MLB Transactions Part Eight: Free Agency

With this article, centering on the topic of free agency, I conclude my lengthy (some would say far too lengthy) eight part MLB Transactions series. Psych! I realized after writing this article that I had left out explaining a couple of important transaction topics--most importantly the disabled list--so next week's article will touch on those left-over topics and will include updated charts for the amount of options and major league service time that each Rockie possesses.

I'd appreciate suggestions on possible future topics for PR Academy in the comments, so that I might write about something that people want to learn about. These topics can be anything baseball-related that you can think of. And with that, I'll begin the session.

Free Agency History

Basically, free agency in MLB has been around since the landmark Seitz Decision in a salary arbitration case for pitchers Andy Messersmith and Dave McNally in 1975. The lead-in to this case is discussed in the Salary Arbitration session of the Academy, but the basics are that in the years leading up to the implementation of salary arbitration (1973) and free agency (1976), players had little to no rights in terms of their salaries and which team they played for (through the Reserve Clause).

Curt Flood is a famous example of a player who cut his own career short protesting this unfair arrangement--he challenged his trade from the Cardinals to the Phillies in 1969, but his appeal was denied and the Reserve Clause was upheld as a legitimate form of collective bargaining--as was baseball's anti-trust exemption. However, the good that came out of Flood's appeal was that the solidarity of his fellow players in support of his plight led to the contract holdouts that forced the owners to pass salary arbitration as a compromise--and then a few years later to allow free agency.

Free Agency Eligibility and Filing

As has been discussed in previous sessions of Purple Row Academy (particularly Salary Arbitration and Service Time), to be eligible for free agency, a player with at least six years of Major League service time and no contract for the next season is eligible to file for free agency and negotiate with any club. Of course, any player that is not offered a contract in the Rule 4 draft is also technically eligible for free agency, as is any player that clears unconditional release waivers.

Another exception is that a player with five years or more major-league service who is traded in the middle of a multi-year contract can, during the offseason, require his new team to either trade him or let him become a free agent. If the player is eventually traded, he's not eligible to demand a trade again under the current contract and loses free agency rights for three years. Of course, this is obviously a rare occurrence--I can't even come up with an example of such a situation.

In the minor leagues, a player becomes eligible to sign with any organization as a minor league free agent when he has played six full minor-league seasons with the club that drafted him. If a player is released, he becomes a minor league free agent upon the expiration of any subsequent contract he signs.

For the rights players gain at various levels of major league service time, please see the PR Academy Service Time session.

In any case, once a player is eligible for free agency, he must file for that status within 15 days of the end of the World Series. During this 15 day period, his former team enjoys exclusive negotiating rights with the player, and any conversations that the player has with other clubs may not involve contract details.

Join me after the jump for details on free agency draft pick compensation, a process that confuses many people.

Free Agency Procedure and Compensation

First of all, a club receives draft pick compensation for losing one of its players to free agency if:

1. The player signs with another club before December 2 or...

2. The club offered salary arbitration to the free agent (they must do so by December 1) and that offer was refused.

A team that doesn't offer a player arbitration is not excluded from negotiating with that player--it just doesn't receive compensation if the player decides to sign elsewhere. The player must make the decision to accept or reject the arbitration offer by December 7. Were he to accept, as David Weathers and Darren Oliver did this offseason, the player returns to his previous club's 40 man roster and enters into the salary arbitration process with that team.

Another note is that if a player does sign a major league contract with a team, he may not without his written consent be traded until June 15.

Here's how draft pick compensation works:

1. All of the free agents who properly filed for free agent status are based on the free agent’s place in the Elias Sports Bureau’s ranking of all major league players by position based on their performance during the last two seasons. Unfortunately for us (and often to our consternation), this formula is not made public. What we do know is that it combines both bulk statistics (that is, ones that increase with playing time) and simple rate statistics (such as batting average). Per Keith Law:

Players are ranked in five to seven statistical categories, with the specific categories varying by their position grouping (e.g., there are no fielding stats used in the 1B/OF/DH group, but the catcher and infielder groups each include two defensive stats). Cumulative statistics may be adjusted for players who spent time on the disabled list, restoring stats for up to 60 days of missed playing time.

Each player is then given a point total for each statistical category that is inversely related to his actual ranking. For example, if there are 100 starting pitchers in the ranking, then the pitcher with the lowest ERA gets 100 points, the pitcher with the second-lowest ERA gets 99 points, and so on, until it reaches the pitcher with the highest ERA, who gets one point just for writing his name. This system has an obvious flaw, of course, as it gives no weight to the distance between any two players: If the top pitcher's ERA is 0.1 or 0.01 or 1.0 runs better than the ERA of the next-best pitcher, it doesn't matter, as he still only gets one extra point. Point totals within each position are then scaled to make 100 a perfect score.

2. The players are ranked within one of these five positional groups: 

1) 1B/DH/OF
2) 2B/SS/3B
3) catchers
4) starting pitchers
5) relief pitchers

3. Players are classified as Type A, B, or unclassified free agents.

Type A free agents are those players who fall in the top 20% within their positional group. Compensation to the club that loses the Type A free agents is the signing club’s first-round draft pick and a supplemental pick in the sandwich round between the first and second rounds. These supplemental picks are ranked as per the normal draft order. For losing Type A free agent Brian Fuentes to Anaheim, the Rockies received the Angels' first round pick (32) and a compensatory selection (pick 34).

Two exceptions to this rule exist. First, if the signing team's pick is in the top half of the first round, the compensated club would receive the signing team's second round pick. 

Secondly, if a team signs multiple Type A free agents (like the Yankees did this year, signing five players, with Damaso Marte and Andy Pettite being their own), the draft pick compensation becomes that team's next round pick--with the first rounder going to the team that lost the highest ranked Type A player, in this case Milwaukee with CC Sabathia, giving the Angels (Mark Teixiera) New York's second rounder and the Blue Jays (AJ Burnett) their third round pick. 

Meanwhile, Type B free agents consist of those players that rank in the 21-40th percentile within their positional group. A club that loses a Type B player to free agency will gain as compensation only a "sandwich round" pick.

Teams losing those free agents that aren't classified as Type A or B will receive no compensation for losing them to another team.

In any given year, teams are prohibited from signing certain amounts of Type A and Type B free agents. Jeff Euston has a handy chart for that:

If 0-14 players qualify as Type A and B free agents, no team may sign more than 1 Type A or B player.

If 15-38 players qualify as Type A and B free agents, no team may sign more than 2.

If 39-62 players qualify as Type A and B free agents, no team may sign more than 3, with the limits increasing accordingly for higher totals.

A club may sign an unlimited number of free agents who do not qualify as Type A or B free agents.

A club may sign as many type A and B free agents as it has lost, regardless of the limits above.

This offseason, there were 216 total players who filed for free agency, with 12 qualifying as type B and 11 as type A that were offered salary arbitration for a total of 23 qualified players by my count that would give teams that lost them draft picks (per ESPN). However, there were 63 Type A or B free agents--it was just that most of those free agents were not offered arbitration, like Adam Dunn, and thus weren't eligible for draft pick compensation. This meant that teams could sign more than three Type A or B free agents, with the exemption set at eight this year (thanks to PF for the link)--the Yankees signed five Type A players.

But in any case, that is pretty much all you need to know about free agency and the draft pick compensation system.

Sources and Additional Reading

Highly recommended for more information on the subjects I've touched on.

Free Agency, courtesy of Jeff Euston

Free Agency Compensation, Jeff Euston

Minor League Free Agency, Jeff Euston

MLB Transactions, Wikipedia

Free Agency Primer, Scott Kendrick 

2009 Rule 4 Draft Order, Russ

Explaining Type A and B Free Agents, Keith Law (ESPN Insider)