MLB’s First World Problems: Qualifying Offers and “Tanking”

tanking

All offseason I’ve read about how the current MLB qualifying offer system as well as the practice of teams “tanking” are hurting baseball’s competitive balance while simultaneously damaging the integrity of the game.

Before I douse the hyperbolic flames supposedly engulfing MLB as a result of these two hot button topics, let me give some background on both of them.

Qualifying Offer System: The qualifying offer system is the means by which MLB ensures that a team losing a significant player to another team in free agency has a chance to get a draft pick back as compensation, thereby promoting competitive balance. Under the MLB qualifying offer rules implemented in 2012, a team can make their own prospective free agents a “qualifying offer”. A qualifying offer is a one year contract with a salary based on the average of the top 125 contracts (this offseason it was 15.8m). If a player accepts the offer, he returns to his team on the one year deal at the pre-determined salary. If he rejects that offer and signs elsewhere, the team he leaves receives draft pick compensation from the team he joins. The draft pick compensation sent by the team signing the free agent is generally their first round pick unless they were among the 10 worst teams. In that case their pick is protected and the team losing the free agent would get a supplementary pick at the end of the first round.

Consensus Gripes: For the league’s elite players, it’s an easy decision to reject these qualifying offers since the players stand to receive higher average salaries and longer term commitments on the open market. The mid-level talent has a more difficult choice because the salary being extended on the one year qualifying offer may be higher than the average amount they stand to earn in free agency, but they have to weigh that against the possibility of receiving a longer term commitment on the open market. The gripe has been that the association with draft pick compensation has significantly hurt the value of certain free agents and often times prevented these players from receiving the long term deal they anticipated.

My Beef: Listen, there is no denying that the tie to draft pick compensation has hurt the value of certain free agents this offseason. The most prominent example of a player still unsigned who is supposedly being affected by the qualifying offer is Ian Desmond, a SS with a strong albeit flawed track record. Desmond has been one of the most productive offensive SS in the game between 2012 and 2015 hitting 19 or more home runs in each season. However his defense is nothing short of awful. He grades out as one of the worst defenders at his position over that timeframe. And last season in his walk year, his offense fell off as well. He hit .233 with a .674 OPS. He also failed to steal 20 bases for the first time since 2011. A month ago, there were more examples of solid players still seeking employment which highlighted the alleged impact of the qualifying offer on the market. But in the last 2 weeks, pitcher Yovani Gallardo and CF Dexter Fowler signed 3 year 35 million dollar deals with the Orioles. One could argue these deals were slightly below market value, but in my opinion they were close enough that both signings dealt a blow to the qualifying offer detractors.

But let’s operate under the assumption that the markets for Fowler, Gallardo, and Desmond were negatively impacted by the qualifying offer. Maybe these players aren’t getting the contract offers they want because front offices are currently overvaluing draft picks. Maybe they aren’t getting paid because teams are valuing defense so highly that they prefer to divert resources towards players that have a strong defensive track record. Hell, the offensive resume of Jason Heyward isn’t that far off from that of Dexter Fowler. But Dexter Fowler has always been a below average defensive CF and Heyward got 184 million dollars primarily for his glove. Another possible explanation for the lack of offers could be that teams are simply using the qualifying offer system as an excuse to actively drive down the price tags for mid-level free agents. After all, there are unlimited examples of teams getting burned by handing out long term deals to mid-level players of this ilk. Two outfielders that comes to mind are Michael Bourn and Nick Swisher who both signed 4 year deals with the Indians during the 2012 offseason. Both were mid-level talents in their early 30s that signed long term deals, and both turned out to be complete busts.

The reason Gallardo, Fowler, and Desmond failed to get their desired contracts is probably some combination of all the factors I mentioned above. But do we really want a remodeled draft pick compensation system that ensures these types of players continue to get overpaid in free agency? After all, expensive guaranteed contracts for players that go bust are among the most debilitating obstacles for a mid-market club to overcome. Teams have been overpaying mid-level players based on their past performance for a long time, and quite frankly its been refreshing to see less of that under the current rules even though it’s been an unintended consequence of the system.

I’ve also seen the claim that the qualifying offer unfairly impacts small market teams because of how important the draft is to their long term strategy. They are less inclined to go after a player tied to draft pick compensation because they stand to lose the first round pick as well as the pool money associated with their slot in the draft. This argument makes sense, but I am not exactly sure how a new system would fix the disadvantage of small market teams. Jon Morosi put forth some interesting hypothetical proposals that could be considered under the new CBA. Generally speaking, any new proposal would limit the number of teams forced to give up their pick by creating a system that disincentives the extension of a qualifying offer. I may be going out on a limb here, but if we create a new system where the tie to draft pick compensation is less prevalent, and therefore the market for mid-level players is no longer depressed, wouldn’t the expanded market for these players lead to the small market teams being priced out anyway?

And all you have to do is look at the NFL to see how much worse things could be. At least MLB’s problem only has a minor financial impact on the mid-level talent. In the NFL, the best players can be extended the exclusive franchise tag which is essentially a one-year contract for an amount no less than the average of the top five salaries at the player’s position. In that situation the player cannot negotiate with other teams on a longer term deal. In a sport where injuries are so prevalent and prime earning years are so scarce, you would think such a owner/team friendly tactic would be contested by the NFL Player’s Union in their CBA. But it still remains intact and regularly stops some of the NFL’s best players from cashing in at the earliest possible point in their career. Let’s at least be grateful that under our current CBA, former star players like Albert Pujols, Alex Rodriguez, and CC Sabathia can get significantly overpaid well into the twilight years of their career.

I just think in the end, the qualifying offer dilemma is such a first world problem in the sports world. The financial impact to these mid-level players is so insignificant when you look at it with the backdrop of a baseball industry with players making billions.  Despite that fact, the MLB Players Association will surely overhaul the entire system to get these middling talents what typically amounts to one extra year of guaranteed money.

Tanking Controversy Overview: I went into this in some detail in a February 9th post. I think the claims being made across the league that teams are actively “tanking” to rebuild their franchises are being overblown by the owners of big market MLB teams because they don’t like sharing revenues with rebuilding clubs.

There are undoubtedly a large number of teams in the league currently in the midst of a rebuilding effort. This is nothing new. It just so happens that the current rebuilding teams are using what the Cubs and Astros did as their blueprint for success. These two teams spent 3-5 years among the worst in the sport and collected high draft picks as a result. With the talent they acquired through the draft and through trades, the Cubs and Astros have returned to a competitive state once again.

As I pointed out on February 9th, the MLB draft doesn’t have a top heavy talent distribution with a diminishing overall player value as you get lower in the first round. And there’s been very little recent evidence to show that a top pick in the draft guarantees a star player. This “tanking” phenomenon has really been just the latest example of how intelligent executives find a way to game the system. Before 2012, the MLB draft did not have a rigid slotting system with spending caps. So the most talented players would demand extremely high bonuses that were loosely regulated under league rules. As a result of that, players represented by agents like Scott Boras would frequently make their bonus demands known before the draft and the small market teams that had high picks would literally pass on the top talent because they could not afford to meet their contract demands. It wasn’t a matter of gaming the old system because it was essentially rigged in favor of the big market clubs. In order to rectify this competitive imbalance, Major League Baseball negotiated a slotting system in 2012 that assigned teams spending caps according to where they pick in the draft. Just like that, the league made it impossible for big market teams to buy the draft. And now the best talent is consistently and appropriately being selected at the top of the draft board.

Consensus Gripes: So the tanking argument centers on the belief that teams who know they won’t be competitive in the coming season are refusing to add talent through free agency and are purposely designing flawed rosters to ensure they get top draft picks which are allotted the largest spending limits. And it is pretty clear that this is going on to varying degrees in the sport.

My Beef: What’s the big deal? We know why the Union is mad. They don’t like that the “tanking” teams are not spending on mediocre free agents that can marginally improve their team. The big market clubs/owners are mad because the “tanking” teams aren’t reinvesting shared revenues in their on field product.

But do we really want a league full of Padres, Rockies, White Sox, and Tigers? These are mediocre teams that are refusing to embrace the reality that their team is not going to win as currently designed. When these teams suck in 2016, do they deserve more credit than the “tanking” Braves and Brewers because they ultimately spent some money on free agents and fielded a slightly less flawed roster? Do we want to discourage rebuilding? 3 to 5 years of poor play that leads to 3 to 5 years of success seems more desirable than 6-10 years of mediocrity. Just look at the Rockies. The Rockies stink. The Rockies could trade Charlie Blackmon and Carlos Gonzalez for 5 prospects, but instead they are doing some kind of half-assed rebuild. They traded Troy Tulowitzki and Corey Dickerson, but kept the rest of their players electing to be mediocre again. What if the league designs a system that discourages these types of rebuilding strategies? Would it stop trades for prospects like the ones where the Mets traded R.A. Dickey and Carlos Beltran to net Noah Syndergaard, Travis d’Arnaud and Zack Wheeler?

And again this is such a first world problem relative to other sports. In a league with incredible parity, do we really want to make massive overhauls to the way teams set themselves up for sustainable success? Just look at the NBA and the real tanking problem that exists there. We talk about MLB tanking, but in the NBA, fans get upset when their dog-doo team wins one game in the final week of the season if it changes their draft lottery odds. We talk about how tanking in MLB hurts the competitive balance, but did we even take a second to look at the state of the NBA? Right now NBA fans looking for a conservative investment would be better off blowing out their 401k and “investing” in a Cavs vs. Warrior NBA Finals matchup. If you are looking for a little more risk, but still an overall conservative position, just bet on the Warriors to win it all. I mean it’s almost laughable for MLB owners, executives, and experts to be complaining about the MLB competitive balance when the NBA legitimately has a guaranteed champion in February.

In the end, I am not denying the existence of these two issues in MLB. They exist and when the collective bargaining agreement is renegotiated next year, changes will undoubtedly be made to address them. All I am saying is, when your sport has the most powerful player’s union, the most parity, and 9 billion in revenue, let’s just make sure we don’t overhaul things too much. After all, the owners and executives will all just find a way to game the new system anyway.

Update (2/25/16): Since I posted this, Yovani Gallardo supposedly failed his physical with the Orioles despite having no major known medical issues. As a result his 3 year 35 million dollar deal became a 2 year deal with an option. I think this goes to my claim above that teams are using the qualifying offer system as an excuse to actively drive down the price tags for mid-level free agents. I player with no market for his services and no injury history agrees to a market rate contract and then promptly fails his physical providing the signing team with more bargaining power? Sounds very fishy. Also Dexter Fowler backed out of a 3 year deal with the Orioles to return to the Cubs on a 1 year deal. To me this says very little about the qualifying offer and more about Fowler following his heart like Cespedes did with the Mets. But trust me the lack of market for both players is going to be blamed fully on the qualifying offer.

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