As the Hot Stove season starts in baseball, there are a few changes this year as a result of the new collective-bargaining agreement. In the past, a team who signed a a free agent who had received a qualifying offer from his previous team lost their first pick in next year’s draft, unless it was one of the first 10 picks in the draft. Those teams lost their second-round pick instead. This year, the compensation is more complicated although for the Cubs, it’s still pretty simple.
The Cubs made qualifying offers to pitchers Jake Arrieta and Wade Davis on Monday. Both players have 10 days to decide whether to accept or reject the offer. If they accept, they will stay with the Cubs on a one year/$17.4 million contract for 2018 and unless the player and the team come to an agreement before then, both players will be free agents again after the 2018 season. A new wrinkle in this agreement is that a player can only be extended a qualifying offer once in his career.
But let’s assume that both Arrieta and Davis reject the offer, which is a safe assumption in both cases. Of course, the Cubs would be free to try to sign them to a new contract, but they would be competing with the other 29 teams. For example’s sake, let’s say that Arrieta signs with the Dodgers and Davis signs with the Twins. (Who knows why? Maybe he just loves hot dish pot lucks?) The Cubs would then receive compensation in the form of extra picks based on two factors: do the Cubs receive revenue-sharing money and did the team go over the luxury tax?
Thankfully, the answers to these questions are both no, so that makes the question of the Cubs compensation simple. The Cubs get one draft pick for each player in Competitive Balance Round B, which takes place right after second round of the draft.
The Dodgers exceeded the luxury tax threshold in 2017, so they would lose their second and fifth pick in next year’s draft, along with any associated bonus pool money, for signing Arrieta. They would also lose $1 million of bonus pool money to sign international amateur players.
The Twins surprisingly didn’t exceed the luxury tax and are also a team that receives revenue-sharing money from MLB. Therefore, the Twins would only lose their third pick in the draft.
However, let’s turn that around for a second. Let’s say the Cubs, after losing Arrieta and Davis, turned around and signed free agent pitcher Alex Cobb, who received a qualifying offer from the Rays this week. As I mentioned earlier, the Cubs do not receive revenue-sharing money from MLB, nor did they exceed the luxury tax threshold. So the Cubs would lose their second pick in the draft (wherever that may be, although this year it will be their second-round pick) and $500,000 of international bonus pool money.
The Rays, on the other hand, get receive revenue sharing and did not go over the luxury tax. So they will get a pick in Compensation Round A only if the total value of the contract that Cobb signs is over $50 million. If Cobb signs for 4 years/$48 million (a pretty reasonable offer for Cobb), then the Rays will only get a pick in Compensation Round B, just like the Cubs. Their pick would be before the Cubs’ picks, however, since their record in 2017 was worse. But that’s a minor detail compared to dropping from Compensation Round A to Compensation Round B.
Lost picks stack up, so if the Cubs signed a second free agent who had received a qualifying offer, such as Greg Holland, then the Cubs would also lose their third pick. Presumably, this would be one of the picks in Comp Round B, although it could possibly be their third-round pick if they re-signed Arrieta and Davis and then signed two more free agents who got qualifying offers. I can’t see that happening.
So the penalties and compensations are a lot less this year for signing a free agent, unless you are a revenue-sharing team that lost a free agent who signs for over $50 million. Then you still get that pick at the end of the first round, although the punishment for the signing team is less. This is all good news for the Royals, who could lose three players in more than $50 million deals.
As before, there is no punishment or compensation for a free agent who did not reject a qualifying offer. So there are no consequences for signing Yu Darvish or Jay Bruce, both of whom were traded mid-season and thus were ineligible for a qualifying offer. Other than the Ricketts family wallet would be a lot lighter if the Cubs signed either one, of course.
By the way, it isn’t actually surprising that the Twins didn’t exceed the luxury tax threshold. Also, if you are a revenue-sharing team that exceeded the luxury tax, your punishment is that you get a talk with commissioner Rob Manfred like the talk Bud Selig had with former Dodgers owner Frank McCourt.
In case you were wondering, the five teams that exceeded the luxury tax threshold in 2017 were the Dodgers, Yankees, Giants, Nationals and Tigers. It seems unlikely that either the Giants or the Tigers will sign an expensive free agent with the current state of their teams, but this could hamper the Yankees, Nats and Dodgers.
If you want more information on all this, check out this series by Tim Dierkes in MLB Trade Rumors. The new rules are here, the possible outcomes for all six teams who gave out qualifying offers are here, and what the punishment is for each team signing a free agent who received a qualifying offer is here. Thanks to Tim for making this all clear and it would have been a lot more difficult to write this piece without those primers.