Monday, February 24, 2014

Are qualifying offers broken or are free agents miscalculating their own value?

Nelson Cruz recently signed a one year, $8 million deal with the Orioles, Ubaldo Jimenez had to wait for ages to sign his 4 year, $50 million deal, and Stephen Drew and Ervin Santana remain unsigned. This has led to some claims that the qualifying offer system is broken, and the head of the players union, Tony Clark, is concerned about the system. The new system has teams extend a one year offer based on the highest salary for the top 125 players. The player can accept the one year deal, about $14 million, or decline it. If a different team signs that player, they forfeit their top draft pick, with the top 10 picks being protected. This new system has hurt some players, particularly ones who are not true stars.

While the qualifying offers have depressed some players value, particularly non-star players, but the new system is still leaps and  bounds better than the type A and type B classification that used to exist. Type A free agents were in the top 20% of players in baseball over the last two years, ranked by the Elias Sports Bureau,  and Type B free agents were players in the next 20%. If a team signed a type A free agent, they forfeited their first round draft pick, while the losing team gained the pick as well as a sandwich round pick. Signing a Type B free agent didn't cost a team anything, but the losing team gained a sandwich round pick. Part of the problem was the classification - quite simply, it was broken. Set up men ended up as Type A free agents, crippling their ability to sign a deal with a new team. Type B free agents often weren't spectacular players, and some teams would add players after the waiver trade deadline just to snag a draft pick.

The simplest explanation of the situation is that players and their agents are misevaluating their own value. In the last two years, 22 players have been extended a qualifying offer, but all have declined. If the outcome has always been in one direction, teams are either leaving draft picks on the table by not extending enough offers or players are declining when they shouldn't. In 2012, all players ended up with a deal better than a qualifying offer, although Kyle Lohse's signing was greatly delayed and Lohse, Adam LaRoche, and Michael Bourn all had to settle for an average annual value less than the QO. Things are shaping up a bit differently this year, Drew and Santana are looking at potentially low AAV deals that are short, while Cruz has clearly already left $6 million on the table by declining his QO. His deal with the Orioles doesn't even give him any protection from being left in this situation again next offseason.

However, this miscalculation doesn't address one of Law's main criticisms of this process, that once a teaqm signs one free agent, the effective cost of signing another decreases dramatically. Perhaps the solution would be to decrease the draft pool of the signing team by a certain amount, while increasing the pool for the losing team, rather than the forfeiture of a pick. Alternatively, a team could be penalized their best pick (and the draft slot money that goes with it) for the first free agent they sign, followed by the loss of their best available pick and a flat penalty to their draft pool, say $1.5 million dollars, or about the value of the last pick of the first round, including compensation picks. That would be an extra penalty of $100,000 - $700,000 compared to the value of a second round pick, with better teams paying a higher premium.

Let's see how that would work out. Using the 2013 draft pool numbers, a team with intact picks but picking at the bottom of each round would have a pool of about $4.5 million. In actuality, that is bit higher than some team's pools (the Nationals had the lowest pool at $2.7 million last year), but that was for teams who had lost their first round pick. So, the best team in baseball signs a QO free agent, forfeiting their first round pick and the approximately $1.7 million draft pool that goes with it, reducing their total pool to $2.8 million. Signing another player would cause them to lose their second round pick, but instead of losing the value of that pick ($850,000), instead they'd lose $1.5 million from the pool, leaving their draft pool at a paltry $1.3 million. Players might be amenable to this because it really hurts the amateur players who aren't in the MLB Players Association yet, rather than current players who are members. But while this would make things more fair, wouldn't it just erect another barrier to signing free agents, exactly what the MLBPA doesn't want?

So maybe the solution is simpler than that. Just get rid of any penalties for signing a free agent, whether they have a qualifying offer or not. Here is a rather long table of the top free agent deals signed in the 2010, 2011, and 2012 offseasons:

Name Position Signed Age Years Value AAV
Albert Pujols 1B 2011 34 10 $250,000,000 $25,000,000
Prince Fielder 1B 2011 29 9 $214,000,000 $23,777,778
Zack Greinke SP 2012 30 6 $147,000,000 $24,500,000
Carl Crawford LF 2010 32 7 $142,000,000 $20,285,714
Jayson Werth RF 2010 34 7 $126,000,000 $18,000,000
Josh Hamilton LF 2012 32 5 $123,000,000 $24,600,000
Cliff Lee SP 2010 35 5 $120,000,000 $24,000,000
Jose Reyes SS 2011 30 6 $106,000,000 $17,666,667
Adrian Beltre 3B 2010 34 6 $96,000,000 $16,000,000
Anibal Sanchez SP 2012 29 5 $80,000,000 $16,000,000
C.J. Wilson SP 2011 33 5 $77,500,000 $15,500,000
B.J. Upton CF 2012 29 5 $75,250,000 $15,050,000
Mark Buehrle SP 2011 34 4 $58,000,000 $14,500,000
Nick Swisher 1B 2012 33 4 $56,000,000 $14,000,000
Adam Dunn DH 2010 34 4 $56,000,000 $14,000,000
Edwin Jackson SP 2012 30 4 $52,000,000 $13,000,000
Derek Jeter SS 2010 39 3 $51,000,000 $17,000,000
Jonathan Papelbon RP 2011 33 4 $50,000,058 $12,500,015
Victor Martinez DH 2010 35 4 $50,000,000 $12,500,000
Michael Bourn CF 2012 31 4 $48,000,000 $12,000,000
Angel Pagan CF 2012 32 4 $40,000,000 $10,000,000
Shane Victorino RF 2012 33 3 $39,000,000 $13,000,000
Jimmy Rollins SS 2011 35 3 $38,000,000 $12,666,667
Paul Konerko 1B 2010 37 3 $37,500,000 $12,500,000
Aramis Ramirez 3B 2011 35 3 $36,000,000 $12,000,000
Rafael Soriano RP 2010 34 3 $35,000,000 $11,666,667
Michael Cuddyer RF 2011 34 3 $31,500,000 $10,500,000
Mariano Rivera RP 2010 44 2 $30,000,000 $15,000,000
Rafael Soriano RP 2012 34 2 $28,000,000 $14,000,000
Heath Bell RP 2011 36 3 $27,000,000 $9,000,000
Carlos Beltran RF 2011 36 2 $26,000,000 $13,000,000
Josh Willingham LF 2011 35 3 $21,000,000 $7,000,000

Of the top 10 deals listed, I would argue that six have pretty much been disasters thus far, and Greinke has underperformed in the first year since his massive contract. Looking farther down, there are still some major dissapointments, including BJ Upton, Edwin Jackson, and the oft mocked Jonathon Papelbon contract (which, to add further injury to a bad contract, unnecessarily cost the Phillies a draft pick, due to their haste). Cliff Lee has been paid about right, and really only Adrian Beltre and Anibal Sanchez could be considered a bargain at this point. Perhaps the only needed penalty for signing a top free agent is that a team has signed a top free agent. Leaving a reward system in place for the team losing the player would allow teams to still get some compensation for developing elite talents, but would eliminate the negative impact on the contracts of individual players, which is a union issue.

Ironically, by removing the draft pick penalties associated with these players, teams ought to offer them larger contracts; this in turn would drive up free agent salaries, making them even worse deals from a salary perspective. To paraphrase War Games, the only way to win the top tier free agent game is not to play.

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