The worst rule in baseball

Once upon a time, taxes were collected to support the business of the government. Then the people who decide what to tax realized that taxation is even more powerful as a means of incentivizing certain behavior. Tax gasoline, and people drive less. Give tax breaks for homeowners, and people buy homes. If they taxed words, the article you'€™re reading would be this paragraph shorter. Taxes work, sort of.

The free-agent compensation system is a tax. It taxes players who leave their teams as free agents (or, at least a subset of such players). It taxes teams that sign another team'€™s free agents (again, a subset). And, perversely, it taxes teams that sign their own free agents, by depriving them of the draft pick they would otherwise receive.

It'€™s the stupidest rule in baseball, for all sorts of reasons, but at least it does things. Right?

As we come to the end of another offseason, let'€™s review the performance of the free-agent compensation system to see what effect it had this winter. There are, in my estimation, three things that a compensation system might accomplish that somebody (if not everybody) would consider laudable:

1. It might keep players with their original teams longer. Some fans consider this a good thing. In fact, in general, I bet most fans would consider it a good thing, if it could be accomplished without depriving players of their personal and financial freedom.

2. It might promote competitive balance by benefiting poorer teams (that can'€™t afford to re-sign their own free agents) at the expense of richer teams (that sign those players).

3. It might keep owners'€™ costs down. Owners would like this.

To establish some basic facts, there were 12 free agents who received qualifying offers this winter: Max Scherzer, James Shields, Pablo Sandoval, Hanley Ramirez, Russell Martin, Victor Martinez, Melky Cabrera, Nelson Cruz, Francisco Liriano, Ervin Santana, Michael Cuddyer, David Robertson. There was at least one player -- Jon Lester -- and perhaps another -- Chase Headley -- who would have received a qualifying offer but for being traded midseason, after which an acquiring club has no claim for free-agent compensation.

So:

1. Did the system keep players with their original teams longer? Not noticeably. Ten of the 12 switched teams, with Victor Martinez and Francisco Liriano staying put. At the outset of the offseason, Baseball Prospectus'€™ R.J. Anderson ranked the top 50 free agents, and of the 48 players who have signed, 40 left their incumbent employer. The exact same rate, five out of six. As mentioned, it is perfectly rational that a qualifying offer wouldn'€™t lead to most players staying put: A team signing its own free agent "€œforfeits"€ a draft pick, just as a team signing a free agent forfeits a draft pick. (Small detail: The draft pick a team gets back is usually lower than the draft pick a team gives up, so the economic incentives slightly favor re-signing a player in some cases, but only slightly.) This offseason, there'€™s no indication that the free-agent compensation system did anything to promote roster stability.

2. Did the system benefit small-market teams or promote parity? Not remotely. The 10 teams that lost a pick had an average 2014 payroll of $107 million; the 10 teams that gained a pick had an average 2014 payroll of $122 million. The Dodgers got a compensation draft pick. The Yankees got one. The Tigers got one. Both of the teams in last year'€™s World Series got one, and while the small-market Royals getting a pick sounds like the sort of thing you'€™d root for, it came from the Padres -- who had the 27th-highest payroll in baseball last year, just a million bucks higher than the Royals. And while the big-market Red Sox gave up two for signing two big free agents -- again, seemingly the sort of thing that sounds like a good outcome for benefitting small-market teams -- they were penalized less than most teams would have been. Their first-round pick was protected; between that and the fact that they were able to stack free-agent signings in one offseason, they lost only the 47th and 72nd picks in the draft. The Padres, meanwhile, had to give up the 12th overall pick just to sign one free agent. The system essentially incentivized the deep-pocketed Red Sox to tank in the second half, protecting their pick; and to sign two free agents, instead of just one. What a terrible rule.

3. Did it keep owners'€™ costs down? This is, ultimately, the point of the thing, and the only thing that really matters. The current free-agent compensation system comes from a long line of attempts to limit player mobility, birthed by owners'€™ fears that free agency would put them out of business. They tried to limit how many teams a player could negotiate with. They instituted a terrible free-agent compensation draft, which worked terribly. This is the current terrible attempt at limiting players'€™ freedom to move around, thus limiting their salaries. How'€™s it going?

Here'€™s a table with the 12 players whose free agency was "œtaxed"€, along with the average annual value of their contracts and Baseball Prospectus'€™ projection for how many wins each will be worth in 2015:

(Scherzer'€™s contract is heavily backloaded; his AAV here reflects the present-day value of his contract, as reported by Jeff Passan.) 

So teams were willing to spend, in addition to 10 draft picks, $8 million per win from these 12 players. What about comparable free agents? Here'€™s the same table for the 12 players who were arguably the best free agents available without draft pick compensation:

The players in the second table are, for obvious reasons, not quite as good as their QO-attached competition, but they'€™re close, within a half-win per player on average. And on a per-win basis, they were had for $7.8 million per projected win. Teams spent more per projected win on QO-attached players this winter. The draft picks, by and large, did nothing to affect salaries.

Are there exceptions? Arguably. James Shields made less than expected, and signed later than expected, so you could claim that the draft pick attached to him hurt his market. Melky Cabrera signed for less than some people expected, so you could say the same about him. You might plausibly argue that Michael Cuddyer signed earlier in the offseason than he would have otherwise, as he might have been worried that the pick attached to him would deflate his market. Maybe without that pick he stays on the market until he can find a bidding war.

(On the other hand, Asdrubal Cabrera and Colby Rasmus also signed for less than expected, despite no qualifying offers. Players sometimes sign for less than expected. It'€™s not certain that Shields'€™ or Cabrera'€™s disappointing offseasons had anything at all to do with the pick.)

And we do know, from previous years, that, yes, some players do get less because of this. Some. One or two, maybe even three or four, per year. In a $7 billion industry, with 30 teams and 750 active roster spots, we can say that maybe two per year lose a few million bucks. Maybe. But, as we see in those tables above, the rule doesn'€™t affect most QO-attached free agents, let alone most of the hundreds of millionaires in the league. Which means this is an awful lot of work to screw over a quarter of one percent of the population.

If you wanted to make up the worst rule imaginable, you'€™d start by thinking of something completely illogical that you want to enforce. In this case, it'€™s the idea that a team deserves "€œcompensation"€ for losing a player that is no longer under contract. Asking for compensation after a player'€™s contract is up is like asking for compensation because you returned the DVD to Redbox. So you'€™ve got an illogical rule. But then you'€™d want to poke enough holes in it that it wouldn'€™t apply consistently to the entire population -- €”and so, you introduce exemptions so that James Shields gets taxed but Jon Lester, for more or less arbitrary reasons, doesn'€™t. Now it'€™s illogical and unfair. But if you really wanted to perfect the terribleness of the rule, you'€™d craft it in such a way that it doesn'€™t even do what it's supposed to do. It'€™d be illogical and unfair and totally ineffective. Baseball has done it. It has the worst rule possible.