, the old team got a compensation pick only; the new team retained its first round draft pick.
- TYPE C: You suck, and no compensation pick will be awarded. Actually the term ‘TYPE C’ did exist once, but was eliminated in 2007.
Note it was a draft pick game only; there were no monetary or bonus money implications to losing or signing a free agent.
In 2012, the ‘Types’ were abolished. The following rules apply to ‘each player who becomes a free agent … after having been continuously under reserve (without interruption to the same Club (either at the Major or Minor league level) since Opening Day of the recently completed championship season.’
1. The current team has to tender a qualifying offer within 5 days of completion of the World Series. You may see this 5-day period referred to as “the Quiet Period”. A qualifying offer is a one-year offer with ‘a guaranteed salary that is equal to the average salary of the 125 highest-paid players each year.’ For 2013, the average value was $13.3M.
(As an aside, the team might make the qualifying offer to the player before they know what the value of the contract will be. The offer must be made within 5 days of the World Series ending, but the numerical value must be reported by MLB within 10 days of the end of the World Series. Of course, I’d be very surprised if individual teams didn’t already know what the number was before the playoffs started – or even earlier.)
2. The qualifying offer is important, because without it the old team isn’t entitled to any compensation should the player sign somewhere else.
3. The player can either accept or decline the qualifying offer. If they decline, and they sign with a new team before the next amateur draft, their old team gets the new team’s highest draft pick, with some CAVEATS. If they don’t sign until after the draft there’s no comp pick for their old team.
4. Draft order for comp picks is based on won/loss percentage from the previous season, worst teams drafting first.
- If the new team’s highest draft pick is a top-10 pick they don’t lose that pick; they lose the next highest pick. If they sign more than one qualifying free agent they keep losing draft picks. After reading the CBA it’s a little unclear if they keep losing draft picks in the current draft, or if they lose their first round pick in2013, first rounder in 2014, and so on (I believe it’s the former).
- The highest pick they forfeit will change depending on if they exceeded their signing bonus allotment from the previous year’s draft. If they lost a high draft pick because of that, the old team gets their next highest draft pick.
I made a comment about a signing bonus penalty applied to teams that sign a high free agent, but I can’t find that language in the CBA. If a reader knows where that verbiage is located please let me know.
Ed Note: I did some research to better understand how compensation picks are awarded now. I figured why not share the results. Someone else out there might not know this. Italicized items in quotes are taken directly from the 2012-2016 CBA. Section of the CBA discussing Qualified Free Agents is on pages 86-92.