Update (Oct 22): The 2017 Qualifying Offer is $17.4M, not $18.1M, as originally noted.
I was intending to spend much of this week’s time looking at the new Qualifying Offer rules and how they will affect both Carlos Santana and the Indians as free agency begins, with the underlying assumption that the Indians would be hard-pressed to re-sign him, but that it might be possible for them to tender him a Qualifying Offer. Now that we’ve learned of Michael Brantley’s surgery and recovery time frame (4-5 months before baseball activities), my whole premise has been thrown out the window, and that now it’s more likely the Indians at the very least gives Santana a Qualifying Offer, and could very well keep him. But I do think it’s still worth going through the new Qualifying Offer rules, as they may end up serving a purpose in negotiations.
First of all, let me try to get you up to speed on what a qualifying offer is. This isn’t exhaustive, so if you’re interested, go check out the sources at the bottom of this article. Introduced in 2012, the qualifying offer system (or QO) was part of a new system* of compensating teams for lost free agents. In the QO system, teams can decide to make an offer (the amount of which is set by the CBA) to their free agents after the end of the World Series, and if accepted, the player signs a one-year contract with the team for that amount. If declined, the team gets a compensatory draft pick the following year, assuming the player signs with another team.
But quickly some flaws emerged with the original QO system. Because many signing teams had to give up their top draft pick in order to sign a free agent who had declined a qualifying offer, several good free agents remained unsigned into Spring Training or even later. Players like Ian Desmond, Howie Kendrick, Stephen Drew, and Kendrys Morales all ended up being hurt by this system, endeding up signing deals that either were below their market value or couldn’t sign until the season had started.
Adjusting this system was one of the key negotiating points of the CBA signed last December. Here’s the key adjustments made:
- A team can only tender a QO to a player once in his career (even if that QO had been tendered by a different team).
- Players will have 10 days to accept or decline a QO (up from 7 days)
- Teams who sign a player who was tendered a QO will not have to give up their first selection in next year’s draft (more details on that below).
- Former teams will receive draft pick compensation if the player signs a contract with at least $50M guaranteed. This ensures that a player can at least get a contract done before spring training begins.
Remaining in place from the previous CBA were these rules:
- A player had to have been on a team’s roster the entire previous season in order to receive a QO.
- The QO is the mean of the top 125 MLB salaries from the previous season. For the 2017-2018 offseason, the QO will be $18.1M.
- Teams must tender a QO by the time free agency begins (last year it was 5 days after the end of the World Series)
Carlos Santana is the only player that the Indians would think about tendering a QO to this winter. Jay Bruce is not eligible because he was acquired in August, and the rest** (even if you include Michael Brantley) just aren’t going to be worth $18.1M to the Indians, even if it’s just for one season.
New rules for forfeited draft picks
This new system helps Carlos Santana even if he does receive a QO from the Indians, in that the signing team won’t have to give up as much.
The new CBA rules for draft pick compensation divide teams into three categories:
- Non-market disqualified revenue sharing payee (basically, small-market teams). These are 13 teams who are in MLB’s smaller markets. The Indians are among these teams. These teams, if they sign a free agent who was tendered a QO, gives up their third-highest remaining draft pick in next year’s draft.
- Teams who pay the competitive balance tax. These are teams whose payroll exceeds $195M in 2017. These teams would give up their second-highest and fifth-highest selection in next year’s draft, as well as have their International Signing Bonus Pool reduced by $1M.
- Teams who don’t fit into the above two categories would give up their second-highest pick in next year’s draft as well as have their International Signing Bonus Pool reduced by $500K.
(A quick aside, just for clarification: the draft pick a team gives up for a signing a QO free agent is not transferred directly to the team that lost that player. A signing team could give a second round pick, and the team that lost the player could receive a fourth round pick in return.)
So in all cases a team’s top draft pick can’t be forfeited by signing a QO free agent. Note that a team could have to give up a first round pick if they have two of them and they aren’t a small-market team. The rules say “x-highest,” not first round, second round, etc.
New Rules for received draft picks
The new CBA also places the teams receiving compensatory draft picks into three categories. And the Indians make out well here.
- Non-market disqualified Revenue Sharing Payee if the player signs a contract for more that $50M guaranteed. These teams (which includes the Indians) get a draft pick immediately after the first round. This was where everyone picked under the previous CBA, but now this only applies to small-market teams, and only if the free agent that they lose gets a contract for at least $50M. This represents roughly picks 30-40, so it’s a really good pick. If Santana signs a deal for less than $50M, the Indians will be in the third category.
- Teams who pay the competitive balance tax. These teams get a draft pick after the fourth round. This represents picks in the 115-125 range, which a huge difference from the previous CBA for these teams.
- Teams who don’t fit into the above two categories receive a draft pick after the Competitive Balance Round B (which is after Round 2). This represents picks roughly in the 80-90 range.
If you’re looking for tangible effects of this rule change, just think about the behavior of two AL Central teams this summer. The Detroit Tigers, who were above the CBT threshold, had every reason to trade away potential free agents this summer (particularly J.D. Martinez and Justin Upton***), as they were at best going to get two fourth-round picks for the two players. Meanwhile, the Royals (who are a small-market team) held on to all their potential free agents, and as a result could get a bunch of picks just after the first round should they lose players like Eric Hosmer, Lorenzo Cain, and Mike Moustakas (among others) to free agency.
The Brantley Effect
With the news of Michael Brantley’s surgery, it’s now almost certain the Indians decline their $11M club option for next year, giving them more payroll flexibility, including the ability to make that Qualifying Offer to Santana and a better chance of ultimately re-signing him (whether that’s via the QO itself or a long-term contract).
Summary (or Too Long; Didn’t Read)
If you didn’t slog through all those details and terms (which I totally understand), here’s a more concise summary:
The new CBA rules regarding free agency will make it easier for a player like Carlos Santana to get a contract, as clubs no longer have to give up their first selection in next year’s draft. The Indians should have the payroll room (especially with the Brantley injury news) to at least tender Santana a qualifying offer (worth $18.1M). If Santana declines the offer and signs elsewhere for at least $50M, the Indians will receive a pick after the first round in next year’s draft. If Santana signs a deal elsewhere for less than $50M, they will get a pick after competitive balance Round B. No other Indians free agent will receive a QO; Jay Bruce is ineligible because he didn’t spend the entire season with the Indians.
*The previous system placed free agents into categories (A, B, and C) based on statistical measures, which often didn’t accurately match up with the player’s value (teams would sometimes receive really good draft pick compensation for middle relievers, for instance).
**If you include players with 2018 clubs options, potential free agents are: Carlos Santana, Jay Bruce, Austin Jackson, Joe Smith, Bryan Shaw, Craig Breslow, Michael Brantley, Boone Logan, Josh Tomlin
*** Upton can opt out of his contract, which would make him a free agent.
MLBPA press release detailing key features of the 2017-2021 Collective Bargaining Agreement. The best overview I’ve found.
This article at MLB.com reporting on what the 2017 Qualifying Offer is ($18.1M) - Update: last week MLB announced the QO would be $17.4M, not $18.1M.
Cot’s Contracts (at Baseball Prospectus) for their payroll calculations, including estimating which teams will have to pay the competitive balance tax