Has MLB's Draft-Pick Compensation for Top Targets Hurt the Free-Agency Process?

Jason Catania@@JayCat11MLB Lead WriterDecember 21, 2013

Being attached to draft-pick compensation is hurting the market for Ubaldo Jimenez and other free agents.
Being attached to draft-pick compensation is hurting the market for Ubaldo Jimenez and other free agents.Otto Greule Jr/Getty Images

Matt Garza is a lucky guy.

He's a big league pitcher who's made millions to this point in his life and career, but because of a little quirk in a relatively new Major League Baseball rule, Garza may be in the best position of all the remaining big-name free agents.

No, the 30-year-old right-hander might not get the biggest contract of those who are still out there—and in case you haven't noticed by now, plenty top-of-the-open-market players remain available—as that distinction still is likely to go to Shin-Soo Choo, who is easily the best option in a dwindling field of position players.

But because Garza is not tied to draft-pick compensation—simply by the virtue of being traded during the 2013 season—he is the likeliest to get a deal that is commensurate with his talent. Even, perhaps, one that pays him a bit better than that.

Meanwhile, fellow free-agent right-handers Ubaldo Jimenez and Ervin Santana, both of whom had better seasons than Garza, may not be quite so lucky. Same goes for outfielder Nelson Cruz, shortstop Stephen Drew and first baseman/designated hitter Kendrys Morales.

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That's because that batch of players, along with Choo, were extended—and rejected—qualifying offers from their respective clubs, whereas Garza wasn't eligible to be granted the same offer because he was swapped from the Chicago Cubs to the Texas Rangers in July.

In case a refresher is needed, here's the gist. The most recent collective bargaining agreement, which went into effect in December 2011—but which didn't impact free agency for the first time until a year ago—created a new device by which teams are compensated for the loss of players on the open market: the qualifying offer.

That is, when a player's contract is up, his club can choose to present him with an offer that is a one-year contract at a price equivalent to the top 125 salaries in the sport. For context, that amount was $13.3 million last offseason and jumped to $14.1 million this year.

Essentially, any player who rejects the qualifying offer is hedging his bets that he can sign a multiyear deal as a free agent for either a higher average annual value or a higher overall value.

Once a player turns down the offer, if he inks with another team, that team then loses its first-round draft choice (or second-rounder, if the pick is within the first 10), while his former club gets a compensation pick after Round 1.

Garza, on the other hand, was traded—and thus ineligible for this complicated tango—and he's actually better off for it.

The fact of the matter is that teams have come to value their draft picks extremely highly in recent years, to the point where they either: A) will not forfeit a pick for a free agent unless that player is a top-notch talent worthy of such a penalty; or B) prefer to let the player sign with another club, rather than re-sign him themselves, in order to procure an extra pick.

Funny enough, we saw both aspects hinder Kyle Lohse last winter (which probably wasn't so funny for him).

After rejecting the qualifying offer last year, Kyle Lohse didn't sign until a week before the 2013 season began.
After rejecting the qualifying offer last year, Kyle Lohse didn't sign until a week before the 2013 season began.Justin K. Aller/Getty Images

Lohse was coming off a career season with the Cardinals in 2012 during which he went 16-3 with a 2.86 ERA and a 1.09 WHIP. St. Louis smartly presented Lohse with a qualifying offer, which he promptly rejected, figuring he would be able to land a nice bounty with several suitors seeking his services.

Problem was, that didn't happen. Rather than see Lohse as a high-end arm, many teams instead viewed him as little more than a mid-tier free agent with an inconsistent track record and a recent history of injury issues—not to mention, a 34-year-old sporting a 4.45 ERA for his career.

And so Lohse didn't hear from many teams. And so Lohse waited for weeks and then months without any real hint of a contract offer he had been expecting. And so Lohse, at long last, wound up settling for a respectable-but-not-quite-hoped-for $39 million over three years from the Brewers—a deal he signed only a week before the start of last season.

If Garza hadn't been traded, he may very well have been this year's Lohse. Instead, the scenario Lohse endured instead may happen to Jimenez or Santana or, more likely, Cruz, Drew or Morales, who are seen as nice players who can help a team, but not as impact talent worthy of surrendering a valuable draft pick.

The Yankees didn't mind giving up a draft pick (or $153 million) to sign an elite free agent like Jacoby Ellsbury.
The Yankees didn't mind giving up a draft pick (or $153 million) to sign an elite free agent like Jacoby Ellsbury.Maddie Meyer/Getty Images

For the very elite free agents, like Robinson Cano and Jacoby Ellsbury, or the near-elite types who play a tough-to-fill position or who are the clear top target at their spot on the diamond, like Brian McCann, the qualifying offer isn't considered much of an impediment to getting a big-money contract.

Teams, though, are definitely wary of the cost of doing business with a player tied to draft-pick compensation. In fact, it's gotten to the point—in only the second offseason with these rules—which we're starting to hear that some clubs simply will not even consider giving up their selection in order to sign a free agent who rejected the qualifying offer, per Buster Olney of ESPN:

The Diamondbacks, though, aren't the only club that is taking this stance. The Giants also fit that description, as Andrew Baggarly of CSN Bay Area points out:

In fact, things seem to have gotten so bad for Morales, in particular, that Peter Gammons of MLB Network conveyed this troubling prediction from an unnamed general manager:

The reason for that, you see, is teams no longer lose a pick for signing a free agent after the draft. While the message is clear, it's still unlikely that Morales (or any other player on the open market) will have to wait quite that long. The draft, as always, is next June.

And yet superagent Scott Boras, who represents Choo, Morales and Drew, all three of whom are still on the open market as the new year approaches, has made it clear that he can still find the right fit—and the right deal—for his clients, according to Bill Shaikin of the Los Angeles Times:

Boras, it should be noted, reps Lohse, so it was under his advisement that the pitcher turned down the one-year, $13.3 million qualifying offer in November 2012. In the end, that worked out well enough for Lohse, although it certainly was an embarrassing, frustrating, extended wait.

The paradox of all this is that the qualifying offer was created as a way to help players with expiring contracts, and in several cases, it's actually doing just the opposite by limiting their market.

It's telling, then, that the number of qualifying offers increased from nine last year to 13 this offseason. It's also telling that of those 22 total not a single one has been accepted.

Players Who Rejected $14.1 Million Qualifying Offers This Year
Robinson CanoYankeesMariners$240 M over 10 years
Jacoby EllsburyRed SoxYankees$153 M over 7 years
Brian McCannBravesYankees$85 M over 5 years
Curtis GrandersonYankeesMets$60 M over 4 years
Carlos BeltranCardinalsYankees$45 M over 3 years
Mike NapoliRed SoxRed Sox$32 M over 2 years
Hiroki KurodaYankeesYankees$16 M over 1 year
Shin-Soo ChooReds??????
Ubaldo JimenezIndians??????
Ervin SantanaRoyals??????
Nelson CruzRangers??????
Stephen DrewRed Sox??????
Kendrys MoralesMariners??????

Those two factors would seem to indicate that clubs will continue to present their free-agents-to-be with qualifying offers more and more each year, all with the hopes that the players will turn them down so the teams can score a pick.

But as the table above shows, of the 13 players who negged the qualifying offers this year, six have yet to land a new deal. In other words, it's making things more difficult, for sure. Teams have realized that they need to build the cost of the lost draft pick into the contract for these free agents, especially the non-elite types.

Eventually, though, a tipping point will be reached. On the team side, this is going to happen because at some point, the average of the top 125 salaries in the sport—which continue to climb—will be too high to pass up for a solid-but-not spectacular player who would be just fine earning $15 or $16 million for one season rather than, say, $30 over three years.

On the player side, this could happen as players who reject the qualifying offer and then fail to get much, if any, interest on the open market, approach their previous teams about taking them back—at a reduced rate and with their tails firmly between their legs.

In fact, as desperation began to set in with the season approaching, Lohse came close to doing just that with the Cardinals, who more or less told him they would prefer the draft-pick compensation, thank you very much.

Scott Boras has work to do if he's going to get clients Stephen Drew and Kendrys Morales big contracts.
Scott Boras has work to do if he's going to get clients Stephen Drew and Kendrys Morales big contracts.Scott Halleran/Getty Images

Clearly, this process, which was agreed upon by the Players Association in the first place, has become a problem for a few players during the first two offseasons in which it's been in place. The top-tier free agents, like Choo, have yet to feel the effects, but others sure have, including Lohse last year and Cruz, Drew and Morales this year—each of whom remain on the market and could linger there for a while yet.

If only they'd been traded during the season, like Garza, that lucky guy.