2013 MLB Free Agency: The Broken System of Qualifying Offers

During last year’s MLB amateur draft, it occurred to me that the qualifying offer system was ridiculously broken. This observation rested on the fact that the New York Yankees ended up with three of the first 33 picks in the draft, all of which came before the first competitive balance round. The last thing the Yankees need is more draft picks; they’ve already got every conceivable advantage, and acquiring young, cheap talent is typically the domain of smaller-market teams.

Qualifying offers, for those unfamiliar, are one-year contract offers of a certain value that varies depending on the average salary of the top 125 highest-paid players in the sport. The average annual value of those contracts is the QO price – this year it was $14.1 million, up from last year’s $13.3 million – and a team can offer any player a one-year deal at that price. If the offer is accepted, the player returns to the team for a year. If it is declined, he becomes tied to draft pick compensation, so whichever team signs him forfeits their highest draft pick (unless it is in the top 10 and therefore protected), while the team that lost the player receives a pick at the end of the first round.

It’s a reasonably complicated set of rules, but it basically boils down to: sign a qualified free agent, lose a high pick. Lose a qualified free agent, gain a high pick. Purportedly, this system exists to compensate small-market teams for the loss of a prominent free agent. In an attempt to promote competitive balance, the loss of a high-value baseball player to a larger market team due to budget restrictions should be compensated. That makes a lot of sense.

The only problem is it doesn’t seem to be working that way. This year, 13 players received qualifying offers:

2013 Qualifying Offer Recipients

2013 Opening Day Payroll
Carlos BeltranCardinals$116 million
Robinson CanoYankees$228 million
Shin-Soo ChooReds$106 million
Nelson CruzRangers$125 million
Stephen DrewRed Sox$154 million
Jacoby EllsburyRed Sox$154 million
Curtis GrandersonYankees$228 million
Ubaldo JimenezIndians$80 million
Hiroki KurodaYankees$228 million
Brian McCannBraves$90 million
Kendrys MoralesMariners$84 million
Mike NapoliRed Sox$154 million
Ervin SantanaRoyals$81 million

You’ll notice that not only is that a list of high-payroll teams, but just three players on it (Cano, Ellsbury, and McCann) are homegrown. On the other hand, four (Beltran, Drew, Kuroda, and Napoli) were signed as free agents. So much for rewarding teams for developing their own players.

The MLB average payroll is somewhere in the $105 million range, which by itself is largely insane. But that list is not one of the smallest-market, most helpless teams in baseball. Only four of the 13 qualified free agents are leaving a team with a below-average payroll, and the Yankees and Red Sox sport three qualified free agents each. Counting teams with multiple qualified free agents more than once, the average payroll of the above table is $140 million, substantially higher than average. Even counting just once it comes it at $118 million, quite a bit higher than average.

Shockingly, this is a little better than last year. 2012’s average payroll was about $98 million, yet of the nine players who received qualifying offers, the average payroll came in at $142 million, nearly 50% higher. That’s again with multiple counting (the Yankees led baseball with three qualified free agents, the only team to have more than one), but even just counting each team once the average payroll was $123 million. The Rays were the only team to have a payroll under $90 million and present a qualifying offer, while the Braves and Nationals joined them as the only teams under a $100 million payroll.

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