MLB Transactions Part Five: Trades and Contract Tenders

In this fifth MLB Transactions session of Purple Row Academy, we'll examine two topics: trading regulations and contract tenders. I've taken it upon myself to be a little more concise with these articles, so let's get straight to it!

Trading Regulations

The subject of much debate and discussion on this board over the offseason has been about the Matt Holliday trade--and rightly so, as it has been a big part of the Rockies' offseason activities. In fact, with the acquisition of Huston Street, Greg Smith, Carlos Gonzalez, Jason Marquis, and Matt Murton, most of Colorado's major offseason moves came via the trade. Here are some MLB trade basics:

Between the end of the previous year's regular season and July 31st, a player may be traded without first passing through waivers. The commissioner's office must approve any trade that involves either/both of: a player on the DL and/or more than a $1 million cash transfer.

 Between August 1st and the end of the regular season a player must first clear waivers to be traded. For more detail on the waivers trade period, please see my waivers column.

So, this stuff is pretty basic, right? However, before I move on, I wanted to write about the Player to be Named Later trade, such as the one last year that sent Ramon Ramirez to KC for the Rockies' presumed fourth starter this year, Jorge de la Rosa. Here's some basic rules for a PTBNL trade:

1. The transaction must be completed within six months of being announced (AKA the player has to be named).

2. The player may not be an active Major Leaguer player during the interval between the trade and the date the player is named. As a result, PTBNLs are basically always minor league prospects--though sometimes a long-term major league DL player is the PTBNL.

So why do teams do PTBNL trades? It's simple: they want time to evaluate players so they can pick the prospect that has shown the most promise. Often, teams will exchange a list of players that they will choose their PTBNL from (provided the other squad pre-approves it), and they can select the best option on the list--or they can take no players back, just a cash settlement. Another reason teams do PTBNL trades is that it is a way for teams to trade players that are not trade-eligible yet (once a draft pick signs a professional contract, he may not be traded until an entire year has elapsed). Another exception is that players on minor league reserve lists may not be traded between November 20 and the Rule 5 draft in December, making a PTBNL trade the only way to move those players during that period.

That's basically it as far as trades go. Not too difficult, right?

Join me after the jump as I discuss contract tenders...

Contract Tenders

Changing gears slightly, I'd like to discuss contract tender rules. Contract Tenders (almost as delicious as their chicken counterparts) are an obligation that a team has to its players (those that are not already signed to multi-year deals) to offer them a contract each year.

This most often happens with players that are not yet eligible for free agency--and it serves as the first step in the salary arbitration process. If an arbitration-eligible player finds the renewed contract he receives to be acceptable, he simply doesn't file for salary arbitration. This is a rare occurrence, because as I've shown arbitration eligible players on average received a 143% raise this year.

Contract Renewals vs. New Contracts 

For those players who have yet to accrue the ML service time to be eligible for salary arbitration, their contracts are usually just renewed at a one year deal. These players have no say in their contract--they take what their club gives them, but such occurrences are liable to hurt future negotiations (like arbitration) with that player. Prince Fielder and Ryan Howard are perfect examples of this--their teams renewed their contracts, and they were very displeased (perhaps costing their squads a large sum when they did sign their multi-year deals).

A more common occurrence than a contract renewal is simply that contract tender-eligible players are given a new one year contract--with negotiations with the player's agent and player input. As luck would have it, the Rockies recently signed 21 of their young players to new one year deals. However, as Tracy Ringolsby notes, they also renewed the contract of three other players: Jeff Baker, Carlos Gonzalez, and Ryan Spilborghs. The common denominator with those players? An agent that is unpleasant to deal with, Scott Boras. As a result, by renewing these players' contracts unilaterally, the Rockies saved themselves the headache of dealing with Boras. As Ringolsby states:

The Rockies have a very stringent pay scale for pre-arbitration eligible players, and they are consistent with that approach. Boras does not agree with the philosophy and prefers to have his clients not agree to the contract as a matter of principle.

In other words, Boras doesn't play nice with the minimum salary, but with the contract renewal clause, he doesn't have any say in the matter--since the club can simply offer their pre-arb players a contract that they must accept. Arb-eligible players are of course different cases due to their increased bargaining power.

The Rockies have been pretty proactive about getting their young players signed to long-term deals and avoiding the contract renewal and arbitration process with their players--most notably in the cases of Troy Tulowitzki, Manny Corpas, and Ubaldo Jimenez. Those players that aren't represented by Boras are generally given new one year contracts until they are arbitration eligible.

Tender Regulations

MLB teams have until December 12th each year to offer their players a new contract, with the following regulations:

A club may not renew a contract at a salary less than 80% of the player’s salary and performance bonuses the previous year or less than 70% of his salary and performance bonuses from two years earlier. This is the Maximum Salary Reduction rule and doesn't come into play much. This requirement does not apply if a player won an arbitration award the previous year increasing his salary 50% or more--which in today's day and age, is pretty much every arbitration case.

For split contracts (paying a player one rate when he is in the Major Leagues and a lesser rate when he is in the minors), the maximum cut rule is 60% of the player’s salary from the previous season. This is the case for players like Greg Reynolds and Omar Quintanilla who have signed split contracts.

But what sort of salary are teams tendering their not-arbitration eligible players as a renewal of their contract? Usually the Major League minimum or few thousand dollars more (to separate the more prized young players from the AAAA ones). Courtesy of Jeff Euston, here is the major league and minor league minimum salary data for the past, present, and future:

Major League minimum salary 

• 2011: $400,000, plus cost-of-living adjustment (COLA)
  
• 2010: $400,000
• 2009: $400,000
• 2008: $390,000
• 2007: $380,000
• 2006: $327,000
• 2005: $316,000
• 2004: $300,000
• 2003: $300,000

 Minor League minimum salary

(for players on 40-man rosters for at least the second year or for players with at least one day of major league service)

• 2009: $65,000
• 2008: $62,500
• 2007: $60,000
• 2006: $54,500
• 2005: $52,600

Under the 2007-11 CBA, the new minimum for a player placed on the 40-man roster for the first time is $30,000 (50% of minor league minimum).

It's a result of this structure that players get such a large arbitration raise--they are underpaid (relatively) for the first few years of their contract, and then are often overpaid once they hit arbitration and free agency.

Non-Tenders

Okay, that's all well and good--a team has the obligation (and right) to unilaterally tender their young players contracts each year--but what if they don't want that player or at least don't want to pay them under the maximum salary reduction rule or knowing that they'll command too much in arbitration? Well, they have the option to not offer the player a new contract, making the player a free agent who can sign with any MLB team, including his previous owners.

That, folks, is what is called a non-tender, and that's just what we gave Willy Taveras and his all-speed, no OBP game. He subsequently became a free agent, where he was then grossly overpaid by Cincinnati (2 years, $6.25 million) to leadoff and to try and steal first base.

For those interested in who on the Rockies qualifies for this rule--it is basically those who are not eligible for free agency (though they do possess some service time usually) and have also not signed long-term deals. A couple of our 40-man roster players are signed to split contracts as I mentioned above, but they remain eligible for this rule. Check the articles I linked to below, my list of Rockies by service time or the Cot's Baseball Contracts Rockies database to see which of our players qualify for this rule.

That does it for this edition of Purple Row Academy. Check in next week as I talk about both drafts (Rule 4 and 5) and the week after that as I conclude the Transactions series with a look at free agency (schedule subject to change).

Sources and Additional Reading

As always, Jeff Euston's work in conjunction with Cot's Contracts and The Biz of Baseball was invaluable. Here are some useful links for those that are interested:

Trading Regulations

Player to be Named Later

Contract Renewal

Maximum Salary Reduction

Minimum Salary

Tender Date/Non-Tender