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November 30, 2005
The BP Guide To Transaction Rules
Free Agent Compensation Draft Picks
Our second entry in the continuing Transactions Series explains how draft picks awarded to teams who lose their free agents every off-season, as delineated in Article XX(B)(4) of the Collective Bargaining Agreement.
Compensatory Draft Picks
Most serious fans of baseball are familiar with the compensatory draft pick rule of the CBA, even if they don't understand all of its details. Oakland Athletics General Manager Billy Beane is famous for snatching up free agents in the last year of their contracts so that he can hoard these picks. San Francisco Giants GM Brian Sabean is famous for signing free agents so that he can get rid of his draft picks. What are the details of this important CBA provision?
The first thing to learn is that the Elias Sports Bureau does a statistical ranking of all the players in baseball after every season. Every player is compared to every other player in his league in his positional group (DHs are in a group with first basemen and outfielders, second basemen with shortstops and third basemen; catchers, starters and relievers are each in their own groupings). Different positional groups are measured with different statistics, and the exact methodology is private. The CBA refers to a document, "A Statistical System for the Ranking of Players," which contains the details of the program, but that document is not attached to the CBA and attempts to obtain it from MLB and the Players Association have been fruitless.
A simple regression study of player rankings shows that the "Statistical System" is simple and relatively conventional. A handful of straightforward statistical categories are picked for each positional group (different groups will use slightly different categories) and players are ranked against each other using two-year averages. The NL catcher with the highest two-year batting average gets ranked first in that category. The AL reliever with the fifth-lowest ERA in the last two years gets a fifth-place ranking in that category. The rankings across the categories for each player are averaged (a five, a 10, and a one average out to a 5.33 rank) and are then converted into a 100-point scale. That's the Elias Player ranking.
Players who rank in the upper 30% of their position group in this ranking are tagged as Type A players. Players in the upper 50% who are not Type As (the next 20%) are tagged as Type B players. Players in the top 60% who are not A's or B's (the next 10%) are Type Cs.
For example, in the AL's DH/1B/OF category for 2004-2005 there are 114 players rated. The top 30%, or top 34, are Type A players (from Mark Teixeira to Phil Nevin). The next 20%--23 players--are Type B. The next 10%--11 players--are tagged as Type C. This year's Type A player rankings for each positional grouping are available from USA Today.
The essence of Article XX(B)(4) is that a team that loses one of its free agents to a bigger and better offer from a competing club should get some sort of compensation. The key detail here is that the team that is losing one of its players needs to make a good-faith effort to keep him in order to be compensated for his loss. What's a good-faith effort? To make it simple the CBA requires that the club make their free agent a one-year arbitration offer.
This provision creates all sorts of gamesmanship. Sometimes teams offer their free agents arbitration knowing full well that the player will sign elsewhere and earn the club some draft picks (Oakland's offers to Jason Giambi, Ray Durham and Miguel Tejada). Other times the club thinks the player will walk and this guess turns out to be horribly wrong. The free agent accepts the arbitration offer either because there isn't much of a market for his talents or because he especially likes his old club (Atlanta's offer to Greg Maddux and Philadelphia's offer to Placido Polanco). Other times a team will refuse to offer its free agents arbitration for fear of the damage they'll do to a fragile budget if they accept (Atlanta's non-offers to Javy Lopez and Gary Sheffield).
The critical exception to this arbitration offer requirement is this: if the club that loses the player never has a chance to offer arbitration they still get their compensatory picks. The arbitration offer date for free agents is December 7. If a free agent signs with a new club before December 7, it is assumed that the losing team would have made the offer, since there's no way to prove otherwise. The San Francisco Giants have exploited this provision in an effort to punt picks by signing players before December 7 who never would have been offered arbitration by their former clubs (see the Michael Tucker signing during the 2002-2003 off- season).
To summarize: a team is eligible to receive compensatory draft picks if it loses a quality free agent (in the top 60% of his positional grouping according to Elias' rankings). The free agent either must be picked up by his new club before December 7, or the losing team must offer him arbitration on that date in order for the draft picks to change hands.
We've got our Type A, B and C players and we've got compensatory draft picks. Who gets what? A team that loses a Type A free agent gets a draft pick from the signing team, and they get a pick in the sandwich round that takes place between the first and second rounds of the draft. A team that loses a Type B free agent only gets a draft pick from the signing team--no sandwich pick. A team that loses a Type C free agent gets a draft pick in the sandwich round that takes place between the second and third rounds of the draft.
"Wait," you say, "I thought signing a Type A means you give up your first rounder?" Not necessarily. The first thing to remember is that the first 15 picks of the draft are protected and can't be lost. No matter who you sign you can't lose your first-round pick if it's in the first 15 selections (for what it's worth, the CBA actually says that protected picks are those that take place in the first half of the first round--if they contract teams the number of protected picks would drop). The Dodgers lost Adrian Beltre to Seattle last year, but Seattle's #3 overall selection was protected. Instead, the Dodgers were awarded a sandwich round pick between the first and second round along with Seattle's second-rounder.
The second caveat is that teams only have one pick in each round, so they can only give up one pick in each round. In 2005 the Giants owed three draft picks for the three Type A free agents they signed (Armando Benitez, Omar Vizquel and Mike Matheny). Each of the losing clubs got a sandwich pick, but they couldn't all get the Giants first rounder. The way these situations are resolved is with those Elias Player rankings. The team that loses the highest-ranked free agent gets the earliest pick and so on and so forth. Benitez was ranked higher by Elias than Matheny, who was ranked higher than Vizquel, so San Francisco's first-rounder went to Florida, their second-rounder went to St. Louis, and their third-rounder went to Cleveland. If you're keeping score, yes, it's true, the Giants didn't get a pick until deep into the fourth round last year.
Let's try another one: the Cubs have already signed two Type A free agents (relievers Scott Eyre and Bobby Howry). Since they finished 79-83 and pick 13th overall, their first-rounder is protected. Cleveland and San Francisco will both get sandwich picks after the first round and because Howry is ranked higher than Eyre the Indians will get the Cubs' second-round pick while the Giants get their third-rounder. Rafael Furcal is higher ranked than both Howry and Eyre, so if the Cubs sign Furcal before December 7, or if they sign him after the Braves offer arbitration on that date, then the Braves get the Cubs' second-rounder, the Indians are pushed to the third round, and the Giants are knocked all the way down to the Cubs' fourth-round pick.
Note that it's entirely possible for a team that loses a Type B free agent to get a compensation pick that is ahead of the picks that are given to teams that lose Type A free agents. It happened last year with the pick the Yankees got for losing Jon Lieber, as the first 15 picks of the draft were protected and the #16 Florida Marlins didn't sign a Type A player.
Two additional notes for the rules sadist. First, the ranking of the free agent lost determines which team gets which regular round pick, but the order of the sandwich round is determined purely by the order in which teams finished in the standings in the previous year. Cleveland will get their regular draft pick off the Cubs before San Francisco gets theirs because Howry is ranked higher than Eyre, but San Francisco picks ahead of Cleveland in the sandwich round because they finished with a worse record in 2005. Second, you can't lose a pick in compensation that was given to you in compensation. The only picks you can give up are the ones that were given to you by the original draft order.
Think you got it? Puzzle over last year's draft order. It's frustratingly complicated when picks are whizzing all across the game, and you can be sure that that smarter teams spend dozens of hours gaming out all the possible scenarios when they set their off-season plan and budget.