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The Royals announced today they have extended a $15.3 million Qualifying Offer to free agent James Shields. Shields has until November 10 at 4 p.m. CT to decide whether or not to accept it. If he accepts it, he is bound to the Royals next year at a $15.3 million salary (although he is still free to negotiate a long-term deal). If he declines it, he is still free to negotiate a contract with the Royals, but the Royals are entitled to a draft pick in the compensatory round of the 2015 draft. The Royals will reportedly at least make a run at James Shields, although the expectation is that he will sign elsewhere.
Shields will almost certainly decline the Qualifying Offer, as he is expected to get 4-5 year offers on the free agent market in the price-range of $15-20 million per year. Qualifying Offers can be made to any free agent that was not acquired mid-season (like Josh Willingham). The Royals are not expected to make Qualifying Offers to any of their other free agents.
A Qualifying Offer can tend to drag a player's value down in the free agent market, as Ervin Santana, Kendrys Morales, and Stephen Drew found out last year. However, for the top free agents, the draft pick compensation should not be a big impediment. Santana was offered a Qualifying Offer from the Braves again this year.