MLB Free Agent Compensation

I have mentioned it briefly in the past, so I will bring it up again.  Paul DePodesta (of fame from the book, Moneyball: The Art of Winning an Unfair Game), has his own blog.  It’s called, It Might Be Dangerous… You Go First.  DePodesta is definitely a blog maverick (sorry to steal the phrase from Mark Cuban).  But other than Cuban and DePodesta, I do not know of any high-level executive at a sports franchise actively blogging.  DePodesta is the Special Assistant, Baseball Operations for the San Diego Padres and often has very insightful posts.  For all you baseball fans that never understood why compensation picks are given to certain teams in each draft, Paul wants to lend his knowledge.

When teams talk about trading players at the deadline, potential free agents dominate the discussion. After all, teams want to get something for these players before losing them to free agency, which is the primary incentive to trade them.

At the conclusion of the season every free agent will be ranked, and only the Type A and Type B free agents carry any kind of compensation with them. This is roughly the top 30% of players (overall, not just free agents) in terms of performance both on a one-year and multi-year look. For the Club to receive any compensation a few things have to happen:

1) The Club must offer the player arbitration (sometimes a risky proposition)
2) The Player must reject the offer of arbitration
3) The Player must sign a Major League contract with another organization

Furthermore, when a Type A free agent signs with another Club, the signing Club loses their first round pick (or second round pick if their first round pick is within the first 15 picks). So, if you have a Type A free agent, you had better be awfully sure that he’s not going to accept arbitration and that some other team is going to be willing to sacrifice a top pick in order to sign him. Type B free agents do not “cost” the signing club anything in terms of a pick.

These rules are why there were just 16 compensation picks in between the first and second rounds of the 2008 draft despite the fact that there were over 100 free agents last winter. In short, it’s not a foregone conclusion that you’ll receive draft picks as compensation. There is no doubt, however, that the potential for draft picks (or lack thereof) weighs into the calculus at the deadline.

The more you know..