The next two weeks will see the end of the transition year in Major League Baseball. Once the World Series ends, the last vestige of the old collective bargaining agreement will be swept away, and the last of the one-time half-measures will disappear from the rule books. Get ready for some very unpredictable consequences, and a very strange offseason.
This fall saw the only postseason that will ever be so unceremoniously crammed into an ill-fitting schedule. Last winter was the only one that will ever be allowed to take shape under two otherwise distinct sets of rules. Once free agency begins in earnest around Veterans’ Day, things are going to be wholly new, and pretty wacky.
As a refresher, the new CBA calls for the following major changes to player acquisition and compensation:
- Rather than having the Elias Sports Bureau rank players in various position pools and assign the better among them one of two compensation designations, the new policy is to let the market speak. Teams who want to be compensated for the loss of a given player must make him a qualifying one-year offer equal to the average of the 100 highest seasonal salaries in baseball the preceding season. For this winter, that will mean about $14 million. A shade less. Once they do so, if the player signs elsewhere, his new team loses their first-round pick (if it be outside the top 10 slated selections) or second (if they be within the top 19) in the next year’s draft. That pick, which under the old system often went to the team losing the player, is pulverized, and the forsaken team gets a sandwich-round pick between rounds one and two. This all applies only to players who spent all of the preceding season with one team, though.
- Monetary investment in amateur talent both domestic and foreign is strictly limited. Teams get a budget for their Latin American and other international signings, indexed to their record the previous season, and they also receive a fixed budget for bonuses on their picks in the first 10 rounds of the draft, with each slot assigned a dollar value and the total of one’s slot values equaling the total investment they can make.
- The luxury tax threshold, the number above which a team’s payroll cannot rise without their paying a percentage of every marginal dollar spent to the league’s central fund, will rise from $175 million to $189 million next season, but holds steady this winter. Meanwhile, the penalties on repeat offenders of the threshold are more severe, and a rebate program on payments into the revenue-sharing pot by those teams who stay under the soft cap incentivizes judiciousness.
- The minimum salary in MLB, which had risen very slowly for the last decade and stood at $412,000 or so in 2011, rose to $480,000 or so in 2012, and will shoot past $500,000 this season or next. The effect of this is not to be compared directly with what one would expect of raising the minimum wage in other industries, but the gist is that carrying very young players costs more in absolute terms, but less in relative terms. Most teams will be more likely, given these rule changes and baseball’s current market conditions, to more readily carry young players.
All of that makes this winter a fascinating potential frenzy once free agents are truly set free. Those draft picks teams once gave away gladly to land a big-ticket free agent are suddenly much less fungible. This stems from the fact that the limits on spending in the draft are set much lower than the level at which teams were willing to pay amateur talent in recent years. A team like Boston, for example, who fundamentally succeeded based on their farm system and profligacy in the draft, knew they could sign premier players on the open market under the old rules. They simply spent enough on the picks that weren’t lost to land marquee talent at whose price tags other teams scoffed, plus they got picks back by strategically letting other players go.
Under the new rules, those loopholes aren’t there. In this system, opportunities to get compensation for players will be rarer, and (thanks to the hard slotting system) lost draft picks will be much more costly.
It’s time to introduce fascinating character number one into the narrative of the Hot Stove year ahead. It’s Zack Greinke, who will be (by a mile, by a mile and a half) the highest-paid free agent of this winter.
Greinke, thanks to Cole Hamels and the midsummer contract extension he signed with the Phillies, enters the winter completely unchallenged for the title of Best Pitcher Available. Thanks to Brewers GM Doug Melvin, he he also enters the winter as the only tier-one talent with no strings attached. Josh Hamilton, Mike Napoli, Michael Bourn and B.J. Upton all could be impact players, but all will cost a signing team one of its top picks. Not Greinke. Young, durable and eminently leveraged, Greinke has a real chance to aim for $150 million over seven years. He might not get that, but he will get more than any other available asset, and deservedly so.
The guys who will feel the hurt under this system are all of the other top-tier free agents-to-be. Josh Hamilton will absolutely merit a qualifying offer from the Texas Rangers, however much hesitation I might have about his future. That will make signing Hamilton a decision loaded with transaction cost, and since teams will build that cost into their offers, Hamilton is not going to see nine figures.
Owners in MLB always go about limiting their expenditures by striving to tamp down the market of player payment at the high end. They’ve done it pretty effectively this time. The Red Sox want to stay under the threshold for next season, and since they committed to at least some form of rebuilding when they made the mega-deal sending Adrian Gonzalez and Co. to the Dodgers, they will be loath to give up draft picks for 2013. That’s one major-market team who will not be forking over big bucks for Hamilton, or Edwin Jackson, or Nick Swisher.
The Chicago Cubs are another. General Manager Jed Hoyer said recently the team would spend money this winter, but given their competitive position, the chances that they will sacrifice a draft pick to improve their (admittedly woeful) pitching staff are as remote as the chances that Carlos Zambrano will learn a knuckleball and revive his career as a happy-go-lucky stoic. The Mets won’t be in play. By making it harder for the big spenders to spend freely, the league has effectively taken a percentage off the top bidders’ highest theoretical bids. This makes the market more efficient, but (because we have grown so used to the old, inefficient market) less predictable.
It’s not only that some usual suspects will spend less, though. The soft cap at $175 million, in combination with the current revenue trends in baseball (in a word, up, in three words, way, way up), makes it conceivasble that as soon as this winter, some small-market teams long unable to compete could start escalating their payrolls and leveraging their stockpiles of young talent into some playoff money. That’s the Padres, the Royals, the Indians, the Pirates, the Orioles. Even the woebegone, impoverished Rays pushed their payroll over $63 million in 2012, and should be able to run even higher numbers going forward. Twelve of the 30 teams had payrolls in excess of $100 million in 2012, and six more spent between $93 million and $98 million.
Don’t be surprised by anything this Hot Stove season. For at least this first year, as teams try to get a feel for their priorities under the new system, the open market is going to be the Wild West.Next post: San Francisco Giants Win National League Pennant Over St. Louis Cardinals, Will Face Detroit Tigers in World Series
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