A potential free-agency loophole
December, 24, 2012
By Buster Olney | ESPN Insider
Scott Cunningham/Getty ImagesIt's possible the Indians could help Michael Bourn out of his current free-agent quandary.Nick Swisher tweeted that he's going home, after finishing his four-year, $56 million deal with the Cleveland Indians. But the fact that Swisher attended Ohio State was only part of the reason the Indians pursued him so aggressively. He is a good hitter who consistently gets on base and generates power, and his energy is relentless, an intangible that helps teams get through the natural lulls in the long schedule. The New York Yankees, who won a championship with Swisher in 2009, will miss that element next season.
But the fact is that Swisher appears to have had no other options, because of what seems to be the unanticipated consequences of baseball's new rules; he is among a group of players whose free agency has been sabotaged by the new parameters. And what some executives are already anticipating is that between now and the start of the baseball season, there will be an effort to find a rule loophole for players like Rafael Soriano, Kyle Lohse and Michael Bourn.
Under the terms of the collective bargaining agreement that was finished last winter, teams were given the option of tendering a qualifying offer of $13.3 million to their own potential free agents in order to set themselves up for possible draft pick compensation, if the player rejected the offer and signed elsewhere. Draft-pick compensation has been used for years, of course, and because it hurt the free agency of players tied to picks in recent years -- most famously for middle reliever Juan Cruz -- the union figured the one-year, big-dollar qualifying offers would diminish its impact.
But as this offseason has played out and teams have made choices, it's become apparent that because the new draft system has become constricted -- with defined spending limits for teams -- at the same time that a money cap on international signings was put in place, the clubs have placed a much higher value on their draft picks than in the past.
But for teams, signing players attached to draft picks also means sacrificing money attached to that pick from their draft pools, which has a value in itself.
Last year, the Houston Astros had the No. 1 overall pick, but after signing Carlos Correa for $4.8 million -- which was well below the slot recommendation -- Houston had more money to spend on other picks. Because the draft money is restricted and wielded in this manner, agent Scott Boras has noted that there is almost a separate type of currency in place for the draft.
A new strategy
Swisher turned 32 last month, and he is a hitting metronome: He's generated anywhere from 23 to 29 homers over each of the last four seasons, with an on-base percentage ranging no lower than .359 to no higher than .371. He's good at working the count and he is a very capable first baseman, in addition to right or left field. In a vacuum, he would have been a good addition for the Boston Red Sox, Texas Rangers, Seattle Mariners or Chicago Cubs.
But the Yankees gave him a qualifying offer of $13.3 million to set themselves up for draft-pick compensation, so Swisher went into free agency with that hanging on him. The Red Sox never seriously engaged Swisher in discussions; within the Boston organization, there was concern not only over surrendering a second-round pick and the attached draft dollars, but also having to give it up to the rival Yankees. The Rangers, who have been very good at player development in the last decade, haven chosen to bypass the free agents tied to draft picks. The Mariners decided to pass on all the draft-pick comp guys other than Josh Hamilton. The Cubs took a similar approach -- they have passed on Kyle Lohse, who is tied to a draft pick, and went after Anibal Sanchez and Edwin Jackson, who were not subject to pick compensation.
Nobody who works outside the sport is going to feel sorry for Swisher, who walks away with a life-changing amount of money in his new contract. But within the sport, there has been an immediate recognition that this is not how the system was supposed to work. Draft-pick compensation was designed to give teams relief after losing a significant player, not to retard the negotiating leverage of veteran free agents.
"It looks like this is going to hurt some really important players to the union, five to seven every winter," said one agent.
If you think that somehow this is meant to help small-market teams recoup some advantage over big-market teams, it's worth reviewing the teams that have set themselves up for draft-pick compensation: the Yankees, with Swisher and Soriano; the Rangers, who get a pick in return for losing Josh Hamilton; the Cardinals, for Lohse. The teams with larger budgets are often in a better position to make qualifying offers.
There also seems to have been much more serendipity to the system than anticipated. As one general manager noted last week, the free agents who were really lucky were the guys who were traded in midseason -- Sanchez and Shane Victorino, for example. By rule, players dealt after Opening Day can't be tied to draft picks, and Sanchez used that leverage in his talks with the Cubs and Detroit Tigers to get a stunning $80 million deal from Detroit. The Dodgers couldn't give Victorino a qualifying offer; therefore he wasn't anchored by draft-pick compensation. He got surprisingly aggressive offers from the Red Sox ($39 million, over three years), and the Indians ($44 million over four years).
In fact, it's possible Swisher would have been without any serious options had Victorino chosen the Indians' offer over his offer from Boston.
It's not a coincidence that the last premium unsigned free agents are all tied to draft-pick compensation -- Soriano, Lohse and Bourn, all clients of Boras, and Adam LaRoche, who is represented by SFX.
There is an imperfect escape to the draft-pick quandary that Boras figures to explore -- an improvised sign-and-trade arrangement that has already been discussed within some team offices.
The Indians have the No. 5 pick overall, among the 10 picks protected in the draft, so Cleveland will surrender its second-round pick for Swisher. If Cleveland signs another free agent tied to draft-pick compensation, the Indians would give up their third-round pick; if they sign two more, they lose their third-round pick, and so on.
This is how a loophole could be created: Let's say Seattle was interested in signing Bourn, but without giving up a top draft pick. With Boras working in concert with the Mariners and Indians (and Bourn's permission), Cleveland could be the team that technically signs Bourn -- with a prearranged trade to Seattle, which would give the Indians something in return.
In this way, Seattle would get Bourn while keeping the top of its draft intact, and Cleveland would get something in return for giving up its lower draft pick.
I asked a talent evaluator who knows the rules to give an assessment of the risks and rewards of this type of arrangement. His response, via email:
"I agree, the draft pick compensation is hurting free agents like Swisher. It's not only the pick itself but also the money associated with the slot. That's a big issue, but it's even bigger for teams with unprotected picks -- that is, those outside the top 10.
"Some examples include the Mariners (No. 12 overall), Padres (No. 13), Pirates (No. 14), Phillies (No. 16), Brewers (No. 17), and White Sox (No. 18). It's no wonder you had seen those teams linked to non-qualifying offer players like Edwin Jackson, or that the Diamondbacks (No. 15) just signed a player not tied to a draft pick in Cody Ross.
"If the Indians were to be used as a portal for Scott Boras in a sign-and-trade scenario, the order of ranking for these free agents doesn't really matter because the only protected pick for the Indians is the first round (No. 5 overall). The projected pick in the third round for the Indians is No. 66 overall, and the projected pick in the fourth round is No. 96 overall.
"According to Baseball America last year, pick No. 66 had a slot value of $781,600, while pick No. 99 had a slot value of $495,200. Again, these picks have a lot of value because it's not just the opportunity to select a talented player, but also the financial flexibility associated with those picks. If the Indians were willing to consent to the type of arrangement suggested above I would imagine they would receive pretty solid prospects in return -- at least a B group type guy.
"Such a prospect would provide more certainty because the player is already down the path of development and there is more information in the form of a professional track record, and less cost because the signing bonus has been paid. But there is still risk because you never know who you may be passing up in the draft -- the hottest prospect traded this winter, Wil Myers, was drafted No. 91 overall in 2009.
"Under the new rules, it doesn't matter if a team like the Indians sign a number of players. When the Braves signed BJ Upton, they lost pick No. 28 overall in the draft [and the Rays get a compensation pick in the supplemental round]; the Yankees, who had pick No. 29, move up a slot to pick No. 28; the Reds who had pick No. 30, move up to No. 29, etc. The Angels signed Josh Hamilton and lost pick No. 22 overall in the MLB draft, so the Rays move from No. 23 to No. 22 and other teams further back in the draft continue to move up -- like the Yankees from No. 28 to No. 27.
"Eventually, as more free agents tied to draft picks sign, the first round will move from 31 picks to anywhere from 23-25 picks depending on how many qualifying-offer players sign. If the first round ends at No. 25, for example, the compensatory round begins at No. 26 and continues according to the number of qualifying-offer players who signed."
To be clear, this type of loophole solution would be imperfect. Bourn began the offseason generally regarded as the second-best free-agent outfielder, behind Hamilton, because of his defensive prowess, and now his options appear to be greatly limited. Free agency is supposed to be the opposite of that: a veteran player taking unencumbered offers from multiple teams. No matter how this plays out, Bourn is unlikely to get the kind of deal he could've gotten if he hadn't been tied to draft-pick compensation.
But for now, Bourn, Lohse, Soriano and LaRoche must hope for the best possible outcome within a new system which, for them, has quickly been shown to have major flaws.