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Players, Yankees Benefit Most from New Free Agency Rules

When the details of baseball’s new collective bargaining agreement were revealed last year, it looked as if the players' association made most of the concessions, albeit ones that impacted amateurs not yet in the union. However, less than two weeks into the off season, that no longer seems to be the case.

The new CBA has weakened the link between free agency and the amateur draft.
The new CBA has weakened the link between free agency and the amateur draft.
Mike Stobe

Under baseball's old CBA, draft pick compensation was assigned to free agents based on a tiered classification system. In order for a team to receive a draft pick, it had to offer salary arbitration to free agents classified as Type A or Type B. The first group of players was the theoretical cream of the crop, so their return was not only much greater, but it also came at the expense of the team signing the free agent. Last winter, 21 players qualified for that designation, but contract stipulations and a mitigating agreement in advance of the new CBA whittled the list down to 15. Still, that number is almost double the eight free agents who will cost their new team a draft pick this off season.

Players Who Were Made a Qualifying Offer

Player Team Po Age Status
Kyle Lohse Cardinals SP 34 Declined Qualifying Offer
Hiroki Kuroda Yankees SP 37 Declined Qualifying Offer
Rafael Soriano Yankees RP 32 Declined Qualifying Offer
Josh Hamilton Rangers OF 31 Declined Qualifying Offer
Michael Bourn Braves OF 29 Declined Qualifying Offer
B.J. Upton Rays OF 28 Declined Qualifying Offer
Nick Swisher Yankees OF 31 Declined Qualifying Offer
David Ortiz Red Sox DH 36 Signed 2-Year Extension
Adam LaRoche Nationals 1B 33 Declined Qualifying Offer

Note: A qualifying offer is equal to the average salary of the 125-highest paid players, or $13.3 million.

The new CBA eliminated the link between arbitration and free agent compensation (click here for a breakdown of significant changes in the CBA). Instead, teams are now eligible to receive a draft pick should they lose any player to whom they made a qualifying contract offer, which this year amounts to $13.3 million. One more wrinkle was also added. Players traded midseason were exempted from the system. As a result, free agents like Zack Greinke, Anibal Sanchez and Shane Victorino will not bear the scarlet letter of draft pick compensation this off season.

How does their former team not losing a draft pick help a free agent? Leverage. In today's game, GMs are already reticent to offer a big money contract without the added cost of a forfeited draft pick, so for all but the truly elite, the burden of compensation has resulted in fewer suitors, and, by extension, less bargaining power.

On the surface, the handful of free agents who will be unencumbered by compensation seems like a trivial change from the past. However, salaries are often based on benchmark signings, so even a few extra inflated deals can have a ripple effect throughout the market. In addition, the Type B designation, which last year impacted over 40 players, has also been eliminated. Although those free agents provided supplemental draft pick compensation that wasn't forfeited from another team, the designation did have one chilling effect: it created an opportunity cost for the incumbent organization.

The best way to explain this dynamic is with an example. In 2011, Clint Barmes had such a solid year at short stop for the Houston Astros that he wound up being designated as a Type-B free agent. Because the associated compensation was supplemental, the interest of other teams wasn't dampened, however, the chance to receive a draft pick all but eliminated any incentive for the Astros to re-sign him. As it turned out, the Pittsburgh Pirates signed Barmes to a two-year deal worth $10.5 million, but, had Houston also been involved in the bidding, maybe the price would have been higher? Last year, dozens of free agents were in a similar situation, but this winter, none will have to contend with the same handicap.

Whether it's a big advantage or a small gain, it seems clear that the players are benefitting from the new CBA's rules regarding free agent compensation. However, for the individual clubs, the impact depends on their situation. Teams with money to spend will able to sign all but the very best free agents without surrendering a draft pick, so the new rules are to their favor. On the other hand, those teams anticipating a free agent exodus will come out on the short side of the ledger. After all, 33 of the first 62 picks in the 2012 June amateur draft were allotted based on free agent compensation, many of which were supplemental picks. This year, there will be no more than eight. In order to offset the decline, MLB is instituting a weighted lottery based on market size that will assign six additional picks after the first and second rounds. However, the combined 20 possible selections not only pale in comparison to the past, but do not guarantee remedy to teams hurt most by free agency.

Ironically, the New York Yankees stands to gain most from the new system, at least this season. Because of self-imposed budget restraints, the Bronx Bombers have taken a hard line with its own free agents. Whereas in the past, the team would overpay to keep productive players in pinstripes, this year, Brian Cashman is counting his pennies and trying to determine which players he can afford. As a result, three of the eight free agents who will provide compensation to their incumbent team happen to be Yankees.

The Yankees could benefit from the new compensation system in two ways. If Nick Swisher and Rafael Soriano leave the Bronx, the Yankees would enter the 2013 draft with three first round selections. What's more, the draft picks they receive could be as high as 11th overall because, under the new rules, only the first 10 selections are protected (the top-15 picks were protected under the old system). If the Yankees end up with three first round picks, it would also fatten their allocated budget for signing the selections, meaning the team could either spread the wealth for depth, or go significantly over slot for an impact amateur player without incurring penalties.

Although the Yankees seem resigned to losing Swisher and Soriano, the team is anxious to retain Hiroki Kuroda. Another draft pick wouldn't offset the loss of a pitcher who was arguably the team's most valuable in 2012, but the new system could be helpful nonetheless. Because another team would surrender a first round draft pick if they signed Kuroda, the Yankees will probably face less competition for his services (unless Kuroda is interested in returning to Japan). This leverage is heightened by Kuroda's age and the likelihood he would only sign a short-term deal. Would the Los Angeles Dodgers, for example, be willing to forfeit their 19th pick in the 2013 draft for one season of Kuroda, especially when other pitchers without compensation are available on the market? The Yankees hope the answer is no.

It will probably take another season or two to fully gauge the impact of the new CBA's free agent compensation scheme, but so far, it looks like the players and a handful of big market teams could benefit most. That's probably not what Bud Selig and other small market advocates had in mind, which is precisely why it's the outcome most likely to occur.