As part of the new collective bargaining agreement, MLB and the MLBPA allowed for the creation of an international amateur draft. As this was something MLB was pushing for, the proposed tradeoff was the elimination of free agent compensation. The two sides reached their overall CBA in March, but included a July 25th deadline for the possible international draft/free agent compensation trade. The two sides failed to reach an agreement by that July deadline, so the qualifying offer system for free agent compensation that was agreed to 11 years ago remains in place.
The qualifying offer is set at $19.65MM this offseason, and by mid-November we’ll know which players received and turned down a QO. Certain star free agents, including Aaron Judge and Trea Turner, are locks to receive and turn down a qualifying offer. A dozen others could easily join them.
If those players sign with new teams, here’s a look at the draft picks each signing club would lose.
Competitive Balance Tax Payors: Red Sox, Dodgers, Mets, Yankees, Phillies, Padres
If any of these six teams signs a qualified free agent from another team, it must forfeit its second-highest and fifth-highest pick in the 2023 draft. The team will also have its international signing bonus pool reduced by $1MM.
Revenue Sharing Recipients: Diamondbacks, Orioles, Reds, Guardians, Rockies, Tigers, Royals, Marlins, Brewers, Twins, Athletics, Pirates, Mariners, Rays
These 14 teams received revenue sharing and did not exceed the competitive balance tax. If one of these teams signs a qualified free agent, it forfeits its third-highest pick. These teams face the smallest draft pick penalty. The Twins and Mariners are realistic possibilities to sign a qualified free agent, while the Orioles and a few other revenue sharing recipients may lurk as dark horses.
All Other Teams: Braves, Cubs, White Sox, Astros, Angels, Giants, Cardinals, Rangers, Blue Jays, Nationals
These 10 remaining teams would forfeit their second-highest pick and and have their international signing bonus pool reduced by $500K. The penalty is something of a middle ground.
What happens if a team signs two qualified free agents? The CBA calls for forfeiture of the next highest available draft pick. For example, if a team has already lost its second and fifth-highest picks and it signs a second qualified free agent, it would lose its third and sixth-highest picks. So as in the past, if you’ve already signed one qualified free agent, the draft pick cost to sign another is reduced.
Get rid of the CBT/Luxury tax and dump the QO/draft pick compensation. Let the teams spend how they want and on the players they want.
In addition, I think the “win bonus” idea from Fangraphs is at least slightly better than the CBT.
https://blogs.fangraphs.com/mlbs-competitive-balance-tax-is-anything-but/
In summary, as the article concludes:
“Any plan to incentivize small-market teams to put financial value in winning has to reward winning and punish losing. Subsidize investment, tax tanking. That’s not the system MLB actually has, and it’s not a system that MLB actually wants.”
Well said, markets like Seattle and Denver draw a good amount of attendance and have nice TV deals, I think those two teams for sure shouldn’t be part of the revenue sharing group.
I think your equating market size with actual area size and its not equal. The population of NYC is 50% more than the total combined populations of Colorado and Washington state. There are just not nearly as many people west of the Rockies as there are everywhere else. If not for California, the west coast and the Rockies combine for less than a tenth of the US population. All that to say, when Seattle and Denver draw a lot of fans, its cause a sizeable number of people traveled (not an insignificant distance) to see them play. And the media markets have to be massive is size to even come close to equaling what the east coast teams (and California) can get with just a few miles of radius.
Great article. Worth expanding upon:
“It says it’s about competition, but without any mechanism to ensure that the proceeds improve competition. It says it’s about balance, but it has no way to ensure that balance. It’s described widely as a luxury tax, but it’s not that either. Luxury taxes, historically, have been directed at what economist Fred Hirsch termed “positional goods,” or goods that are highly prized based on their scarcity and prestige value. Labor costs in a labor-intensive field, though, aren’t really a luxury good, and MLB’s business is mainly putting teams of baseball players on the field. Everything MLB does stems from those games; if the teams didn’t exist, there wouldn’t be as much clamor for t-shirts with cardinals sitting on a wooden stick or ice cream served in a small plastic helmet with a creatively spelled abbreviation of “stockings” on it. Players are no more luxuries for a baseball team than leather is for a shoe company.
But let’s get to the competitive balance side of things. MLB’s argument is that the CBT is needed to increase competitive balance. Yet there’s very little evidence that it actually has increased competitive balance, and if anything, teams are farther apart since the CBT was implemented, not closer together. From 1984 to 2001, leaving out shortened seasons, the standard deviation of winning percentage was about 67 points. From 2002, the first year of MLB’s modern CBT, to ’21 (excluding the shortened 2020 season), that increases to 74 points; since the start of 2016, when salaries have been static, it’s 80 points.
Having more money, naturally, is better than having less money, but there’s a limited relationship between winning and total salary…. How a team is run is still a much better gauge of success than how much money it spends….
….To put it bluntly, the CBT is more designed to function as a soft salary cap — one with no floor and that’s tied not to any league revenue but simply what players are able to negotiate out of owners at the bargaining table. ..”
@utah
Awesome username bro!
;^)
And that is why—despite both sides refusing to acknowledge it—the best thing for baseball, its fans and its owners, is a ceiling and a floor.
Exactly. The fact half the franchise’s in small markets go into each season with their players and fans knowing they don’t have a chance against the large market, free spending teams is what is killing the sport.
You obviously know nothing about shoes……….
“It’s gotta be the Shoes.”
MLB & MLBPA failed to do this by not agreeing on the international draft. Unless they figure something out this won’t change until the next CBA.
Old York, That will put at least half of the teams out of business. Small markets do not have the revenue streams available to them that the larger markets do. Every team is on equal financial footing in the NFL. That allows a smaller market to compete.
Tell that to the Lions. ;o)
In all other major sports in the US all TV revenue is national, no local TV deals and no ownership of the TV network, and all revenue is split equally. That is not the case in MLB.
Not all TV revenue in the NBA or NHL is national. MLS has had local TV revenue for some clubs but that comes to an end this year.
Exactly.
The small market teams may have less revenue coming on their local broadcasting rights. But they’re taking in a good haul with National TV deals, Merchandising. And they’re all equal owners with the MLB network.
Definitely think that baseball could benefit from a promotion/demotion system like premier league football. I’d probably rather see a team playing in Nashville than Pittsburgh at this point.
As a Nashville resident, I don’t want a baseball team in my city. It’s growing too much as it is and there would be a hit to the Cardinals and Braves fan base.
GET OFF MY LAWN!!!
Nashville absolutely should get a baseball team and one of the primary reason is its growth. Nashville does an excellent job promoting their sports teams within the city and surrounding area, they do excellent jobs with huge events, obviously cma, NFL draft etc. they are building a new stadium so they can host a Super Bowl also.
As far as taking away from Cardinals and Braves? Not really… do the Brewers cut into the Cubs fan base?
It also appears a lot lot high level baseball personnel want a team in Nashville… I cannot remember all the names attached (one being the Phillies PBO) but serious heavy hitters form a group dedicated to bring a team to Nashville (expansion or otherwise).
And yet Bud Selig tried to eliminate the Twins franchise because it detracted from his, ahem, “daughter’s franchise,”
Nashville already has a AAA team. They certainly have a “baseball team”.
Cool story… everyone knows we are talking about professional baseball, not a minor league team… guess you felt it important to show everyone your knowledge about the “sounds”.
@drasco
I guess you are right but I do think some of those fans would become Nashville fans if they had an MLB team. And I don’t mean to sound like an old man lol. I have just lived in Toronto and Chicago before and don’t want to be in a city that size again lol.
GO SPURS!
Liverpool.
Great article Tim, makes it simple to understand. thanks.
Why are the Rockies, Tigers, Mariners, Twins getting rev share?
I think because the bottom 14 teams of revenue get the sharing.
Seattle was a bottom 14 team this year? Wow! MLB must be desperate.
Looked it up. It’s because their revenue in the buckets that they share is below the average. I would think Seattle would get a lot less sharing than a Tampa Bay or Pittsburgh.
I was surprised when an article a couple weeks ago said Seattle was getting revenue sharing. It is not like the team is poor. Own part of the station that carries their games has a decent following which will be crazy next season.
Tickets for some games will be hard to get. With teams like Yankees Red Sox and especially Toronto fans come and fill a lot of the seats. Especially the Jays they show up in vast numbers. Kind of odd for Seattle to get any money from MLB.
The penalty for signing a qualified player should only exist if the player is coming from a team that finished in the bottom 1/3 of the league the previous season.
Big market teams shouldn’t be able to restrict their players from getting a better deal, nor should they profit off their departure.
This is my opinion too.
What qualifies a team to receive Revenue sharing money? And why are the Mariners receiving Revenue money?
They are below the average in the local revenue buckets that are shared.
draft picks being tied to revenue sharing is quite possibly the dumbest thing that was ever thought of.
MLB and the MLBPA aren’t known for their intelligence. They are the most dysfunctional of any of the pro sports leagues.
This does a great job of showing diversity of market size throughout MLB. 6 teams are well above average. 10 teams are about average and 14 teams are below average. In other words, some markets have such a large advantage due to where they are located, that it skews the monetary average quite high so that there are only 6 premium revenue teams.
Big mistake on the Padres and Red Sox’s parts going over the luxury tax and this is precisely why.
It’s not that big of a deal. I can’t speak for the Red Sox, but the Padres probably weren’t going to sign a free agent with a qualifying offer unless they decide to go big and if they do losing a 2nd, 5th and 1M International money isn’t the worse thing in the world since they will be World Series contenders.
It wouldn’t be baseball if the Yankees and Red Sox didn’t go into the luxury tax.
The Padres are receiving revenue sharing and are above the CBT?
Biased system that helps cheap teams.
MLB’s setup favors greatly the large market teams. They have many more revenue streams available to them.
More? Such as? I think meant larger.
X
One thing I thought about a while back; the O’s 3rd pick is a Comp rd B pick. If they use that in a trade, then sign a QO FA, they’d sacrifice their 3rd round pick, correct?
Yes
I’m tired of paying a small fortune to attend games, and for rising cable/satellite/streaming rates because of player salaries and TV deals. Increasing the cap means that you & I are paying more– for oftentimes an inferior product. Needs to be a hard cap, and much less than it is presently…AND a higher floor, so owners aren’t just stealing from their teams’ fans.
And something needs to be done about the cost of these TV deals . I don’t care so much about draft pick compensation, because some teams (especially my favorite team) don’t know how to evaluate & draft talent anyways.
Must be a Tigers fan…:0))