Fixing the free agent compensation system

In search of a second catcher
Commissioner for a day

It’s like clockwork: Whenever the Yankees sign a big-name free agent, baseball writers across the country dust off the old “baseball needs a salary cap” article, change some names and numbers, send it in to their editor, and enjoy the rest of their day off. When the Yanks went bananas this year by signing Mark Teixeira, CC Sabathia and A.J. Burnett, it did reveal a major flaw in MLB’s never-ending attempt to even the playing the field, except it had nothing to do with a salary cap.

Six months before the Yanks opened their wallets, the Brewers went all in, trading four prospects (including ’07 first rounder Matt LaPorta) to the Indians for reigning AL Cy Young Award winner CC Sabathia in an attempt to secure the franchise’s first playoff berth in a quarter century. The Brew Crew made the playoffs and then made a good-faith effort to retain Sabathia’s services after the season. But they got stuck with just a second-round pick and a sandwich rounder as compensation when he bolted for the greener pastures of New York.

Doug Melvin and Co. didn’t do anything wrong. The Yanks didn’t do anything underhanded. The Brewers simply got screwed by the system out of a first round compensation pick for the best pitcher to hit the open market in nearly a decade. The Brewers aren’t the only ones to get the shaft either; the Blue Jays received just a third round pick for watching Burnett head out of town. Baseball doesn’t need a salary cap, but it does need to fix its free agent compensation system. That’s what I’m here to do.

Perhaps the biggest problem with the current system is that the compensation picks a team receives for losing a Type-A free agent are directly related to which team signs the player, but only loosely tied to the player’s actual value. I propose to solve this by making the compensation for Type-A free agent the same regardless of where they sign: two supplemental first round picks. Compensation for Type-B free agents would remain the same, a single sandwich pick. And for housekeeping purposes, I’d rename the supplemental first round the “Compensation Round” because … well … I’m sure you get the point.

The order of the compensation round would be:

  1. First pick for Type-A’s
  2. Second pick for Type-A’s
  3. Pick for Type-B’s

These compensation picks would be ordered by the Elias rankings, not the reverse order of the standings as they are now. And unlike the current system, the compensation round would not need to cycle through each team before a team can pick twice. This guarantees that the team that loses the highest ranked free agent gets the first compensation pick, the team that loses the second highest ranked player gets the second pick, and so on. Ditto the Type-B’s. Now, obviously this could lead to a rather sizable compensation round, but so be it. The teams that lose the best players would be rewarded with the best compensation picks regardless of where the player signs.

So if teams are receiving compensation picks as I set forth above, what’s the penalty the other team has to pay for signing a Type-A? That’s simple: I propose they forfeit a draft pick. It doesn’t go to the team that lost the player, it just disappears as though it never existed. In addition to that, I would adjust the penalty based on how desirable the free agent is. Check it out:

  • Tier One: players age 31 and younger, signing team forfeits a first round pick
  • Tier Two: players age 32-35, signing team forfeits a second round pick
  • Tier Three: players age 36 and older, signing team forfeits a third round pick

The purpose of these three “age tiers” is to increase the penalty for signing a player the closer he is to his prime. A 36-year-old Raul Ibanez should not cost the same first round pick as 28-year-old Mark Teixeira. The proposed age tiers would not affect a player’s status as a Type-A free agent, ditto the compensation his former team would receive. This setup would also reduce what I call All-Star Catcher Jason Varitek™ Syndrome, which can best be described by the phrase “no way am I giving up a first rounder to sign that guy.” This age tiered system also would create some bargains, as players like Derek Lowe and Manny Ramirez would only cost a second or third round pick to sign, respectively.

Teams that sign multiple Tier One players would be docked an additional pick each time they sign another one of those guys. So, for example, a team would forfeit their first round pick for the first Tier One player, their second and fifth rounders for their second Tier One player, and then their third and fourth round pick for a third Tier One player, and so on. By forfeiting the additional pick, it simulates the value lost by forfeiting a first round draft pick, or thereabout. A similar situation can be developed for multiple Tier Two and Tier Three players as well. I’d keep the top fifteen picks protected from the compensation rules like they are now.

I also propose a slight tweak to the compensation pick system for unsigned draft picks. Right now unsigned first and second rounders yield the same overall pick the following year plus one, while unsigned third rounders yield a pick in a supplemental round after the third round. Why the unnecessary complication regarding unsigned third rounders? I say just use the same system as unsigned first and second rounds, the same overall pick the next year plus one. See, wasn’t that easy? I’d also keep these picks protected from free agent compensation rules like they are now.

Lastly, it’s impossible to write a post about overhauling the free agent compensation system without mentioning the Elias rankings. The current Elias ranking system uses deeply flawed and outdated statistics to rank players (according to Eddie Bajek of Detroit Tiger Thoughts, who reverse engineered the Elias Formula last year), stats like wins, winning percentage, earned run average, runs batted in, and total chances. Total chances! It’s time for baseball to get out of the Stone Age and shun team-dependent stats such as those in favor of advanced metrics. I’m not going to do Elias’ job for them, but I would recommend stats like FIP, VORP, wOBP and UZR, use of park and league factors, and I’d even like to see some positional adjustments included as well (20 HR shortstops > 20 HR corner outfielders). Obviously playing time (innings, plate appearances, etc.) and time spent on the disabled list would also have to be considered.

I’m not the best person in the world when it comes to explaining things, so let’s summarize in bullet point format:

  • Fix the Elias rankings!
  • Teams get two sandwich round picks for losing Type-A’s, one for losing a Type-B
  • Picks in the compensation round are ordered by Elias rankings, not reverse order of the standings
  • Teams that sign Type-A free agents forfeit draft picks according to a three tiered system based on the player’s age
  • Unsigned first, second and third round picks result result in a protected compensation pick at the same overall pick the following year, plus one
  • Compensation picks for unsigned draft picks, as well as the top fifteen picks of the first round would remain protected from free agent compensation rules

To get an idea of how this system would affect the draft, check out this spreadsheet which shows what the ’09 draft order would look like based on this winter’s free agent class (and, sadly, this year’s Elias rankings). As you can see, the Yanks would have forfeited their first through fifth round picks due to the signings of Teixeira, Sabathia and Burnett, but would still have the Gerrit Cole and Scott Bittle compensation picks at their disposal. The Halos would hold five of the first 42 picks because they would retain their own first round pick (Brian Fuentes would be considered a Tier Two Type-A free agent, thus penalizing them a second rounder) while gaining four compensation round picks for the losses of Teixeira and Francisco Rodriguez.

So let me know what you think. Fixing MLB’s free agent compensation system isn’t tough, it just requires an acceptance of state-of-the-art statistical information and some thought.

In search of a second catcher
Commissioner for a day
  • Dan

    Genius !!!!!!!!!!!!!

  • Dave

    It’s going to be a very, very long time before baseball uses metrics on a regular basis. I mean, upwards of 20 more years. You have to wait for the old timers to die or leave baseball.

    Anyway, this makes way too much sense to ever be implemented.

    • Old Ranger

      Not all old timers are afraid of the metrics, I use them (not real well) all the time. I must admit I was one of the old guys a few years ago but, as my eyes started seeing the same as the system was showing me on paper, I switched.
      Now I use them to help me file what I see and notice things I may have overlooked otherwise. It works for me…maybe not so much for others.

      • Mike Pop

        You remember the season where Williams beat out the Mick when Mickey was going for the triple crown? He beat him out for the average right, how upset were you?

    • huuz

      i understand your point. but just as a matter of semantics, a metric is any form of measurement.

      Wins, RBIs, Saves are all metrics, just like ERA+, VORP, OPS+, etc.

      judging which metrics are insightful, useful and worthwhile is another story…

  • jsbrendog

    bud selig just turned over in hsi grave. oops sorry, his coffin he sleeps in at night.

  • Rebecca-Optimist Prime

    The only issue I have here is that players mature at different times, so any strict age-based system would have some faults.

    But like I said, it’s my only issue.

    • Mike A.

      I agree with that, but I think we can say that most players peak at or before age 31, decline into their mid-30s, then fall off a cliff around age 36. Players like Manny, Derek Lowe, etc aren’t the norm.

      It’s not perfect, but I think it’s better than the system in place now.

      • A.D.

        else could modify on service time, so guys hitting their first 6 year FA would cost more than the older guys in their 2nd or 3rd FA contract

        • Mike A.

          That works too, good idea. Maybe go with:

          Tier One: 8 or fewer years of service time
          Tier Two: 9-13 years
          Tier Three: 14+

          • A.D.

            Else an age + service combo, as to not randomly inflate or artificially deflate the compensation cost of guys in the atypical zones.

            One can see where King Felix could have a few years bought out, and thus have over 8 years of service, and still be under 30. Opposite would be Chris Coste, though he’d be a type B at best, but the best example I could think of.

          • Rebecca-Optimist Prime

            This works better.

      • MattG

        Just thought of this, but I see no reason why it wouldn’t work–why not let the market define the tiers? Tier 1 is the top 20% of players based on the total value of their new contract. This would take everything into account–ability, age, position scarcity, and so forth, and best of all, would actually be completely dependent on the real market.

        I also like the fact that teams would be uncertain what tier free agent they are signing. It adds a little gamble into the whole process.

  • Bruno

    All-in-all this sounds like a good fix to me. Unfortunately, it makes too much sense for Selig to ever consider it.

  • A.D.

    Sounds great to me, really like this idea, makes sense, and essentially all teams benefit a little bit in the draft by other teams signing type A and thus forfeiting their pick, as all other picks move up a spot.

    Also like it because a teams first round reward is no longer dependant on who signs the team, just because a shitty team with a protected pick signed their type A free agent doesn’t make the loss for the team any less that they should get a 2nd rounder.

    Fixing the Elias rankings alone would go a long way, so that positions that aren’t that deep in blue chip studs example being catching & relief pitching don’t just blindly have the top 20% as A. Else you get what we see now, where there are guys who are type A’s but in no way have the same value to a team as CC or Tex.

  • Rafi

    I think that reason for the complications with the unsigned third rounder has to do with the supplemental round. Think of it like this: under the current system, the Astros pick is #105 while in your new system it’s #89. Now, technically, it would still be the “same pick”, but if there were more comp. picks(which assuming your system, more vets would’ve been signed), that pick would potentially be in the second round.

    • Mike A.

      True, but it’s still the same overall pick (plus one), the round number is basically irrelevant. The Astros wouldn’t be gaining anything really.

  • AndrewYF

    Will teams still need to offer arbitration to be eligible for this compensation?

    • Mike A.

      Of course. You don’t get the reward if you don’t take the risk.

      • A.D.

        Should be interesting after this year is players are more willing to accept arb.

        • Jake

          That’s a bit of a generalization it depends on the market if it rebounds the teams would have the money to spend on free agents which would create more teams bidding on approximately the same number of free agents therefore driving up demand which would increase the price of the player.

          • A.D.

            is should be if.

            It is a bit of a generalization, but if owners don’t want to spend because they are expecting to make less this year, then I doubt they’ll spend after they had a bad revenue year.

            On top of that there is a debate on how much of the lack of market is teams not having the money vs having an excuse to not spend money vs some of the players without jobs just aren’t that good anymore and not worth what they’re asking.

            My thought would be a guy like Varitek, who isn’t really worth 10M bad economy or not might be more likely to accept arb, after seeing what’s happened this year.

            Guys like Tex & CC always will decline, and guys like Ibanez or Burrell would still generally decline, as their the main ones hurt by the market.

  • Bill M.

    That is a BRILLIANT System! Call MLB!

  • Manimal

    Kick out Bud, Mike for Commissioner of Baseball!

    OT, Pat Vendette added me on facebook, he even responded to a message lol

    • steve (different one)

      which side is his mouse on?

      • Manimal

        That’s a good question… I know he is naturally right handed, but I don’t know.

  • Tom Zig

    Mike –

    This is a very smart idea, however, it is too smart and too forward thinking for baseball to adopt. Not only that but it makes too much sense. I like the idea, the only part I don’t like is that it prevents the Yankees from pulling this same stunt again.

  • Steve O.

    The Yanks wouldn’t have a pick in the first 5 rounds in this system. correct? (outside of compensation picks) I just think that it presents too much of a price to sign a type A, or multiple type A’s. The Yanks would sacrifice a 6th and a 7th for Juan Cruz, correct? I’m a little confused at this system, it seems logical, but I doubt the current system (however ineffective) ever changes, atleast in the immediate future.

  • Mike Pop

    Cool idea.

  • Greg Andrew

    I’m not one to defend Elias, but all they do is take the formula they are given and do the math; they had whatsoever to do with the construction of the formula. The formula was created by major league baseball (with the cooperation of the players union, since, as part of the free agent system , it’s subject to collective bargaining).

  • monkeypants

    Baseball should just shun the rankings altogether. Why not penalize every team for every FA signing (start with the first round pick, then the second, etc.), no matter how good or bad. Then teams would be forced to consider seriously the decision to sign any FA.

    Or better, since the above solution could hurt poorer teams more than richer teams, why not penalize the teams based on the money paid for the FA’s contract. The more money paid, the higher the draft pick lost. Threshold dollar figures could be easily established using an algorithm that factors in average salaries for the position, etc.

  • Lanny

    Why should teams even get compensated for not signing their own guys? Why should teams LOSE picks for actually wanting to get better?

  • http://Steve Steve Morrow

    If you are going to add 50-100 supplemental picks after the first round you are placing a large burden on teams who are trying to build through the draft. I believe that you should forfeit a first round pick if you sign a type A and a second round pick if you sign a type B similar to what happens now. The difference I see is that all picks should be in play and if you do not have a pick to give up you should be banned from signing that player. I do not feel that everyone would be so upset if the Yankees had been forced to give up all three first round picks.

  • Marvin Miller

    I think you’re missing the point entirely. Why should there be ANY compensation related to free-agent signings?

    Do you understand what the term “free-agent” means? I’ll help you out. It means that there is no longer a contractual relationship between the player and his former team. The player is free to contract his services to any team. Requiring his new employers to compensate the former ones implies that the relationship between the player and his former team still exists (it doesn’t) and is an unwarranted restriction on the ability of the player to sell his services in the market.

    Why should teams be compensated for “losing” something that no longer belongs to them?

    The compensation system should be scrapped, not “fixed”.

    • joetrim

      this is the smartest and most concise answer to the problems everybody is trying to solve. I’m free ,um , if you’ll just untie me. Free is free .you have me for 6 years .If you like me ,Payme ,if not get out of the way.

  • dan l

    Your plan is just more stupid crap! End all compensation asap. If you don’t want to sign your star players then trade them for other players or lose them for nothing.

    Seems silly to me that if the worst team gets the first pick shouldn’t they also get the 31st pick as well? That does not happen so the losing teams lose high second round picks so other teams get compensation from not trading potential free agents?

  • drdr

    Some sort of compensation for free agents lost is a good idea, but there should not be any penalty for signing free agents. The whole compensation process wasn’t invented to help teams that lost FA’s, but to penalize teams that sign them thereby reducing FA’s salaries. I would remove any penalty and offer compensation for any team that lost FA based on previous season’s success – every team that finished equal or better in real standings compared to their payroll placement qualifies for compensation. So, NYY would get compensation only if they finish first in regular season, BOSox only if they finish first or second, Marlins if they don’t finish last. Head to head tiebreakers apply. Compensation should be similar to what you suggest, but with the return of group C. so, something like: top 20% – 2 supp picks, in 1st and 3rd part of comp round, next 15% – 1 pick in 2nd part, last 15% – 1 pick in the fourth part. Compensation picks sorted by rankings. Of course, only if arbitration is offered. It wouldn’t inflate the supplemental round much compared to your proposal, because now A’s are first 20%, and B’s next 20’%, so that would only add those FA’s that are between 40th and 50th percentile at their positions.

  • drdr

    and, of course, it would probably significantly lower the number of players which teams could be compensated for, because many teams would fall below their playoff ranking (Baltimore would probably rarely see any compensation, Texas too).

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  • Preston

    Free agent compensation, as I understand it (and I’m not saying I endorse this reasoning), is meant to reward teams that do a good job developing talent but are unable financially to sign those players once they hit free agency. Given that that is the case, I’m not sure why compensation should be offered at all for players like Manny Ramirez, Derek Lowe, etc. How about if compensation was only given for players who had never previously filed for free agency? That rewards teams for the young talent they have developed/traded for (and doesn’t even penalize them for locking that talent up to long term contracts before they hit free agency – those players would eventually also give compensation when they left), but not for having the money to throw around in free agency a few years before. This potentially avoids the age tiers, with which, I have to admit, I’m uncomfortable, as they would create some odd situations – think about Oliver Perez being Tier 1, A.J. Burnett being Tier 2, and Derek Lowe being Tier 3 – now we’re depressing Perez’s value instead of someone like Varitek.

  • Tommy

    I suspect the MLBPA wouldn’t agree to this (or at least would put up resistance) because it would limit the salaries at the top of the scale for free agents. On the other hand, the quality of the picks might actually go down, because it’s possible to get a high-teens pick as compensation. In the end, maybe it’s true that a good compromise leaves everyone unhappy. Definitely a fascinating proposal.

  • joe

    Instead of the tiers being based on age, I would base them on the length of contract signed. For example: Tier one might be five or more years, Tier two 3 and 4, and Tier three 1 or 2. This takes into account the player’s age as well as any health risk. A team would be more likely to take a chance on Varitek or Sheets if they only had to give up a 3rd round pick for instance instead of a first round.

  • Niko

    Instead of Forfeiting a pick for signing a player, why not lower the value of the highest (or second-best) pick for signing a player. The number of slots lower would depend on the value of the player (Elias?) and would hurt a team picking low in the first round (like the Rays) just as much as a team picking high (like the Bucs.)

  • Tony A

    I have to agree with Lanny and Marvin Miller: teams should not be rewarded for not resigning a player whose contract has expired, nor should teams be punished for signing a player who is not under contract elsewhere. What part of the term “Free Agent” doesn’t MLB understand, and why should such ignorance be coddled?