Taking A Closer Look at the Qualifying Offer: A Flawed System

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The 2015-2016 offseason has been like no other in recent history. Both David Price and Zack Greinke signed record-setting contracts, one right after the other. Jason Heyward, Justin Upton and Chris Davis all collected large long-term deals. Yoenis Cespedes returned to the New York Mets for a possible one-year sum of $27.5 million. Money has been flowing freely throughout baseball for the most part this offseason.

The key phrase in that first paragraph is “for the most part.” While the game’s best have been getting paid like it, some lesser players have seen their values dwindle, with some remaining unsigned at this late stage of the offseason. While the Prices, Heywards, and Greinkes of the world are counting their money and preparing for the season, players like Yovani Gallardo, Ian Desmond, and Dexter Fowler all remain available with only weeks remaining until Spring Training.

While it is true that these players come with their own question marks, whether it be injury, age or the possibility of rapid decline, all have been clearly impacted by the same underlying factor.

That underlying factor is the specter of the qualifying offer and the draft pick compensation that is attached.

The qualifying offer system is relatively new, as it was only fully implemented starting with the 2012-2013 offseason, making this the fourth year this system has been in place. It seems at this point that after only four years, the time is already right for a change.

For those who are unaware of how this system works, some details are in order. At its origin, the qualifying offer system was implemented as a means of replacing the Type A/B designation that previously impacted free agency.

Under the A/B designation system, each player was rated by the Elias Sports Bureau based on their previous two years of play and based on their peers at the specific position the individual player played. Based on these evaluations, players were dropped into one of three groups: Type A, Type B, or a third group including all other players. The specifics of each group are as follows.

Type A

-A player ranked in the top 20% of all the players at a specific position.

-A team that signed this type of player gave away their highest draft pick to that player’s former team.

-On top of that, that same club that lost the player also received a supplemental pick in the sandwich round between the first and second rounds of the draft.

Type B

-A player ranked outside of the top 20%, but in the top 40% of all the players at a specific position.

-A team that lost this player gained a supplemental pick, but the team signing the player did not lose a pick.

Beyond these two groups, all other players came with no compensation at all, after the Type C designation was eliminated with the 2007 CBA.

So as a way to replace this Type A/Type B system, the new Collective Bargaining Agreement in 2012 set out to create a new system. Under the qualifying offer system, draft pick compensation is expanded to even more free agents. The specifics of the new system are listed more in-depth below.

Qualifying Offer System

-In order to attain draft pick compensation, a team must offer a departing player a qualifying offer; the value of this offer is set yearly as the average of the 125 richest contracts in baseball (the offer was set at $15.8 million this offseason). Every player offered a qualifying offer is offered the same exact terms — one year, $15.8 million.

-Teams have until five days following the conclusion of the World Series to extend qualifying offers, while players have a week from then to accept or decline.

-If the player declines, whatever team ends up signing him will lose their highest draft pick (not including those picks that are protected).

-Rather than send those draft picks directly from one team to another, the first round of the draft is condensed, and those compensation picks get used by the new team in a separate round following the first.

-The first ten selections are protected, so if any of those teams holding those picks sign a player with compensation attached, that team would give up their second highest pick behind the protected pick.

-While under the old system some teams received two compensatory picks, teams only receive one with the new system.

-Finally, a player must be with his former team for the entirety of the previous season in order to be offered the qualifying offer and thus be attached to draft pick compensation.

That is clearly a lot of information to take in, but in summation, any player who spent the whole previous season with his previous team is eligible for a qualifying offer. If that player declines, the team that ends up signing him loses a draft pick, condensing the first round of the draft. The team that lost that player ends up with a compensatory pick immediately following the first round. Under this system every player offered a qualifying offer is treated the same, in contrast to the type A/B distinctions under the previous system.

So with the logistics of the current system more clear, now is the time to analyze what has gone wrong since the system’s implementation just four years ago. Before that is discussed further, there is one interesting thing that has occurred this offseason with the qualifying offer system. For the first time in the four offseasons since its implementation, someone actually accepted the qualifying offer. Three someones actually.

Despite the risks that come with accepting a one-year contract, such as potential injury or performance decline, the trio of Brett Anderson, Matt Wieters, and Colby Rasmus all accepted the qualifying offers, and all for divergent reasons.

Let’s start with Brett Anderson. Coming off several years plagued by injuries and inconsistent performance, Anderson finally put it all together in 2015. Finishing with a career high of 180.1 innings pitched, his highest total since 175.1 innings pitched in 2009 with the Oakland Athletics. Despite his relative success, and the huge injury concerns that come with his pitching, Anderson still elected to accept the offer, taking the guaranteed money over one year rather than the uncertainty on the market. Anderson clearly could have gotten more in terms of years, but the average annual salary would not have been close. It’s pretty clear Anderson is banking on his last season’s success, looking to duplicate that performance once again.

Next up is Matt Wieters, catcher for the Baltimore Orioles. This one makes a lot more sense for a variety of reasons. While Anderson is banking on performing consistently for two straight years, Wieters is looking to return to previous form. After a season plagued by injury in 2015, Wieters is hoping for a rebound season in 2016, which would allow him to re-enter a weak market next offseason, and hopefully get the big payday he is looking for.

Finally, there was Colby Rasmus, who was a different story entirely. Coming off a strong 2015 campaign, and a stellar playoff performance, it seems pretty obvious that Rasmus would have gotten a pretty decent payday had he chosen to test the free-agent market, even in a deep outfield class. Even so, Rasmus decided to instead accept the qualifying offer and remain with the Astros, a team and clubhouse that he has grown very fond of in his time with the team. In recent weeks, Rasmus has gone on to say he hopes to retire in Houston, showing a commitment to a team rarely seen in past years.

So after several years of no players accepting a qualifying offer, three did it this offseason, and all for very different reasons. The one thing in common between the three players is that all three teams were at least somewhat blindsided or surprised by their respective players accepting the offers. All three were robbed of a potential draft pick, and also see their payroll increase by a not insubstantial sum. The Orioles seem to have been affected the most, as they had already planned to be somewhat significant spenders this offseason prior to Wieters accepting the offer.

The players mentioned above are only the players who actually benefited from the qualifying offer, if you can even call a one-year contract beneficial to a player. The more important focus here is on the players who did not accept the offer, and are suffering because of that choice. While it is pretty clear that the markets of Ian Desmond, Dexter Fowler, and Yovani Gallardo have all been pretty significantly impacted by the draft pick compensation attached to their names, as evidenced by them still remaining unsigned, several players who have signed have perhaps seen even more damage in terms of their monetary value.

Over the first three years, a total of 34 players were extended qualifying offers, nine in 2012, 13 in 2013, and exactly a dozen in 2014. This offseason a record 20 players were offered qualifying offers, for a total of 17 players impacted by the draft pick compensation once the three accepting players are subtracted. Those 17 players can be split into three groups. The elite group that did not see their value diminished, some players who experienced some finished value and the group most hurt by the current system.

Elite Group

Zack Greinke

Justin Upton

Chris Davis

Jordan Zimmermann

Jeff Samardzija

Wei-Yin Chen

Alex Gordon

Jason Heyward

Secondary Group

Marco Estrada

Hisashi Iwakuma

Ian Kennedy

Daniel Murphy

John Lackey

Tertiary Group

Dexter Fowler

Yovani Gallardo

Ian Desmond

Howie Kendrick

The top group still got paid, draft pick compensation or not. The middle group also got paid, but likely took some hit on the overall value of their contracts. The final group includes the three players mentioned above that have yet to sign, with one more addition that just signed. That player, Howie Kendrick, is perhaps the most important of all in regard to the QO system negatively impacting free agent earning capabilities.

Despite another consistent, above-average season, even with some significant missed playing time, Kendrick was only able to get two years and $20 million from the team that extended him the qualifying offer in the first place. So Kendrick has one added year under contract, but at a salary almost $6 million less than what he would have had if he accepted the offer. The Dodgers ended up signing Kendrick for a bargain because the market never really developed for him as he would have hoped. Considering the most interested team, the Arizona Diamondbacks, made it pretty clear they wouldn’t sign Kendrick because of the draft pick compensation, it seems certain Kendrick’s market value was negatively impacted by the qualifying offer system.

Based on the cases of the players mentioned above, it is obvious that the qualifying offer system has some irreconcilable flaws that must be fixed sooner rather than later. Much has been made of these flaws, and several solutions have been advanced.

Stay tuned for part two where some potential solutions are discussed in more depth.