The Trade Deadline, the New CBA, and the Indians

We have already seen how the changes in the new MLB Collective Bargaining Agreement (CBA) have affected the amateur draft and the signing of international free agents. But there is one more change whose impact we will start to see in the two weeks between now and the July 31 non-waiver trade deadline: the changes to the free agent compensation system.

Under the former CBA, qualified players were classified by the Elias Sports Bureau as either Type A or Type B free agents. The first step a club had to take in the process for these free agents was whether or not to offer the player arbitration. If a Type A player declined arbitration and signed elsewhere, the team signing the player forfeited its first-round pick (unless a top 15 pick) and the league also awarded the former team a “sandwich pick” between the end of the first round and the beginning of the second. If the player was classified as a Type B player and signed elsewhere after declining arbitration, the team losing the player still received a sandwich round pick.

This system often led to organizations holding on to Type B free agents in order to acquire the compensation pick at the end of the year, and many players had agreed ahead of time to decline arbitration when signing their contracts.  When a pending Type A free agent was traded at the deadline his status stayed with him, meaning the team acquiring the player was able to offer him arbitration and receive compensation over the winter.

Under the new CBA the Type A and Type B classification system has been eliminated. In theory the elimination of the Type B compensation should increase the number of players traded because it removes the benefits of keeping a soon-to-be free agent. In addition, the inclusion of the additional wild card could convince GMs that the risk of holding on to more components of their roster is worth the reward of the opportunity to take part in the post season.

For an example of how teams used to be willing to trade pending Type A free agents, we can look back to 2008 when the the Indians traded C.C. Sabathia to the Milwaukee Brewers for Michael Brantley, Matt LaPorta, Rob Bryson, and Zach Jackson. At the end of the year Sabathia declined arbitration and signed with the New York Yankees. The Brewers received the Yankees’ second-round pick (their first-round pick was awarded to Angels for signing Mark Teixeira) and a supplemental pick. The Brewers selected outfielder Max Walla with the Yankees’ pick and Kentrail Davis with the sandwich pick. And by the way, with the Yankees’ first round pick the Angels selected Mike Trout.

But that could not happen today. The new compensation system as outlined in the CBA Summary is as follows:

• Only Players who have been with their Clubs for the entire season will be subject to compensation.
• A free agent will be subject to compensation if his former Club offers him a guaranteed one-year contract with a salary equal to the average salary of the125-highest paid Players from the prior season. (2012 will be 12.4 million)
• The offer must be made at the end of the five-day free agent “quiet period,” and the Player will have seven days to accept the offer.
• A Club that signs a player subject to compensation will forfeit its first round selection, unless it selects in the top 10, in which case it will forfeit its second highest selection in the draft.
•  The Player’s former Club will receive a selection at the end of the first round beginning after the last regularly scheduled selection in the round.
•  The former Clubs will select based on reverse order of winning percentage from the prior championship season.

As the rumor mill churns over the next two weeks, it is very important to pay attention to these new rules.

The Indians have been looking for a right-handed hitting outfielder and two names that often get mentioned are Carlos Quentin and B.J. Upton. Both will be free agents at the end of the 2012 season and both will be seeking multiyear offers on the open market. The smart move for both the Rays and the Padres would be to offer their respective stars the one-year, $12.4 million contract necessary to receive the compensation picks when they sign elsewhere.

In years past the Indians or any other team could offer a prospect package with the knowledge that they would be able to receive compensation when the player left after the season. But prying either player away from his current organization now would require putting together a package of prospects that is equal to or greater than the two first round draft picks San Diego or Tampa Bay can expect to receive; such a package would likely be too high a cost for a two-month rental.

We don’t yet know how the trade deadline madness will play out—it can be hard to assess the likelihood of a deal two hours before it’s made, let alone two weeks. But for all the talk about how the extra wild cards have driven the demand for midseason upgrades past the available supply, the new CBA rules will make prying an impact player away from a rebuilding team even more costly.