How the new labor deal affects the trade deadline for the Royals

The Royals may not be thinking about being sellers at the trade deadline, but they may be forced to confront that reality if the team continues to play the way they have so far. The Royals have been sellers before, but not in several years. This year, the new Collective Bargaining Agreement that MLB and the player’s union agreed to last winter adds a few new wrinkles to the July trade deadline for potential sellers.

What the new labor deal changes

As we discussed last winter, the new labor deal has many provisions, but the changes that affect the trade deadline the most are the modifications to the free agent compensation process. The process for compensating teams losing free agents has two components - how it affects the team signing the free agent, and how it affects the team losing the free agent.

Much of the news last winter focused around changes for teams signing a free agent. Under the old labor deal, a team that signed a free agent that had turned down the Qualifying Offer had to forfeit its first-round pick, unless that pick was among the first ten picks. That pick was NOT surrendered to the team that lost the free agent, rather the pick just disappeared.

The first-round pick forfeiture served as a drag for middle class free agents like Ervin Santana and Kendrys Morales, who were left signing deals just before or well into the season because no team wanted to give up a first-round pick AND pay millions of dollars for them. Under the new labor deal, teams that sign a free agent will only have to forfeit a third-round pick, provided they are not over the luxury tax threshold. If they are over the luxury tax threshold, they forfeit a second- and fifth-round pick.

What affects the Royals, however, are changes for the team losing a free agent. Under the previous labor deal, teams that lost a free agent that rejected a Qualifying Offer were granted a sandwich pick after the first round but before the second round. That part hasn’t changed, the Royals could still get a pick after the first round. The change is that the compensation pick comes with some caveats.

First of all, the team must be a revenue-sharing recipient to continue receiving the first-round sandwich pick. The Royals, as one of the smallest markets in baseball, definitely qualify as a revenue-sharing recipient, but larger market clubs will have to settle for a sandwich pick after the second round. The second caveat, is that the departing free agent must sign a contract worth $50 million or more to necessitate a first-round sandwich pick. If the contract is less than $50 million, the club receives a sandwich pick after the second-round.

How does this affect the Royals at the trade deadline?

The Royals have five core players eligible for free agency at the end of the year - Eric Hosmer, Mike Moustakas, Lorenzo Cain, Jason Vargas, and Alcides Escobar. To receive draft pick compensation, the Royals will have to make a Qualifying Offer to those free agents, which was worth $17.6 million last year and is likely to increase this winter. Hosmer, Moustakas, and Cain would almost certainly reject that offer, while Escobar would readily accept it, making him vastly overpaid, which is why the Royals won’t offer it to him. The interesting case will be Jason Vargas, who is off to a sensational start and if he continues to be healthy, could be headed towards a Qualifying Offer as well.

Some pundits have argued the Royals have to make a deal because of changes to the Collective Bargaining Agreement, but this isn’t true. The draft pick compensation for the Royals hasn’t changed much.

Hosmer, Moustakas, and Cain all seem likely to get contracts worth at least $50 million. Hosmer has Scott Boras as his agent, who boasts of Hosmer’s superstar status. Mike Moustakas has turned into one of the best power-hitting third basemen in baseball with a terrific glove. Lorenzo Cain was third in MVP voting just two seasons ago and is recognized as one of the best defenders in the game. Jason Vargas is a bit more questionable with his Tommy John surgery, but he could still net the Royals a second-round sandwich pick. But if anything, the new changes with the labor deal increase the chances of free agents getting larger deals, since signing teams no longer have to worry about giving up first-round picks.

Of course, it is no guarantee. Another slump by Hosmer, a knee injury to Moustakas, an injury to Cain, could all jeopardize the Royals’ chances of landing a first-round sandwich pick. Still, they would have the second-round sandwich pick to fallback on as compensation. In any case, the Royals have some insurance should they not be able to get a trade done this July, and should not be totally empty-handed should their free agents depart.

However, it would still be in the Royals’ best interest to try and engineer a trade in July should they be out of the race. The Royals should be able to demand a Top 100 prospect, or at least something very close to it, in exchange for Hosmer, Moustakas, Cain, or Vargas. A first-round sandwich pick is very unlikely to be as good as a Top 100 prospect, at least not immediately. The draftee will be further away from the big leagues, with much more risk and uncertainty. And with the Royals’ recent track record with the draft, perhaps it would be better to trust someone else’s prospects.

Still, the Royals won’t be totally without leverage in their July negotiations. They have options. They can make a trade, but if the right deal doesn’t come along, they can always take their chances with draft pick compensation. The new labor deal made several changes, but it won’t affect the calculus much for the Royals this summer.