February 26, 2016

Prospectus Feature

The Status QO

by Craig Goldstein

Let’s start with the notion that it’d probably be for the best if free agent compensation, and for that matter, the draft itself, were eliminated entirely. Let’s then accept the notion that the latter might not ever happen, and the former is at minimum a major bargaining chip in any CBA talks.

What seems likely to happen, if anything, is some modification to the existing system of compensation for signing and/or losing free agents, because the current system isn’t tenable. On the one hand, it’s working in ownership’s favor on the whole: Suppressing salaries is the name of the game when it comes to free agent compensation, and we’ve seen Howie Kendrick and Dexter Fowler settle for below-market deals to return to the team that wouldn’t lose a draft pick by signing them. While someone gets left out in the cold every year, we’ve seen Diamondbacks’ GM Dave Stewart admit that the Diamondbacks were reluctant to give up their second pick (37th overall at the time), even if they were getting a major-league upgrade in the process. This process seemed to repeat itself in Baltimore with Fowler.

Contrary to conventional wisdom, it appears that clubs are less likely to punt on a given draft by signing multiple QO’d players and absorbing the losses of several rounds of picks than to space out those losses over several years, deciding when and where to lose a first-round pick. It appears, based on their actions and words, that clubs are intensely valuing not just the picks that they speak of but, more accurately, the slot money associated with those picks.

Prior to the implementation of draft pool limits for the first 10 rounds, teams wouldn’t mind losing their first-round pick (or beyond) because they knew they could leverage the money they would have spent on that pick for a player who was dropping for signability purposes. It was something of a safety net, allowing them to recoup some value from the lost pick, while still taking a hit on when they could make that selection. It was a system that worked well enough, until small-market teams argued it gave the larger clubs an advantage—they had more money to spend in general, and could flex that advantage in both the free agent market and in the draft. Thus draft pools were formed, giving teams at the top of the draft a significant advantage based on the draft and international bonus pool allotments, regardless of their market size. Not only do teams at the top of the draft get access to more premium talent, but they get outsized slot allotments that they can use to spread to their later picks, signing more players for over-slot money, as we’ve seen the Astros do more than once.

So, if we accept that free agency will be tied to the draft*, the question becomes how to alter the compensation so that it doesn’t adversely affect the Fowlers, Kendricks, Gallardos, and Desmonds, but still allows small-market teams to recoup some value from losing free agents to large-market organizations, since this is the line that owners use to justify such a connection in the first place.

*This is not something we should accept and not fight against, so much as something we’re accepting as a premise for what follows.

Option 1: Rather than eliminate both the pick and the slot value it carries with it when signing a QO’d free agent, eliminate only the pick.

Rationale: This harkens back to the pre-pool era where there wasn’t a limit, but still plays within the current bounds of the draft system. While teams will lose an opportunity to draft the most premium players in the draft, they’ll still have the full allotment that the original slot values awarded them to spend when they do get to pick. This limits the incentive to pass on current free agents because the loss from signing a QO’d player is a relative pin-prick.

Option 2: Don’t eliminate draft picks at all, but instead add picks to the supplemental round for the team that loses a player.

Rationale: In this scenario, we drop the loss of first-round draft picks, which again allows teams signing QO’d players to be a little more aggressive in the free agent market without harming their long-term futures. It also pumps up the draft pools for the teams that are losing said players by giving them picks between the first and second rounds, providing them a small but real benefit heading into the draft.

Option 3: Determine a set amount of money to be added to draft pools for each QO’d free agent lost by a particular team. This would not be deducted from the signing team’s budget, but only added to the team that has lost a QO’d free agent.

Rationale: Unlike prior options, nothing in the draft order changes in any capacity. Similar to previous options, the clubs that are losing a QO’s free agent would receive a benefit to their draft pool, allowing them to pursue premium talent.

None of these options represent a panacea. The connection between free agency and the draft need not exist in this manner, but it does, and if it’s going to remain in some capacity, limiting its deleterious effect on existing free agents while adding money to the draft process that could enrich draftees seems like a reasonable goal if it’s going to change.

Craig Goldstein is an author of Baseball Prospectus. Follow @cdgoldstein
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