It Was Bound to Happen
The Baltimore Orioles yesterday announced that they had signed Nelson Cruz for one year at $8 million plus another possible $875,000 in performance incentives. The most interesting thing about this signing is that Cruz had previously rejected a qualifying offer from his old team the Texas Rangers for $14.1 million, making Cruz the first player to get less guaranteed money by rejecting the qualifying offer.
There has been a lot in the baseball blogosphere this off-season about how much the players’ union and agents hate the relatively new compensation system for elite free agents and will seek to change the terms the next time the collective bargaining agreement is re-negotiated. I, for one, am not convinced that the current system isn’t working pretty much as it was intended to work.
Linking elite free agents to draft pick loss and compensation (the signing team loses a late first round or early second round pick, and the former team gets said draft pick, or under the new system a pick at the end of the first round) has long been (for several decades) the method to compensate teams losing the free agent and to create at least some disincentive to other teams considering signing that free agent.
In fact, the new system is better than the old one in that instead of a somewhat arbitrary formula as to what constitutes an elite free agent for purposes of draft pick compensation, the new system allows teams to decide how much they value their free agent by giving him a substantial qualifying offer.
The only real complaint I have about the new system compared to the old system is that teams with the 11th through 15th first round draft pick now lose that draft pick if they sign a free agent who has received a qualifying offer, while under the old system those picks were protected and the teams that possessed them lost a second round draft pick instead of a first round draft pick. The 11th through 15th pick are highly valuable, and the bad to mediocre teams that possess them have proved unwilling to give those draft picks up, even though they might benefit greatly in the short term by signing an elite free agent.
At any rate, it was bound to happen that eventually one of the free agents receiving and rejecting a qualifying offer would sign a free agent contract for less than the amount of the qualifying offer. In fact, the fact that to date every single player who in previous off-seasons had received and rejected a qualifying offer and then went on to sign a free agent deal for more money meant that all players who received a qualifying offer this off-season would reject them even as the amount of the qualifying offer has risen and some of the players who received qualifying offers might not be worth as much on the open market as the qualifying offer.
There were hints in off-seasons past that we would eventually see a free agent get burned by rejecting a qualifying offer. For example, last off-season Adam Laroche rejected a $13.3 million qualifying offer but ultimately re-signed with the Washington Nationals for two years and $24 million, i.e., more guaranteed money but less per season than the qualifying offer.
As salaries for veteran players have shot through the stratosphere, not only because of increased MLB revenues, but also because MLB has in recent years imposed new regimes reducing signing bonuses for amateur players, the value of first round draft picks (and their reasonable likelihood of producing good, initially low-salary major leaguers) has increased dramatically in the eyes of MLB teams.
Even aside from the perceived increased value of first round draft picks, Cruz was a perfect storm for getting burned on rejecting the Rangers’ qualifying offer — he’s old, turning 34 next July 1st, teams wonder how much PED use pumped up his stats in Texas, and he has no defensive value, meaning only American League teams that can use him as a DH were serious contenders for his services.
Many have noted that the contract the Orioles gave Cruz was right in line with what fangraphs says his actual value is. I doubt that many MLB general managers are consulting fangraphs in deciding which free agents to sign. However, it isn’t particularly surprising that using their own methodology many teams come to roughly the same conclusions as to Cruz’s value.
Kendrys Morales looks to be the next free agent who gets burned by failing to accept a $14.1 million qualifying offer. He remains on the market, and his skill set is little different than Cruz’s.
The upshot is that next off-season at least a few free agents and their attorneys will think long and hard before rejecting qualifying offers. In my mind, that is how it should be, given that the amount of the qualifying offer has been calculated to represent substantial compensation for giving up the right to test the free agent market. It also isn’t surprising that for some potential free agents, at least, the player has more value to his former team because of his history with the club than he is to any other team.