Get Rid Of Free Agent Compensation

Draft pick compensation is a decent enough idea in theory. By rewarding teams who cannot retain their own high-quality players with extra selections each summer, low-budget franchises should get additional prospects to try and remain competitive with those who can spend liberally in free agency. The problem is that it just doesn’t work.

With tonight’s deadline looming, we’ve now seen most free agents were who offered arbitration by their teams reject the offer and decide to stay on the market. Among those who will not be returning to their previous clubs, but will land their former organization a choice in the supplemental round next summer:

Javier Vazquez, New York Yankees
Felipe Lopez, Boston Red Sox
Adam LaRoche, Arizona Diamondbacks
Orlando Hudson, Minnesota Twins
Trevor Hoffman, Milwaukee Brewers
Brad Hawpe, Tampa Bay Rays

These players all have something else in common – their current organizations don’t want them back next year.

Vazquez flopped in New York once again, and was not offered a contract for 2011 by the Yankees. He agreed to decline the offer in advance, allowing the Yankees to collect an extra draft pick, since there was no cost to him in order to do so. Hoffman reportedly made the same deal with Milwaukee. Neither team had any real interest in retaining the player, but simply used the system as a way to gather a top-50 pick next summer.

The Felipe Lopez situation is even worse. After getting released by the Cardinals on September 21st, he was signed by the Red Sox four days later. He appeared in four games before the season ended. The Red Sox knew he was likely to be a Type B free agent, and acquired him for the final week of the season for the sole purpose of offering him arbitration, having him decline it, and collecting the draft pick when he signs elsewhere.

Hawpe was legitimately acquired for the stretch run, rather than for his Type B status, but the Rays may also be compensated with a quality prospect for “losing” a player that has 46 career plate appearances with their organization. While we have not seen the same report with Hawpe as we did with Vazquez and Hoffman, it is likely that Tampa Bay also struck a deal with the player to decline the offer, as Hawpe could do much better in arbitration than he will as a free agent this winter.

The Twins and Diamondbacks at least acquired Hudson and LaRoche for one full season, but neither were realistic candidates to return next year. Minnesota just won the rights to Tsuyoshi Nishioka, who will replace Hudson on the roster, while Arizona declined the 2011 option they held on LaRoche and have made it clear that they will look elsewhere for a first baseman next winter.

Six unwanted players, six quality draft picks in return for franchises that spent zero time or effort developing any of them. This is not at all in the spirit of the rule, and while the teams are entirely within their rights to use the system this way to stockpile draft picks, it simply exposes a system that doesn’t work.

The entire system needs to be scrapped. The Elias Ratings that determine what tier players fall into is laughably outdated, and the current exchange of picks does nothing to transfer picks from those with money to those that have money. In fact, just look at which teams received compensation selections last summer.

#18 – Anaheim (from Seattle)
#19 – Houston (from Detroit)
#20 – Boston (from Atlanta)
#28 – Anaheim (from Boston)

Supplemental Picks:

Detroit – 3
Toronto – 3
St. Louis – 2
Boston – 2
Anaheim – 2
Tampa Bay – 1
Houston – 1
Seattle – 1
Texas – 1
Colorado – 1
Atlanta – 1

The Tigers, Cardinals, Red Sox, and Angels are four of the five teams that received multiple picks in the supplemental round, and the Angels got two additional first-round picks for losing Type A free agents as well. Those franchises are not anyone’s idea of low-budget teams that needs help from MLB to keep competitive balance in the game. And yet, because of the way free-agent compensation is structured, the franchises who spend the most in free agency also get rewarded in the draft, simply because they have the capital to offer arbitration to players in the first place.

Right now, the only thing accomplished by the free agent compensation system is to give additional draft picks to teams that understand how to game the system and have the financial capability to do so. It isn’t doing anything for competitive balance. It’s a broken system that simply needs to be replaced.

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Dave is the Managing Editor of FanGraphs.