Saturday, February 16, 2013

Coming to Terms with Draft Pick Compensation

With pitchers and catchers reporting this weekend, the rest of the league is not far behind. Groundhog predictions aside, Spring is right around the corner. Just as important the majority of free agents have been signed and fans are able to attach faces to their lofty hopes and dreams for the coming season. Kyle Lohse is a notable free agent still waiting for a contract and he may wait a bit longer as players and teams are still coming to terms with the new draft pick compensation system.

The biggest obstacle facing Lohse is that he is tied to draft pick compensation where if a team other than the St Louis Cardinals (his team last season) signs him they have to give up their top draft selection and the accompanying draft money. In a league that is putting an increased emphasis on youth and prospects that appears too steep of a price to pay for a 34 year old who just put up his career best season. Lohse was not the only player tied to compensation who struggled to find a contract this offseason. Michael Bourn finally signed with the Cleveland Indians earlier this week and Adam LaRoche bemoaned having compensation attached as he found it limited his opportunities before resigning with the Washington Nationals.

If LaRoche had his way the compensation issue would disappear altogether. That is not likely to happen. It is a tremendous upgrade over the previous A and B level compensation system it replaced and it severely limited the number of players affected. However, this leads to part of the problem. The old system worked, in part, because it was a little screwy. What was the difference between an A-level and B-level guy? Other than middle relievers seemed to get the B-level designation I could not tell you without looking it up. The new rule though is clear and unambiguous. Players get tied to draft pick compensation when they turn down their teams offer for the average salary of the top 125 players the previous season ($13.3 million). This number is the other big obstacle these players face and where I would like to focus.

On the one hand the players are told they are worth a very acceptable one year offer. You do not need accountants, lawyers and a priest to figure out the value of these players. However, once players turn that money down they seem to treat it as a floor to their demands. For certain players that is just a pipe dream. Yet, the arbitrary bar appears to have set a starting point for players and teams to bargain over. Michael Bourn wanted $15 million a season over 5 years. He waited, and waited, and waited some more before finally accepting 4/$48. LaRoche signed for 2/$24, failing to get the third year he wanted. Lohse will likely also accept less than the qualifying number. The issue is not their skill, clearly their previous teams offered substantial commitments to keep them for another season, rather it is their use of a number based on others salaries rather than tied to their specific situation.

Players, agents, and teams are schooled in arbitration. Any player with between 2-6 years of major league experience has a right to go to arbitration and demand a salary increase. The player and team will submit figures in January and if they cannot come to agreement, both sides will present arguments to a three party panel on why their salary is most accurate. After hearing the arguments the panel will grant either the players number or the teams number, there is no middle ground when it gets to an arbitration panel. In the arbitration hearings "arbitration eligible players receive salaries based on the similarity between their past performance and the performances of other comparable players" -h/t Matt Swartz of MLBTR. Swartz has created a reliable formula for forecasting projections by finding slightly older players who compare with the current arbitration candidate at that point of their career. The new draft pick compensation only uses dollars to compare players, with no regard for position, age, performance, or anything else arbitration hearings consider. Without these factors the dollar amount is somewhat moot to teams. They do not care what a player turned down for one year with another team, they only worry about what they have to pay over several years. 

Players gamble on the opportunity to strike a lucrative long term deal, but they need to accept that $13.3 million is an arbitrary number and be willing to fluctuate as the off seasons progresses. November until just after the Winter Meetings, aim high, compromise nothing. But as the off season progresses fewer teams are interested and the asking price needs to go down, even below the number already rejected. Bourn and LaRoche both settled for an average annual value of $12 million. Rafael Soriano got $14 million per season.  When players fall under this number they likely feel they are getting pinched. Players should use the lessons of this off season and turn a few less annual dollars into another year, and a net win if achieved. They could also sign a one-year "pillow contract" with an understanding they will not be tied to compensation next year. Teams will continue to emphasize the loss of draft picks and money as an excuse not to sign these players, by not rigidly sticking to an arbitrary number the players can more freely control their destinies and their destinations.


I would appreciate keeping the conversation going in the comments below.