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The Qualifying Offer and You

Hello there, friends. If you are a fan of the San Francisco Giants, congratulations on your recent world championship. If you are a fan of the Detroit Tigers, the opposite of that. If you are a fan of any other team, then for at least the last week or so you’ve probably been looking forward to the start of the offseason. The offseason is when baseball teams are most able to change themselves, and a changed baseball team is a better baseball team. Or at least that’s the hope, if only sometimes the reality.

The offseason means trades, but the offseason also means rumors and the offseason means free agency. Thanks to the new CBA that before long we’ll be able to stop referring to as the “new CBA”, free agency is going to look a little bit different from how it used to. I’m referring specifically to free-agent compensation, and at the core here is the concept of the “qualifying offer”. That’s a term you’re going to see thrown around — that’s a term you’ve already seen thrown around — and we should discuss it. It’s not that complicated, so if you’re unclear about qualifying offers and if you have a few minutes, lend me those few minutes.

Remember those Elias free-agent rankings? Remember the A-, B-, and C-grade Elias free-agent rankings that were based on stuff like, I don’t know, game-winning RBI and body mass index? Those are gone. Which is good, because those were impossibly terrible, and which is bad, because it was fun to talk about how they were impossibly terrible. The Elias free-agent rankings still existed at a time that PITCHf/x existed. It was like for part of the year, Major League Baseball took a helicopter to the grocery store, and for another part of the year, it took a horse. The Elias-based compensation system was hopelessly broken and now it’s been replaced by a new system.

In the past, in order for there to be free-agent compensation, a player would’ve had to (A) be ranked highly by Elias, (B) be offered arbitration, and (C) sign with a new team. Now, it’s simpler. If a team wants compensation for a lost free agent, it must extend to that free agent a qualifying offer. If the player subsequently declines the offer and/or signs with a new team, compensation will be received. There are details.

The qualifying offer is a one-year contract worth the average of the top 125 salaries. This year, that average is $13.3 million. A qualifying offer may only be extended to a potential free agent who spent the entire previous season with the same team. So, for example, Josh Hamilton is eligible, but Zack Greinke is not, having been dealt to Anaheim in July. The qualifying offer must be extended within five days of the conclusion of the World Series, which means midnight this Friday. The player then has seven days to make a decision regarding the offer. The former window is referred to in the CBA as the Quiet Period. The latter window is referred to in the CBA as the Acceptance Period. It is absolutely vital that these windows have names.

If a player accepts the qualifying offer, that’s it, he’s signed. If a player doesn’t receive a qualifying offer, he’s free to sign anywhere and there’s no compensation to talk about. If a player declines the qualifying offer and signs elsewhere, or if a player signs elsewhere within the Acceptance Period, then that’s where compensation becomes a thing.

I should note that there’s no compensation if a player is extended a qualifying offer, and then he subsequently signs elsewhere on a minor-league contract. For this to happen would require that both the player and the original team have just a completely miserable, inaccurate idea of the market. This is in the CBA. Minutes were spent making sure this made it into the CBA.

Compensation for the original team is one draft pick, between the first and second rounds. Gone are the days of a team losing a free agent and adding the 16th or 17th pick. In the event that there are multiple compensation picks between the first and second rounds, those picks will be made in reverse order of winning percentage in the most recent season. So, if the Rangers get compensation for losing Josh Hamilton, and the Cardinals get compensation for losing Kyle Lohse, the Cardinals’ compensation pick will come before the Rangers’ compensation pick, because the Cardinals won five fewer games in 2012.

And the signing team also loses a pick. It loses its highest available pick, outside of the first ten picks, as those are protected. The pick doesn’t get transferred to the original team. Instead, the pick just vanishes into nothingness. It ceases to exist, nobody talks about it, and the draft gets a little shorter. This is still enough of a penalty to serve as a deterrent. For example, this report suggests that teams will be a lot more interested in Torii Hunter if the Angels don’t extend a qualifying offer.

So, yeah, it’s simple. With the best free agents, extending a qualifying offer is a no-brainer, as they’re certain to do better in the market. With lower-level free agents, it’s more of a gamble, as teams will have to try to predict the market before it develops. As I can tell, this is a list of players who either will be extended a qualifying offer in the next few days, or who might be extended a qualifying offer in the next few days. Some of these decisions are tougher than others.

As noted, guys like Zack Greinke and Anibal Sanchez are ineligible, as they were included in mid-season trades. So the Angels will either re-sign Greinke or watch him leave for nothing. James Loney is also ineligible, because he was included in a mid-season trade, and is bad. Bad players are not literally ineligible, but they are effectively ineligible.

Hopefully that clears just about everything up for you. And if you’re curious about the CBA, here is the full thing, ready for your perusal. The compensation section begins on page 88, but why skip ahead? There’s no more baseball for months. Now’s the time for reading.