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The free agency period is now upon us, so we have been hearing lots of talk about Type-A and Type-B free agents and draft pick compensation…and the discussion leaves some people wondering what is all means.

For those of you who think you need an abacus to figure it all out, let’s see if I can help simplify it a little bit for you.

For the sake of discussion, let’s say the Red Sox sign John Lackey…and let’s say they lose Jason Bay to the Mariners and sign Jermaine Dye to fill the void left when Bay leaves. The question begs: which teams would get what compensation, and why?

(NOTE: all three players mentioned are Type-A free agents)

Through collective bargaining, Major League Baseball and the MLBPA have agreed on a statistical formula for ranking free agents in order to determine which free agents require compensation and which free agents don’t require compensation. The parties have agreed that the calculations will be based on the statistics each player has compiled over the last two years. Elias Sports Bureau makes the calculations and ranks the players overall and by position.

Position groupings are as follows:

* Catchers
* Designated hitters, first basemen and outfielders
* Second basemen, third basemen and shortstops
* Starting pitchers
* Relief pitchers.

Hitters are ranked based on the following statistics:

Plate appearances, batting average, on-base percentage, HR and RBI
Fielding percentage and assists (for catchers)
Fielding percentage and total chances (for 2B, 3B, and SS)

Pitchers are ranked based on the following:

Starters: starts, innings pitched, wins, winning percentage, ERA and strikeouts

Relievers: appearances, innings pitched, wins plus saves, ERA, hits per nine innings pitched and strikeout/walk ratio

Players who are ranked in the top twenty percent of their group are designated Type A free agents…those who place between 21 percent to 40 percent are designated as Type B.

Clubs only receive compensation for a Type A or B free agent if they offered their former player the opportunity for salary arbitration.

When a team loses a Type A free agent, they receive the signing team’s first-round draft pick and a supplemental first-round pick in the following year’s draft unless the signing team is picking in the first half of the first round , in which case the team losing the player receives a supplemental pick plus the signing team’s second-round draft pick.

When a team loses a Type B free agent, they receive only the sandwich pick.

If a team signs multiple Type A free agents, the club that lost the higher-ranking player gets the better pick. In other words, if the Red Sox were to sign John Lackey and Jermaine Dye, then the Angels would receive the Red Sox first-round pick (as Lackey is ranked higher than Dye) and the ChiSox would receive the Red Sox second-round pick. Both the Angels and the White Sox would also receive a supplemental pick.

Of course, in the scenario I laid out above, the Red Sox would receive Seattle’s first-round pick (the Mariners had the 14th-best record in baseball) plus a supplemental pick, for losing Jason Bay.

In the long run, the Sox would lose Bay and their second-round pick… on the other hand, they would end up with both Lackey and Dye while also improving their first-round pick ten spots.

NOTE: Jason Bay and Billy Wagner are the Red Sox Type-A free agents… Jason Varitek is a Type-B free agent. Takashi Saito was a Type-A free agent but the Red Sox lost the right to collect compensation for him when they dropped him off the 40-man roster after the end of the season.

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