How Does The Qualifying Offer Impact The Off-Season

One of the topics to look at for why free agency in 2019 is slow is the impact of the qualifying offer (QO). Both the 2018 and 2019 off-seasons have been very slow and this article will look at how the QO might be a factor.

Background

First off, what is a Qualifying Offer? It is a part of free agency for players who have 6 or more years of service time and have played out their contract. As part of free agency players that have not been offered a QO in previous years of free agency may be offered a QO by the team they played with the previous seasons (players acquired in the middle of the season are not eligible). The player has 10 days to accept or reject the QO.

The Qualifying Offer negotiated in the Collective Bargaining Agreement spanning the 2012 through the 2016 seasons first had an impact after the 2012 season. It has evolved after the new CBA for 2017-2021. The details of how the qualifying offer and how it impacts the teams involved with the free agent is below.

• Free agents can be offered a qualifying offer ($17.9M after 2018) by the original team
• If a player accepts the QO then they are no longer free agents and will play the next season at the QO rate
• If another team signs a QO free agent then the signing team may lose draft picks in the following year’s draft
  • Before 2017, teams lost either a first or second round pick (first 10 picks were protected)
  • Lost picks in second and fifth highest selections, if they exceeded the luxury tax the previous season
    • Also lose $1M from the international bonus pool for next signing period
  • Lose third highest selection for a team that receives revenue-sharing money
  • Other teams will lose the second highest selection
    • Also loses $500K in international bonus money

The Dodgers fit here this off-season. The compensation that the team that loses the player can be anywhere from the end of the first, until after the fourth rounds. However, this aspect of the qualifying offer does not have any impact on the slow market.

For some excellent details see this article on MLB.com by Matt Kelly.`

Digging Further Into What A Team Loses

When teams lose a draft pick, they also lose the bonus money that they’d be able to pay their draft picks. During the draft some players are drafted higher than where they might have been slotted because they are willing to sign for what is known as “below slot”. Every pick in the first 10 rounds has a dollar amount to it. If a player signs below slot then more money is available to sign others.

When the draft starts all teams have a given amount of bonus money to try and sign their picks with. That amount is the total of all the draft slots a team has. See this breakdown of the 2018 draft for how the money is allocated. For example, if the Dodgers were to sign Bryce Harper as a free agent they’d lose their second pick. Using the 2018 draft as an example, that would mean the Dodgers would lose $917,000 of their bonus total of $5,288,200. Also, if the Dodgers signed Harper they’d lose $500,000 of their $4.75M allocated to international signing.

Impacting Some Players

Looking at the complete list of QO players over the years, it is obvious that the QO has a varied impact. For big free agents like Zack Greinke or Bryce Harper, there is zero impact as they are more than worth losing a pick or international money. However, there are clearly certain players that have been impacted in a negative way. Teams are smart enough now to be able to quantify the penalties for signing a free agent attached to a QO. We’ll look at some examples from the last few years of players who received less than the QO money and were negatively impacted.

Howie Kendrick

After Howie Kendrick played the 2015 season with the Dodgers he was offered the QO, with the Dodgers wanting to get the draft pick compensation. They did a similar QO with Brett Anderson but he took the offer instead. Howie ended up not accepting the QO and spent a good two months looking for a job. The offers never came and he ended up signing  a 2 year/$20M contract with the Dodgers. Without the QO attached to him, I believe he would have done a lot better in free agency. He was a strong player with the Angels before being traded to the Dodgers but teams felt he did not warrant losing draft picks.

Mike Moustakas

After the 2017 season Mike Moustakas was a free agent and ended up signing for just $6.5M with incentives. Another good player who was entering his year 28 season and he definitely got a disappointing contract. Since he’s not attached to a QO this year it will be interesting to see what the market will be for him.

Hyun-Jin Ryu

After an excellent, yet injury filled season, the Dodgers offered Hyun-Jin Ryu a qualifying offer. With a week to evaluate other offers, Ryu decided to accept the QO from the Dodgers. Like Kendrick and Moustakas, Ryu is a solid player but is he really worth giving up the draft pick and losing the international money? For many teams, it’s probably not worth it.

Impacts on the Off-Season

There are many reasons for the slow off-seasons, with teams not signing free agents in a timely manner being a big part of the problem. The qualifying offers on some players can’t be helping but there are only 6 players with QOs attached this year. I think only A.J Pollock of the unsigned players (Harper, Keuchel and Kimbrel are the others) is impacted negatively. Yasmani Grandal also had a QO attached but there were many factors that kept his contract low.

What is really happening is that most teams are getting very good at attaching proper values to players and won’t go a penny over that value. They are including the penalties involved with signing free agents in those calculations. Teams now also have metrics that can objectively show that many players start slowing down in their early thirties. Players hitting free agency at the age of 30 are not going to get 4 or more year contracts in most cases.

Final Thoughts

In order to make the QO players not get penalized I am hopeful that the next Collective Bargaining Agreement removes the penalties for signing a QO player. Let the team that loses the player still get the compensation picks and that way the losing team gets something while the player’s market is not negatively impacted. At a minimum, this creates a fairer market for all free agents.