Free agency has one of the most convoluted set of rules you will ever see. Is it good for baseball? That is a question debated by laymen to scholars with no one in agreement. Many old school fans argue they miss ball players playing for love of the game and loyalty to the fans. If players kept hopping from city to city, there’d be no continuity. No favorites to root for. Today’s fans might think the game has greater intrigue than ever. It’s about what happens on the field, but it’s also about the front office game, which once was checkers and now is chess. And of course initial worries of free agency were the larger market teams would have more money to spend and simply keep buying the best players leaving smaller market teams less competitive. Hence, the competitive balance tax or luxury tax was an added rule which punishes teams for paying too much on elite players. While meant to level the field, the luxury tax is also a topic of debate. Some say this tax does nothing to help small market teams and some argue it is simply an excuse not to pay elite free agents. Regardless, the CBT was negotiated and agreed upon by the players and the owners and will probably be debated by them again in 2021.
Now on to the rules of free agency. The concept is pretty straightforward. Players basically put themselves up for auction with a set price. If a team wants a player, that team signs that player to lucrative contract and life goes on. However, there is a compensation package tied to every free agent and this my friends is where the confusion begins. Let’s start here. Any player who is extended a qualifying offer has two options: Accept it and play next season on a one-year, $17.4 million deal (the average of MLB’s top 125 salaries); or decline it and hit the market. Those free agents who reject qualifying offers, though, are now subject to compensation from their signing club.
If your team signs a free agent, you give up a draft pick. If your team exceeded the luxury tax the previous year, you will give up the second and fifth highest draft picks and your international bonus money drops by one million. Sign an additional qualified free agent and you will lose your third and sixth round draft picks. If your team received revenue sharing in the previous year signing a qualified agent will only cost you your third highest draft pick and an additional signing your fourth. What does the team losing the player get in exchange? If your team received revenue sharing and the player leaving signed a contract worth more than $50 million guaranteed, the former team will receive a compensatory draft pick from the sandwich round between Rounds 1 and 2. If the player signs a deal for less than $50 million, that pick will come after Competitive Balance Round B, which comes after Round 2.
BUT WAIT! THERE IS MORE! If the former team paid luxury tax the previous year, they will receive a draft pick in the 4th round. If the team did not pay a luxury tax nor a revenue sharing recipient, then it will receive a pick after Competitive Balance Round B.
These are the basic rules of free agency and will stay with us until 2021 when collective bargaining will most likely further complicate the free agency game.