Explaining Ranked Free Agents & Draft Compensation

Teams must offer arbitration to ranked free agents by 11pm central time tonight if they hope to obtain compensation picks in the 2011 draft. Here's an explanation of how the process works.

Teams can choose to offer arbitration to their free agents after each season. If the player accepts, the team will get the player on a one-year deal at a figure determined by the arbitration process. Typically, players who accept arbitration get raises. If a player rejects arbitration, his former team gets nothing but compensation picks. 

A player can either be classified as Type A, Type B, or nothing based on his stats from the previous two seasons in certain categories, depending on his position. For example, first basemen, outfielders and DHs are rated based on the following categories: plate appearances, average, on base percentage, homers, and RBI. 

If a team signs a Type A free agent, they have to surrender a draft pick to that player’s former team. If the signing team placed in the bottom half of MLB teams, their first round draft pick is protected and they surrender a second round pick instead. 

Sometimes, teams sign more than one Type A free agent who declined arbitration from his former team. In that case, one team gets a top compensation pick and other teams lose out. The team losing the highest-ranked free agent obtains the best pick the signing team can offer and other teams fall in line behind the team that loses the top-ranked player.  In extreme cases, a team hoping to snag another club's first round pick can be stuck with their third rounder.  The Blue Jays might have hoped to get a pick in the #15-20 range from another team for A.J. Burnett after the 2008 season, but since the Yankees had already signed C.C. Sabathia and Mark Teixeira, the Jays received the #104 overall pick from the Yankees. 

Regardless of where Type A free agents sign, their teams obtain a supplementary round pick in the following year’s draft (plus the aforementioned pick from the team that signed the player).

A free agent can also be classified as a Type B based on his stats. Teams don’t have to give picks up to sign Type B free agents, but teams that lose Type Bs obtain supplementary round picks in the next year’s draft. 

Another rule to consider for Type As and Type Bs: the "losing" team receives draft pick compensation without offering arbitration if their free agent signs before the deadline for teams to offer arbitration to departing free agents (now November 23rd). For example, the Blue Jays didn't have to decide whether to offer John Buck arbitration; he signed early with the Marlins, so Toronto gets a supplementary rounder in 2011.

There’s also a third possibility – the free agent is not classified as Type A or B, and there is no draft pick compensation.

Over the years, many quality players have been drafted as the result of free agent compensation. Recent examples include Huston Street, Phil Hughes, Clay Buchholz and Colby Rasmus.

Last year, Rafael Betancourt, Carl Pavano and Rafael Soriano were the only ranked free agents to accept arbitration out of 23 offers. Today, 21 teams will decide whether to offer a total of 63 players arbitration. Click here to view Tim Dierkes' predictions and here to make a few of your own. 

This post is a modified version of one Tim Dierkes wrote in July, 2008.


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