On Free Agent Draft Compensation


Two elements of the structuring of the MLB amateur player draft are designed to benefit struggling teams.  First, draft order is based on the previous season’s record.  The team with the worst record drafts first, and the team with the best record drafts last.  Second, teams that lose important players to free agency are compensated with additional draft picks.  It is this second element that is the focus of this post.  While other elements of the draft such as bonuses/slotting are also worthy of discussion, my intention is to discuss why the compensation system is fundamentally broken.

The ELIAS sports bureau has a formula it uses to rate players.  All players in baseball are rated.  The top two tiers of players are rated as Type A or Type B.  These rankings are only really important when said player is an impending free agent.  For more detailed information on this process, click here.


When a player becomes a free agent, the team that they are leaving has the option of offering that player salary arbitration.  If the player accepts the offer of arbitration, they will stay with their team on a one year deal, salary determined via the arbitration process.  If the player refuses arbitration, and the player is a Type A or Type B free agent, the team they are leaving receives compensation picks.  The idea being that small market teams who can’t afford to keep their stars will receive additional draft picks so that they may obtain new stars.


If a Type B free agent is offered arbitration and refuses it, the team that they are departing receives a supplemental first round pick, also known as a sandwich pick.  These picks occur after the first round but before the second round.  Type A free agents are slightly trickier.  The team will receive a sandwich pick and an additional pick, that additional pick depends on a variety of factors.  If the team that signs away the free agent finishes with a record in the top half of baseball, the team surrenders its first round pick to the team the free agent departed.  If the team finished with a record in the lower half, the second round pick is surrendered.  But, if the same team signs multiple Type A free agents, they surrender their highest pick for the highest rated free agent they sign, their next highest pick for the next highest free agent, and so on. 


Here are some examples.  Following the 2007 season, David Riske was a Type B free agent.  The Royals offered arbitration and Riske refused, the Royals received a sandwich pick.  Following the 2008 season, Mark Teixeira was offered arbitration by the Los Angeles Angels of Anaheim, he refused and signed with the Yankees.  The Angels received the Yankees first round draft pick plus a sandwich pick.  That same offseason, the Brewers offered arbitration to CC Sabathia, who refused and also signed with the Yankees.  The Brewers received a sandwich pick.  However, since Mark Teixeira was a higher rated free agent than CC, the Brewers received the Yankee second round pick.


The above examples should bring to light some fundamental flaws with this system.  First, much like the criticism of the pitcher wins stat, compensation is affected by many things extraneous to the merit of performance.  Put another way, who signs your player away determines your compensation level.  The crux of the compensation system is that teams losing star players need to be compensated for that loss.  If that is the case, then the level of compensation should not depend on who signs the player. 


Take AJ Burnett.  Following the 2008 season, he was a Type A free agent, offered arbitration and refused it, signing with the Yankees.  Since the Yankees had signed two other Type A’s in CC and Teixeira, the Blue Jays received a third round pick as compensation (in addition to the sandwich pick).  If the Royals had signed AJ Burnett, the Blue Jays would have received a second round pick (since the Royals record was in the lower half of baseball).  If the Rays had signed AJ Burnett, the Blue Jays would have received a first round pick (since their record was in the upper half of baseball).  Or, if the Yankees didn’t sign those other Type A’s the Jays would have received a first rounder.  Now, AJ’s performance never changed, the impact of his departure on the Blue Jays never changed, but the level of compensation the Jays receive changes wildly based on who signed their player and who else said team may have signed.  The highest level of compensation a team can receive is pick number sixteen, the lowest level of compensation a team can receive is a third or maybe even (though unlikely) a fourth rounder.  The disparity in value between pick number 16 and pick number 116 is pretty self-evident.


The length of time a player spends with a team is irrelevant to the compensation process.  Using the above players again as an example, Mark Teixeira was a rental player, traded from the Braves to the Angels around the deadline.  For two months of Teixeira, the Angels received two first round picks.  AJ Burnett was on a four year deal with Toronto.  For four years of Burnett, the Blue Jays received a third rounder and a sandwich pick.  Remember, compensation is supposed to replenish the farm system of small market teams who lose their homegrown stars.  The Angels do not qualify as a small market and Teixeira was anything but homegrown.  And while the Toronto and Burnett situation doesn’t exactly represent a homegrown small market talent either, losing a player who spends four years with a team is pretty different from losing a two month rental.


Also, a player’s position on the team is irrelevant in determining the compensation.  A team’s starting shortstop or leading homerun hitter or ace of the starting rotation is compensated the same as a relief pitcher.  A starting shortstop who barely misses Type B status is infinitely more of a hit to lose than a middle reliever who barely reaches on Type A status.  Remember, the Royals gave up a second round draft pick to sign Juan Cruz.  They received a sandwich pick for David Riske.  David Riske, middle reliever on a one year deal was turned into...Michael Montgomery, top pitching prospect. 



The compensation system also doesn’t deal well with players who stop playing.  You’ll recall that Mark Grudzielanek reached Type B status, the Royals offered arb, he refused, and we were in line to receive a sandwich pick...except no one signed him...until after the draft.  The Royals received nothing.  Similarly, when a player retires, the team from which they retire receives no compensation.  While the departure of David Riske netted the Royals their top pitching prospect, the departure of George Brett, who was somewhat more important to the team than David Riske, was not compensated.  Let’s say that tomorrow, Albert Pujols decides to go become a monk in Mongolia and retires.  Cardinals receive ZERO compensation for the loss of the best player in baseball.  Meanwhile, as of the current rankings, Matt Gurrier, Darren Oliver, and Ryan Franklin would all be in line for two draft picks.

Now, I’m sure that during the Grudz example above many people are faced with the thought, “but if no one signed him, he didn’t really merit compensation.”  That brings up another point.  Teams are compensated for players that aren’t good enough to be signed.  This brings up problems with the antiquated ELIAS ranking system, whereby players that aren’t good enough to be signed and middle relievers can be valued above every day players.  However, as of today, no free agent compensation would be received for such players as Jose Reyes, Chipper Jones, or Francisco Liriano.




But perhaps the biggest problem with the compensation is that it’s becoming a rich get richer situation.  I don’t necessarily mean rich here in terms of finances or payroll, though that does help, but in terms of talent-richness.  Small market teams are getting rid of their stars via trade either because they get too expensive or because they think they can net a better return in a trade.  Either way, with some exceptions, the teams that are receiving the compensation picks are not the struggling teams who developed the star player, they are the successful teams who acquired rental players for the stretch run.


Consider a few facts about the compensation setup.  Between the Royals' first and second picks:

The Angels draft five times

The Red Sox draft three times

The Rays draft three times


The Red Sox signed multiple free agents in the offseason, including Marco Scutaro (Type A), John Lackey (Type A), Adrian Beltre (Type B), and Mike Cameron (unrated).  Four free agents signed, two of  whom were type A and the Red Sox get three first round draft picks, plus an extra second?  How did this come about?  Well, first is from Jason Bay.  The Red Sox got a sandwich pick for Bay and the Met second round pick.  Bay played for Boston for one season plus two months, was not developed by them.  The other picks?  Billy Wagner.  The Red Sox got a sandwich pick and the first rounder of the Atlanta Braves for Billy Wagner.  Billy Wagner pitched for the Red Sox for like a month.  He was a waiver trade coming off of injury.  The Red Sox, being rich and smart, took on the Wagner contract to get the picks, essentially buying extra draft picks.  Wagner pitched something like eight innings for the Red Sox in 2009, but they get two first round draft picks out of the deal.  And so on.


Here's a list of all of the teams that got compensation picks this year:


33. Houston Astros  (for Type A free agent Jose Valverde (Detroit))
Michael Kvasnicka, C, Minnesota
34. Toronto Blue Jays  (for Type A free agent Marco Scutaro (Boston))
Aaron Sanchez, RHP, Barstow (Calif.) HS
35. Atlanta Braves  (for Type A free agent Mike Gonzalez (Baltimore))
Matthew Lipka, SS, McKinney (Texas) HS
36. Boston Red Sox  (for Type A free agent Jason Bay (New York Mets))
Bryce Brentz, OF, Middle Tennessee State
37. Los Angeles Angels  (for Type A free agent John Lackey (Boston))
Taylor Lindsey, SS, Desert Mountain HS, Scottsdale, Ariz.
38. Toronto Blue Jays  (for unsigned 2009 draft pick James Paxton)
Noah Syndergaard, RHP, Legacy HS, Mansfield, Texas
39. Boston Red Sox  (for Type A free agent Billy Wagner (Atlanta))
Anthony Ranaudo, RHP, LSU
40. Los Angeles Angels  (for Type A free agent Chone Figgins (Seattle))
Ryan Bolden, OF Madison (Miss.) Central HS
41. Toronto Blue Jays  (for Type B free agent Rod Barajas (New York Mets))
Asher Wojciechowski, RHP, The Citadel
42. Tampa Bay Rays  (for Type B free agent Gregg Zaun (Milwaukee))
Drew Vettleson, RHP, Central Kitsap HS, Silverdale, Wash.
43. Seattle Mariners  (for Type B free agent Adrian Beltre (Boston))
Taijuan Walker, Yucaipa (Calif.) HS
44. Detroit Tigers  (for Type B free agent Brandon Lyon (Houston))
Nick Castellanos, 3B, Archbishop McCarthy HS, Fort Lauderdale, Fla.
45. Texas Rangers  (for Type B free agent Marlon Byrd (Chicago Cubs))
Luke Jackson, RHP Calvary Christian, Fort Lauderdale, Fla.
46. St. Louis Cardinals  (for Type B free agent Mark DeRosa (San Francisco))
Seth Blair, RHP, Arizona State
47. Colorado Rockies  (for Type B free agent Jason Marquis (Washington))
Peter Tago, RHP, Dana Hills HS, Dana Point, Calif.
48. Detroit Tigers  (for Type B free agent Fernando Rodney (Los Angeles Angels))
Chance Ruffin, RHP, Texas
49. Texas Rangers (for Type B free agent Ivan Rodriguez (Washington))
Mike Olt, 3B, Connecticut
50. St. Louis Cardinals  (for Type B free agent Joel Pineiro (Los Angeles Angels))
Tyrell Jenkins, RHP, Henderson (Texas) HS


Notice some teams not on the list?  Here are a few:
Royals, Pirates, Reds, Twins, White Sox, Athletics, Marlins, Orioles, Padres, Diamondbacks, Cubs, Brewers, Nationals.  What do those teams have in common?  They're all small markets and/or bad.  If you were to list out the teams that were in the most need of compensation picks, the Royals, Pirates, Nationals, and Orioles are probably on that list, yeah? 

The compensation system has essentially turned into the good teams trading picks with each other when they sign each others free agents.  The picks that are supposed to be going to struggling teams just help the talent-rich get talent-richer.  Meanwhile, teams on the lower rungs of the baseball world can actually get hurt by the system.  If a team is to take the next step in terms of its competitiveness, it may choose to do so by signing a free agent.  But signing a free agent means the sacrifice of a draft pick in the future.  Small market teams are forced to not only cough up dollars in the short term, but sacrifice the long term future of the club in order to improve. 


Prior to the 2009 season, the Royals [thought that they] were ready to make a run.  Signing Juan Cruz, middle reliever, meant the sacrifice of a draft pick.  This was not Mark Teixeira, this was not CC Sabathia.  This was a good but not even great setup man.  In a move to make a struggling team more competitive in the short term, the Royals had to sacrifice future talent.  The move of course backfired and a year later Juan Cruz is no longer with the team.  Is he even in baseball?  Of the above compensation picks from this year, you'll notice that free agent signings by Baltimore, Houston, Milwaukee and Washington (times two) all contributed to other teams getting extra picks.  With the exception of Houston, none of those teams received any picks of their own.


The compensation system, which was designed to help struggling, small market teams when rich, successful teams signed away their players, has turned into the opposite.  Essentially, the successful teams have access to a grouping of picks at the end of the first, the sandwich and the beginning of the second, that struggling teams largely do not have access to.  Of course, smart teams can better take advantage of the system than dumb teams, and rich teams can better take advantage than poor teams.  But the undeniable fact remains, if you don't have good players you can't lose good players, and if you don't lose good players you won't get compensated.  Good teams lose good players, thus, good teams get compensated. 


Now obviously it's not quite as black and white as my tendency for hyperbole would indicate.  You'll notice that the Astros and Rockies got compensation picks while the Yankees did not.  Nevertheless, the Wagner situation and the 2009 Yankee spending spree situation demonstrate how, and in how many ways,   the compensation system is fundamentally flawed.


Any ideas on how to fix it?

This FanPost was written by a member of the Royals Review community. It does not necessarily reflect the views of the editors and writers of this site.

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