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Volume 20 No. 42
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Change in draft-pick compensation questioned

The MLB Players Association and some baseball player agents think the sport’s shift to attach draft-pick compensation to only top-tier free agents may have inadvertently interfered with the market for those players.

Under terms of the collective-bargaining agreement, teams can receive draft-pick compensation for lost free agents only if they make one-year qualifying offers equal to the average of the top 125 MLB salaries, which for this year was $13.3 million. The rule replaced one in which any free agent offered arbitration by his team would then yield draft-pick compensation if he signed elsewhere.

The shift was designed to attach the draft-pick compensation to only the very best free agents, protecting teams that lose big stars while also opening up market opportunities for lesser players. Indeed, just nine players met the standard this year, compared with 37 in the winter before the 2012 season: Michael Bourn, Josh Hamilton, Hiroki Kuroda, Adam LaRoche, Kyle Lohse, David Ortiz, Rafael Soriano, Nick Swisher and B.J. Upton.

All but Lohse have signed for the 2013 season, and four teams surrendered picks in this summer’s first-year player draft, including Cleveland, which parted with two for signing both Bourn and Swisher.

Hamilton signed a five-year $125 million pact with the Los Angeles Angels, and Upton left Tampa for Atlanta in a five-year $75.25 million deal. Swisher also shifted teams, going from the New York Yankees to Cleveland, as did Soriano, from the Yankees to Washington.

But Bourn’s four-year, $48 million deal with the Indians, signed only a month ago, arrived far later than expected and did not approach the Upton-type salary numbers originally sought. Soriano’s market, similarly, was fairly constrained for a closer of his stature, and Lohse, despite a 16-3 season in St. Louis in 2012, remains unemployed to the surprise of many around baseball.

“That compensation seems to have interfered with some players’ negotiations in the way it did, in my view, was not contemplated,” by either the league or union, said Michael Weiner, MLBPA executive director. “The downside to the clubs is that they want to improve their clubs, but compensation gets in the way.”

Said an agent speaking on the condition of anonymity, “I don’t know if the system was intended to hamper the market for those nine players, but it clearly did.” Agents requested anonymity, saying they were not authorized to speak publicly on union matters.

Another agent said the prior free agency rules spread out the impact of compensation more evenly among clubs, and teams that lost draft picks for signing a player often gained one back in the same offseason. The current system, the agent said, conversely concentrates all that impact upon the top-tier free agents and, in this agent’s view, “needs to be tweaked.”

The current CBA also assigns signing-bonus pools for each team in the first-year player draft, with significant penalties for exceeding those aggregate pools. Teams that forfeit a draft pick for signing a top free agent also part with the money associated with the pick for purposes of their draft compensation pool — in essence doubling the impact of signing a free agent.

Both Weiner, and Rob Manfred, MLB executive vice president for economics and league affairs, said free agency compensation will be discussed as part of continuing discussions on labor matters.

“Our intention was to have compensation attach only to players with sufficient value, that there would be a market for those players, despite the compensation,” Manfred said, adding the system was not meant to be punitive. “With one exception, that worked out as well.”

Manfred declined to specify what he meant by the “one exception.” Both Manfred and Weiner responded to SportsBusiness Journal questions via email.

Larry Reynolds, Upton’s agent, said he did not believe all nine players in question were hurt by the new system, in part citing his client’s pact that joins him with his brother, Justin, in Atlanta’s outfield.

“All nine players went into this season of negotiation with their eyes wide open,” Reynolds said. “They were offered a one-year contract and they were able to accept it or reject, and they all went into the market.”

To Reynolds’ point, Indians President Mark Shapiro said the club has spent years seeking to assess the worth of each draft pick, even before the advent of the new CBA. As a result, the draft-pick compensation was a central factor in the decision to sign Swisher and Bourn, and the club ultimately felt the upside from the two veterans outweighed what might come from the future prospects.

“We place a value on each draft pick. Over time, we have worked to become more and more effective at determining this value, thereby providing us a guideline to assess the value of a free agent as opposed to the lost opportunity of the pick,” Shapiro said via email.