Contract Negotiation MLB Players Sports Business

Dragging Down The Market: Why The Qualifying Offer Should Be Eliminated

The following is a guest contribution from Noah Goodman. Goodman is an associate at Ballard Spahr and he drafts memoranda on federal court decisions and federal agency rulings. He previously oversaw a political campaign for a former Philadelphia City Councilman and was a presenter at the 28th Cooperstown Symposium on Baseball and American Culture at the Baseball Hall of Fame in Cooperstown, New York. For more information on Noah please click here.

The “qualifying offer” restricts players’ employment opportunities while also hampering teams. Under the current collective bargaining agreement, teams have the right to extent a qualifying offer to a pending free agent at an established price within five days of the conclusion of the World Series.

If the player accepts the qualifying over, he remains bound to his team on a one-year contract at an established rate, which is determined by averaging the top 125 player salaries from the previous year. However, by accepting his teams qualifying offer, the player foregoes guaranteed money that he would inevitable receive on the open market and delays unrestricted free agency.

If the player rejects his teams qualifying offer, he becomes an unrestricted free agent. However, the team that signs him “shall forfeit its highest available selection” in MLB’s amateur draft. Historically, players have overwhelming rejected qualifying offers even if the forfeiture of a draft pick decreases their value.

Under the qualifying offer system, teams face a conundrum: should they invest their resources by refraining from signing free agents and build their team through the draft, or should they spend money on the open market? This conundrum highlights the negative effects that the qualifying offer has on both players and teams.

Recent trends in free agency demonstrate that fewer teams will bid for a player’s service if he rejects a qualifying offer because they are unwilling to surrender a draft pick for a player they otherwise might have interest in. This is particularly true in a sport where age matters and free agents reach the open market too late in their careers. Teams are effectively choosing long-term stability of building through the draft instead of improving immediately by signing free agents. For the players, the choice of either signing a one-year contract or requiring a team to forfeit a draft pick has resulted in their value waning.

In the MLB’s next collective bargaining agreement, both the MLBPA and the owners would benefit from eliminate the qualifying offer. For teams, they would not be faced with the difficult choice of investing in free agency or building through the draft. For players, their value would increase because teams would not have to sacrifice a high-draft pick and they would not delay unrestricted free agency.