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The Qualifying Offer system works and it is terrible

The current collective bargaining agreement (CBA) changed the free agent compensation system. It has worked exactly as it was supposed to, which is not good because it is a bad system to begin with.

Steve Mitchell-USA TODAY Sports

The current qualifying offer system is still a relatively new one. Right now, if a player has been on a team for at least one season, a team can make a qualifying offer of the average of the top 125 salaries (currently $15.8 million), and if the player declines that offer, then as long as that player signs with another team before the draft, the team that makes the qualifying offer gets a draft pick between the first and second rounds. The team signing the player loses their best draft pick outside of the top 10 overall. This system serves to depress free agent salaries, which is exactly what it is designed to do. That does not make it a good system.

Before the current system was in place, there was another system, but it was not particularly good either. Here is a summary of the old system from Dayn Perry:

Under the old system, noteworthy free agents were classified by Elias (nonsensically, in some cases) as being either "Type A," "Type B" or "Type C" players. Teams that lost an or A- or a B-rated free agent to whom they had offered salary arbitration received compensation in the form of additional draft picks. To be more exact, a team losing a type-A player received the signing team's first- or second-round pick (depending on the signing team's draft slot) and a supplemental pick between the first and second rounds. A team that lost a type-B player was given a supplemental choice only. The loss of a type-C resulted in no compensation.

The Cardinals once received a compensation pick for "losing" Troy Percival (Lance Lynn) in free agency, and received two picks for losing Albert Pujols (Michael Wacha and Stephen Piscotty). Under the current system, the Cardinals have received one of their very best pitching prospects in Jack Flaherty for losing Carlos Beltran, and they are set to receive two additional picks in the top 35 of this year's draft for losing Jason Heyward and John Lackey. Despite having the last pick before the compensation round (number 23) due to posting the best record in baseball last year, the Cardinals have one of the ten-highest draft pools due to not signing a free agent attached to compensation and those two extra picks.

The focus of the reason for the rules tends to be the reward i.e. the extra draft picks and the penalty i.e. losing draft picks, but in this offseason in particular, there seems to be an added focus on the actual reason for the system, which is to depress salaries. Let's take a look at how we got here.

Stated Problem: Small-market teams were losing homegrown players to big market teams in free agency, and the small-market teams were receiving nothing in return for developing good players.

Solution: The previous system summarized above where players were rated, and good players provided compensation to the team that lost them in the form of draft picks and signing teams forfeited a pick outside of the Top 15 overall.

Resulting Problems: The rating system was not uniform and average relievers were netting teams draft picks. Teams that traded for players in the middle of a season were gaining draft picks after just a few months of time on the team.

Resulting Solution: Instead of a rating system, teams would determine a player's minimum worth by making a qualifying offer. A player would have to be on a team for at least one season to be eligible, and the protected picks were dropped to the top ten overall instead of the 15 picks previously.

Resulting Problems: The amount of money for the Qualifying Offers did not prevent average players from receiving one. Players entered the free agent market on unequal ground with similar players who had been traded during the season. Reducing the number of protected picks combined with changes to the draft system which restricted spending caused the draft picks to be worth more than they were previously, preventing many teams from entering the market.

Why the Resulting Problems are not actually problems: The system is not actually designed to compensate teams for losing their own players. It is designed reduce spending in free agency, which teams like, and it has been successful.

Actual Equitable Solutions

The easiest solution would be to simply get rid of the qualifying offer system. The trade market prior to free agency provides plenty of opportunities for teams to cash in on their initial investment and development time with a player. If they choose to keep the player, then they got almost seven seasons of production at bargain rates compared to the free agent market, and losing a player to free agency is rarely a bad outcome given the cost of aging players on the free agent market.

Perhaps More Realistic Solutions: It is possible that the current system had more of a chilling effect than even the owners anticipated, and a more equitable solution is possible. If that is what owners are willing to do and the players negotiate for something different there are a few different options. Dave Cameron recently suggested removing draft pick compensation for one year contracts.

My Proposal

  • Make the qualifying offer higher. Right now, it is the average of the Top 125 salaries, but at $15.8 million, any player who is close to average is worth a qualifying offer. Change it to the Top 100 or maybe even Top 50, and teams will only lose draft picks for signing good players.
  • Base the pick protection on market size. Keep the top-ten overall protected (or expand back to 15), but add in the ten worst markets/revenue teams. If the Oakland A's, Pittsburgh Pirates, or the Minnesota Twins want to sign a free agent, they are hardly stealing the player from a small-market team and they should not be punished for a successful team record.
  • If the contract is not more than two years in length and does not have a higher average annual value than the qualifying offer, then remove the penalty of the draft pick. If we go by the stated reason for having the current system, which is to reward teams for developing players and penalize the teams signing major free agents, then the system I have laid out still meets those goals. A player is more likely to accept a qualifying offer at a higher salary, which means the team gets to keep the player on a one-year deal. If the player declines, the team still gets the compensation pick, but the signing team could offer something close to two years and $40 million without giving up a draft pick.

This plan would still compensate teams who lost good players, still penalize teams for signing very good players, and would not greatly affect the market for free agents. Requiring players to be with the team for at least one year could remain in effect without changing the market significantly. Tying a player's free agent value to a draft pick they have nothing to do with is unfair to the player and the free agent market.

Eliminating the system completely would be the best idea, but if the plan is to continue, more efforts should be made to ensure players are not having their market decreased artificially. The current system is decreasing those players markets, just as it was designed to do. Making changes is dependent on owners and players agreeing to make sure the system does not work as well and fitting it closer to its stated goal than the actual goal which serves to benefit the owners.