How the new Collective Bargaining Agreement affects the White Sox (and baseball), Part II

Because the changes to the CBA are radical and involved, my analysis of it is being broken into multiple posts. The first post covered the amateur draft and international amateur free agents. This post covers free agency.

Free agent compensation

After this offseason, gone will be the much maligned Elias Rankings, which ranked players as Type A, Type B or no type free agents and accordingly provided teams draft picks as compensation for another team signing their free agents, so long as the team offered the free agent salary arbitration or the free agent signed with another team prior to the deadline to offer arbitration. And that likely run-on sentence was a simplification of the system. The new system appears to be simpler and fairer, particularly to the players.

Immediate changes

Before we get to that new system, there are a couple changes to this offseason's free agency. First, teams signing the remaining Type A relievers will not lose their first round pick (or, if that pick is in the first 15 picks in the 2012 amateur draft and is thus protected, their second round pick). This change is not retroactive, however, so because the Phillies totally had to give Jonathan Papelbon like $50 million right away, they still surrender their first round pick to the Red Sox. This is a big thing for the remaining Type A relievers, and probably most particularly for the clearly non-elite but still Type As like Octavio Dotel and Matt Capps, who should get better offers now that teams will not have to give up picks to sign them.

However, their former teams will still get compensation. Dotel, Capps, Francisco Cordero and Darren Oliver will be treated as "modified" Type B free agents, resulting in a sandwich pick as compensation, without their former teams needing to make an arbitration offer. Heath Bell, Ryan Madson, and Francisco Rodriguez will be "modified" Type As. A team will not lose a pick to sign them but their former club will still receive two picks. One will be a first round pick right after the signing team's first round pick. The second will be a sandwich pick.

Second, position players Michael Cuddyer, Kelly Johnson and Josh Willingham will also be treated as modified Type As. Ramon Hernandez will be treated as a modified Type B.

As none of these players are White Sox free agents, and the club was (and probably still is) not interested in signing any of them, these immediate changes have little effect on the White Sox.

New system

Now for the new system, which will go into effect following the 2012 season. Free agents will no longer be ranked. Only free agents who have been with a team for the entire season can provide compensation. Any such free agent could provide draft pick compensation if the team makes a "qualifying offer" to that free agent prior to the deadline, the player rejects that qualifying offer and the player signs with another team.

A "qualifying offer" is a one year guaranteed contract with a salary equal to the average salary of the 125 highest paid players from the prior season. That amount would have been about $12.4 million if the system were in place this offseason. The offer must be made at the end of the five-day free agent "quiet period" (which begins after the end of the World Series) and the player will have seven days to accept the offer. Obviously, a team would only make a qualifying offer to a player who is pretty good.

A club that signs a player subject to compensation will forfeit its first round selection to the player's former club, unless it selects in the top 10, in which case it will forfeit its second highest selection in the draft. The player’s former club will also receive a selection at the end of the first round beginning after the last regularly scheduled selection in the round. [Edit: The six "competitive balance lottery" picks come directly after the first round and then are followed by the sandwich picks.] So two picks will still be obtained by the former club. The order of the former clubs' sandwich pick selections will still be based on reverse order of winning percentage from the prior season.

Impact on White Sox and baseball

This change will have a big impact on clubs, including the White Sox. The pool of free agents providing compensation will shrink. Type B compensation (which was a "sandwich pick" between the first and second rounds) is gone. Players such as Jason Frasor, Carlos Quentin and John Danks, potential White Sox free agents after next season who are currently projected as Type Bs, will no longer provide that compensation.

Interestingly, this may be a benefit to the White Sox. While Frasor certainly is not worth a qualifying offer, Danks, and to a lesser extent Quentin, likely would be. Using a rough approximation of $5 million being the cost of a win on the free agent market, one could see both being projected to be worth at least 2.5 wins in 2013. [Aside: This new system will certainly have an impact, possibly a noticeable one, on the value of a win; however, that is quite difficult to predict right now so my approximation is based upon the current values].

A John Danks probably would reject a qualifying offer. A starting pitcher of his quality could command far more guaranteed money, and probably more annual value, than a qualifying offer. Add in the higher propensity for injury for pitchers and one would project compensation being available to the White Sox if they were to end up not re-signing him. The fact that teams would have to forfeit a pick to sign him also would give the White Sox a slight economic advantage if they were to offer a long-term deal after he becomes a free agent. Of course, the rule about a player needing to be with a team all season to provide compensation would marginally hurt Danks' trade value as compared to the prior system, if the White Sox choose to trade him during the season.

A Carlos Quentin might be interested in the qualifying offer, particularly because he has been injury prone. Players looking to prove health in order to obtain a longer contract in the following season are one type of player who might jump at these offers. I could also see a player who may only command, say, a 3 year, $30 million offer on the free agent market - but, in a one year deal, would be viewed as worth $12.5 million - accepting the qualifying offer and gambling that he could do better going, to use an arbitration term, "year to year". It will be an interesting dynamic to watch play out next offseason.

Only A.J. Pierzynski projected as a Type A free agent next offseason. As the White Sox did not offer arbitration last time they had the opportunity to do so, this change in compensation may be irrelevant. The White Sox have also not been shy in signing away Type A free agents in the past, as they have valued draft picks less than other teams, so the change may have little impact on their signing activities.

The fact that only free agents who have been with their club for the entire season can provide compensation will change the dynamic of trade deadline deals. Such players will be less valuable to acquiring teams than in the past and should result in lesser value in return for their acquisition. Considering the White Sox have a terrible farm system, this probably benefits them more than other teams because they can more easily put together a competitive package.

Free agent market value

As mentioned above, all these changes will affect the market value of free agents in multiple ways. These include: (i) most formerly Type B free agents being slightly less attractive to signing teams because they no longer come with the possibility of a draft pick at the end of their contracts; and (ii) some formerly Type A free agents being more attractive to clubs because they no longer require giving up a draft pick to sign them.

Type B compensation (a sandwich pick) is, on average, worth about $2.6 million (see here for explanation). Some portion of this dollar value (or the dollar value of Type A compensation, in some instances) should now be expected to be subtracted from many player's contract offers, So some of the already not so rich players will get more not so rich.

Type A compensation (a sandwich pick and either the signing team's first or second round pick) is, on average, worth about $5.6 million. Some portion of this dollar value should now be expected to be added to the player's contract offers, as they would have required a signing team to surrender a draft pick to sign the player. So some of the already very rich players will get richer, particularly if they are the quality of free agents who should not expect a qualifying offer under the new system.

Smaller market clubs thus, at least at first blush, may find themselves more able to compete for formerly Type B free agents (but query the effect of increased competition for those players). Clubs in some cases will no longer lose draft picks when signing formerly Type A free agents, which would serve to make it less "costly" to sign another team's Type As. But this effect will vary from team to team. The first round picks obtained from the better teams, the 16th-30th picks, are worth, on average, a bit more than $5 million. But the second round picks received from the bad teams, usually around the 46th-60th picks, are worth, on average, a bit less than $1 million. Smaller market clubs may find themselves more able to compete for these free agents but will also no longer receive draft pick compensation when the clubs lose their free agents. Teams will thus find it harder to stockpile picks and rebuild through the amateur draft.

Top tier free agents, most of whom would have been classified as Type As, will still result in losing draft picks. But the effect of signing certain free agents, like a John Danks or a good player who missed substantial games and thus did not achieve Type A status, may now be a loss of a draft pick. The new system more appropriately "ranks" free agents by a market test and not the Elias formula which often did not appropriately rank them.

Tomorrow morning: re-alignment, playoff format, player compensation and roster expansion.

link to part III

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