MLB’s Qualifying Offer: A King’s Ransom

With the MLB draft just past, I thought it would be appropriate to examine one of the most controversial topics surrounding the draft: the qualifying offer. Essentially, the qualifying offer intends to reward teams — presumably the small-market, low budget ones — that lose players in free agency. This reward comes in the form of an additional first-round draft pick for every player that signs with another team.

Only it isn’t that simple. Once a player reaches the end of his contract, the team can decide whether or not to offer the player a 1-year extension known as the qualifying offer. This new contract is equal to the average of the highest 125 salaries in MLB ($15.8 million in 2016). The player then chooses to either accept the qualifying offer or decline it — and thus, enter free agency with the assumption that he can earn more than a 1-year, $15.8 million contract. Once the player signs on with another team, his former team is awarded a first-round draft pick (to go along with the one(s) they already have, assuming they do) as compensation. Additionally, the player’s new team loses their first-round pick in the draft so long as it is outside the top 10 (in which case their second-round pick would be forfeited).

So, one would assume that, more often than not, a small-market team with a low payroll would benefit from this system. A budding star player reaches the end of his contract and commands a new contract worth hundreds of millions and spread over 5+ seasons. His current team does not have the financial resources to resign him, and another big-market team does. The cash-strapped team receives an additional first-round pick as compensation, while his new team willfully forfeits its first-round pick in exchange for his services over the next half-decade. And that’s that.

Not quite. I went back over the draft order for every year since 2013 (when the qualifying offer was first introduced) and summed the number of draft picks gained and lost. Results are shown below. I sorted the teams by their average payroll over the span in descending order. As you can see, the compensation is not in line with the assumption I presented above. In any way you shape it, the high-payroll teams are the ones benefiting from the current system. The 10 highest-payroll teams have received 19 additional draft picks over the four seasons — highlighted by the Cardinals who have gained four and lost none. The 10 teams with the lowest payrolls have received eight additional picks. The high payroll teams have a net draft pick gain of four, while the low payroll teams have a net loss of two.

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Now, I’m not coming up with any revolutionary solutions here — I’m not that smart and I don’t get paid enough. I am simply presenting data that supports that MLB’s current free-agent compensation system doesn’t benefit the teams that need it the most. In fact, this seems to be a story of “the rich are getting richer” — big-money teams are receiving the extra draft picks that were seemingly meant for the low-budget ones. Maybe MLB scraps the compensation system altogether, maybe they extend the time frame for when a player can accept the qualifying offer (they currently have seven days), or maybe they come up with some other solution. In any case, the current CBA ends after the 2016 season so us fans will likely know the answer before next year’s draft.



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vivalajeter
Member
vivalajeter

Left unsaid is the trade value up the upcoming pick. A lot of low-budget teams simply don’t keep their best players until free-agency. Instead, they trade them a year before the player reaches free-agency. Since the player is good enough to warrant a QO, they should be able to get more in a trade than they would get otherwise, even though the big-budget team gets ‘credit’ for the extra pick.

Also, I would think that the low-budget teams are more likely to have a protected pick, so even when they give up a pick, it’s more likely to be a 2nd rounder.

Doorknob11
Member
Doorknob11

Also left unsaid is the reason the high payroll teams are up there is most likely because they signed or extended for those guys before 2013

BenRevereDoesSteroids
Member
BenRevereDoesSteroids

Exactly. Just look at the Yankees. A-Rod, Teixeira, and Sabathia are almost 70 million this year by themselves. All of them were aquired before 2012. The Dodgers traded for A-Gon and Carl Crawford (lol), extended Kershaw and Ethier. Those are their 4 highest paid players, and they make almost 100 million between them.