One of the unsung factors of Major League Baseball’s free agency is draft pick compensation.
In short, all players (not just free agents) are ranked by the position they play. The top 20 per cent of the players in their group* are given Type A status. The next 20 per cent are given Type B status.
A team that loses a Type A free agent will receive a draft pick between the first and second round. In addition, the team will also receive either the first or second round pick from the team that signed the free agent (picks 1-15 of the first round are protected).
A team that loses a Type B free agent only receives the extra pick between the first and second round. Signing this type of free agent does not cost the new team any draft picks.
While this system softens the blow for team like the Rays and Rangers that are set to lose one of their best players, it actually hurts the Type A free agents that are not commanding $50-150 million contracts. This is because teams are starting to place a higher premium on the draft picks. It has been estimated that a Type A draft pick is worth $3-5 million.
Last year, there were 22 Type A free agents. The top free agents (Matt Holliday, John Lackey, Jason Bay) still got their big paydays. A $5 million draft pick is a negligible cost when the total package is $100 million. But if a player is only worth $5-10 million on the open market, the addition draft pick cost must be considered by the signing team.
Let’s take a look at how compensation may have affect last year’s free agency class. We’ll split the Type A free agents into two groups and compare those to the top 11 contracts given to Type B free agents…
The bottom 11 Type A contracts totaled almost $8 million less per contract when compared to the top Type B contracts. Of those bottom 11 Type A free agents, 10 signed one-year deals and one went unsigned. Meanwhile, 10 Type B free agents signed deals for at least two years.
So who is in danger of getting shafted this season?
Guys like Bengie Molina and Miguel Tejada are not going to be worth giving up a draft pick. But the players that tend to get hurt the most are middle relievers like Arthur Rhodes, Dan Wheeler, Scott Downs and Grant Balfour.
This system will almost certainly be changed in the next collective bargaining agreement. But that’s not going to help some of this year’s top free agents find fair market value.
*Groups are as follows: Catchers, Starting Pitchers, Relief Pitchers, 1B-OF-DH, 2B-SS-3B
**Assuming the former team offered the free agent arbitration and the player turned down the offer. This is true for most Type A free agents.
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