Reworking Draft Pick Compensation

This year was the new year under the draft pick compensation system reworking that happened with the new collective bargaining agreement. It basically eliminated the old type A type B system and mixed the two together and no longer became about performance per se.

Under the old system type B free agents if offered arbitration and sign elsewhere the player's previous team would receive a player in the compensation round (between round 1-2) of the draft. Type A free agents who were signed would mean the previous team will receive a compensatory pick like a type B, but would also receive one of the other team's draft picks. If you were one of the top 15 teams in the league you lost a first round pick, if you were one of the worst 15 teams in baseball you surrendered a second round pick. If you were the Yankees of the 2008-2009 offseason you sign three type A free agents and lose your first three draft picks. Yeah, the poor Blue Jays that year got a third rounder as compensation for losing AJ Burnett. Bummer. The other issue with the old system was teams would have "hand shake" agreements with their type B players who they were not going to resign that they would offer arbitration and the player would turn it down in order for the team to be guaranteed an extra draft pick with no risk to the player's market since he didn't cost the new team anything extra like a type A free agent would. These agreements didn't hurt anybody, but removed all the risk involved in a team when they offer a player arbitration. Part of the risk was supposed to be that the player could say yes. And it also besmirched the fact that the entire notion of draft pick compensation was to compensate teams who lost players they were trying to keep (but could not in a competitive market). Instead it was compensating teams who had no interest in retaining players, but simply had good relationships between player and general manager. Yet another problem which emerged in this system was that one really good season could rank you as a type A free agent (since the rankings were based on a system that only looked at your last two years before free agency). This was a real problem for otherwise mediocre players, or even worse relief pitchers. Aside from the elite closers, teams just were not really willing to surrender a draft pick (especially a first rounder) for a relief pitcher, since relievers are much harder to predict in performance and bullpens are easy to revamp cheaply. This led to relievers having no pitching market. The most notable example of this would be Juan Cruz, who received type A status, could not get a job, and his team and new team had to work a sign and trade whereas his original team signed him and traded him to the team that wanted him. These are issues the new system tried to eliminate.

Basically under the new system, if your team offers you enough money (what is known as a "qualifying offer") and you turn it down by a specific deadline, any team that signs you will lose a draft pick. The qualifying offer number changes from year to year, because it basically has to make the player one of the highest paid players for the year. This offseason a qualifying offer had to be about 13 million for the year. Players that turn down their qualifying offer now cost the other team like under the type A system but benefit the previous team like the type B system. Or close to it. That means teams with the first 10 picks (as opposed to first 15 in the old system) have their first round pick protected but must surrender a second rounder. Teams who have picks 11-30 will forfeit that draft pick if they sign a player who has received a qualifying offer. The team who made the qualifying offer however will no longer receive that pick in addition to a compensatory pick, instead they will only receive extra picks in the compensatory round.

The thinking behind this is now only players who teams are willing to retain for top dollar (in theory the top free agents/top talent) will receive qualifying offers. Since promising 13 million for the year would be quite tempting for mediocre talent to take. It also removes the type B concept where teams could receive compensation with no real commitment or effort to keep a player. There are no handshake agreements when losing a draft pick is attached to you. It will affect your market to some degree.

But there are some problems still. Part of it is the market, that is, players who may not be what we consider the top tier talent may be expected top tier contracts because of a thin market at their position. Kyle Lohse is an example of this. After two strong seasons, especially this year, coupled with a thin pitching market, he seemed poised for big money and multiple years. But who thinks Kyle Lohse is one of baseball's best pitchers? Who thinks he will replicate these last two years as he enters his mid-thirties? The market inflated his dollar value. This made the Cardinal's decision to give him a qualifying offer obvious. Other factors such as agents affect this, since some agents (most notably Scott Boras) don't usually settle for one year deals, especially at the start of an offseason when the deadline for the qualifying offer is made. These lead to players obviously declining offers, but teams wondering if the player with worth not just the cost of an inflated market (which the way money is pouring into the industry probably is not going to stop some teams) but the cost of a draft pick is a serious issue.

The new system also favors teams like the Yankees, big market teams who can absorb some risk and make an offer to a more fringe player, like Raphael Soriano, who in my view is hard to justify 13 million a year, especially when you have Mariano Rivera as your closer so you are paying him to set up. Knowing Soriano wanted to close, the Yankees could gamble on Soriano and make a qualifying offer. If he accepts, they can afford one year of Soriano at 13 million and have an excellent bullpen. Because compensation is tied to salary amount, bigger market teams can take more risks and offer it to players whereas there is no way a team like Tampa Bay could make a qualifying offer unless they were 100% certain the player would turn it down or they really wanted to keep the player. Basically the small market teams will have to either truly want the player or be certain. Large market teams are not necessarily committing to wanting the player, even though that is what this system is still supposed to be about. It simply means only the large market teams can betray the system.

Then of course there is the problem with the value of draft picks under the new system. This may be the biggest issue with the new system. Now you don't just have draft picks, you have a spending limit on those draft picks. This cap on draft picks is a total amount spent for the year, but it can be divided any way you'd like among players that you draft/sign. Your cap total in part depends on what number picks you have (so since a 12th overall pick should be getting a better signing bonus than a 30th overall pick, your total draft spending would be higher because you have a higher pick). This means losing a draft pick not only impacts how early and how often you draft, but how much you can spend on the players you draft. This changes the value of draft picks, because even if you could live without that draft pick, you might feel you need more money to be able to sign the picks you want.

With the current system, we are seeing several players who had essentially no market. No surprise Boras clients are among those left (meaning you are already gonna have to over pay for the player's services in years and money, much less in draft picks). Michael Bourn and Kyle Lohse, two of the better free agents this year, have had little to no market. For Bourn, part of it was that the teams (Phillies and Nationals) that might have been willing to give up a draft pick and spend a lot of money for him ended up getting their speedy center fielders courtesy of the Twins. But the lack of any real market afterwards is clearly in part because of draft pick compensation. This is to the point where the MLBPA is considering filing a grievance. And the Mets were rumored to be interested but not willing to give up their first round pick (number 11, the highest first rounder you can lose). Lohse also has seemed to have no interest. MLBtraderumors.com, one of my favorite sites this time of the year, which posts just about any rumor on players out there don't even have much traffic on him this year. Prior to Scott Boras pulling a rabbit out of his hat, the same seemed true with Raphael Soriano who just now signed with the Nationals, despite being perhaps the best reliever on the market.

So now the question is how do we rework this system? I have an idea, but then an opinion. Here is my idea: that the compensation system fluctuate. I don't think we should alter the rules around draft picks and caps. I definitely think the amount of money going to draft picks were crazy. You shouldn't have that much leverage in contract negotiations before playing a game of professional baseball. If costing a draft pick does not also affect your draft cap, it actually might be an incentive for some teams to sign players with draft compensation so they have more freedom in draft spending. I'm not sure that benefits the system. Then large market teams will again be able to not only sign the big names, but have the money to perhaps sign the best players who could then use signability as leverage to drop in the draft. However, we could fluctuate the draft cost based on the market. The idea would be that after January 20, a good cutoff time for when the top free agents should be signed, the compensation decreases by dropping a round. Under this system, if the Mets signed Bourn now, he would only cost the Mets' second round pick instead of their first round pick. This would not affect what the Braves receive, since under the new system their compensation would still be between rounds 1 and 2. It only impacts what the Mets give up. The idea is that players who lose their market entirely due to compensation may get a last minute revitalization in their market. The benefit of this system is that instead of year in year out trying to fix holes in the system or rework it so it doesn't impact this or that player the next year, this system self fixes. That is, it is designed to offer relief to those who are hurt by the system. It doesn't fix all the problems, most notably the issue of large market teams benefiting from this system. But it still fixes the main complaint most people have over compensation and that is how it affects the market of certain players. Whenever we find teams to think a player is not worth that cost , they will drop some in the compensation later in the game.

I don't think this would impact most compensation players. That is, the ones this new system was designed for. The Zach Greinkes and Josh Hamiltons of the world will still be signed in December because players that sought after teams don't care about the draft pick cost. They want that kind of talent. There is always a risk of teams waiting until after the deadline to bid, but I just don't see it happening with the elite players, and perhaps it should with the less elite. What it would do is especially open up the market of teams that rely on draft picks for their franchise to get a chance to go in on top free agents. But there is that risk.

That was my idea. This is my opinion: That the system not be redone. I think we ought to keep the system exactly the way it is. There are two reasons here: the first is that players are taking a risk when they turn down a qualifying offer and that risk should remain. If the new compensation system is meant to only compensate for players that teams really want to keep, then it also means the system should affect their market some and it should in fact make players consider staying with their team, not just because of the money, but because of how compensation will affect their market. When a team makes a qualifying offer, especially smaller market teams, they are taking a risk that the player will not accept (or they want him to), and therefore there should be equal risk involved for those players who turn down the offer. Furthermore, if a couple players each year suffer a horrible market because of draft pick compensation, it will make players more willing in the future to accept qualifying offers, which will make teams more discerning on who they offer it to. Do you think next year's Kyle Lohse will weigh whether teams value him as much as he does. And if next year's Kyle Lohse accepts the qualifying offer, maybe the following year teams won't make that year's Kyle Lohse the qualifying offer, and his market will be wide open. Only by letting this system play out with all of its risk can the concept of making and accepting/denying qualifying offers ever come closer to the philosophy behind the compensation system in the first place. There are ways we could revitalize the market for these players each year, but we shouldn't. Michael Bourn and Kyle Lohse should maybe have to take 1-2 year deals at far less than anyone predicted in order for teams to be willing to surrender a pick for them. That will impact all the decisions in who gets and who accepts offers in the future.

Another reason is that this can actually benefit smaller market teams too. As I advocated in a previous post when I urged the Pirates to sign Kyle Lohse, I think the way this impacts a player's market could give a chance for less attractive free agent destinations to lure free agents without having to do ridiculous overpays that have historically been the only way to attract better tier players from the top destinations. The Pirates, between record streak of losing seasons and not having the dough to buy free agents have never been major buyers on the market. But here they could be. When Kyle Lohse has no one willing to commit to him, a 3 yr/30 million dollar offer from Pittsburgh looks a lot better than it would were the Angels and Phillies and Yankees all involved too. By the system also limiting the market of better players, it gives the little guy a better chance to enter it.

I think we should also remember Raphael Soriano. As Scott Boras has proven year in and year out it only takes one team willing to pay the cost. A limited market may be unfortunate, but it does not also mean that a player cannot get a good contract, because they only need the one team to jump in. It is more boring, it removes player's leverage, but it does not remove the possibility of getting a great contract with a great team. Just like when teams need to at some point pay good money to get the players they want, that can happen too with draft picks. I will not be surprised if the Rangers losing out again on another top target (Justin Upton...which by the way I get props on suggesting that destination 24 hours before he went to Atlanta) I think the Rangers are going to be desperate enough to go for Lohse or Bourn, and because of their disappointing offseason I think Lohse and Bourn would still have some leverage in negotiations to get a good deal. The limited market not only opens options for teams less fortunate on the free agent front like the Pirates, but it also allows these teams that have missed out throughout the offseason to make a big move late.

Basically, the system is not a bad one. Say what we might about it. And we shouldn't just rework it now because Scott Boras clients remain unsigned, we should let the market play out which is the real way to make it better in the future, by letting there be real risk and real reward.

That and I don't want to have to learn a new system again.