Qualifying offers have been a part of the baseball off season since 2012, when they were introduced. Similar systems are used in other American sports leagues such as the NFL and NBA, but how exactly do they work in major league baseball?
The MLB qualifying offer system is a simple idea but is quite complicated in practice and has big consequences to the baseball off season. Qualifying offers are designed to allow teams to keep their top free agents for one more year, or receive compensation if the player decides to leave. A team can extend a qualifying offer to a player that is about to become a free agent but they must do so within five days of the end of the world series.
However, not all free agents can be given a qualifying offer. To be eligible a player must have not received a qualifying offer before in their career must have spent the entire previous season on the team’s roster. Crucially this excludes mid season acquisitions.
Any player that receives a qualifying offer from their team has 10 days to make a decision. If they accept they will then be under contract with their old team for one more season. The player will receive the average salary of the 125 highest paid players in the league. Players are allowed to negotiate with other teams during the 10 day decision period. A lot of players will of course be offered more lucrative contracts than the qualifying offer and will decline the qualifying offer.
If a player rejects a qualifying offer and then signs with another team, the team losing the player will receive compensation to soften the blow of losing an important player. The compensation rules have changed a few times since qualifying offers were introduced. Currently the type of compensation that a team receives depends on their revenue and whether they went over the luxury tax threshold.
If a team is in the bottom half of teams in terms of revenue and their free agent signs somewhere else for a contract worth over $50 million, then they will get a pick between the first and second rounds in the first year player draft (compensation round A). If the player signs for less than $50 million then the team will get an extra pick between the second and third rounds (compensation round B).
A team in the top half of revenue will also get a pick in compensation round B regardless of the contract value, unless the team losing the player also exceeded the luxury tax threshold. In this case the team will only get their extra pick after the fourth round.
The other side of qualifying offers is how it affects the team signing a player that was offered one. Once again this depends on the revenue of the team. This is another attempt to try and level the playing field between the small and big market teams.
A team in the bottom half of revenue will lose their third highest pick if they sign a player under a qualifying offer and signing more such players will lose them their fourth highest pick as well.
Teams in the top half of revenue will lose their second highest pick and $500,000 of bonus money for international players. They will lose a further $500,000 from their bonus pool and their third highest pick if they sign multiple qualifying offer free agents.
If a team signs one free agent under a qualifying offer after paying the luxury tax for the previous season then it will lose it’s second and fifth highest picks in the draft as well as $1 million of international signing money. Signing more players under qualifying offers will result in the team losing their third and sixth highest picks as well. These large penalties are the main reason why teams are desperate to stay under the luxury tax.
The penalties that teams receive for signing qualifying offer free agents often affect the market value of these players and can have a big impact on who is willing to sign them.