View Full Version : FA Compensation explained

07-23-2008, 12:21 PM
This (http://www.mlbtraderumors.com/2008/07/free-agent-comp.html) is a pretty good explanation from MLBTR:

Free Agent Compensation
By Tim Dierkes [July 23, 2008 at 10:30am CST]

Here's a reminder of how free agent compensation works in baseball, with Adam Dunn as the example.

The Reds have the choice of offering Dunn arbitration after the season. If Dunn accepts, the Reds get him for '09 at a salary determined by the arbitration process. He's earning $13MM in '08 and having a typical year, so the process would result in an even higher salary for '09. (Occasionally a player accepts arbitration when the team didn't expect him to, like Greg Maddux and the Braves in '02.) If the Reds don't offer Dunn arbitration, he becomes a free agent and the Reds get nothing.

A player can either be classified as Type A, Type B, or nothing based on his stats from the previous two seasons. Dunn should rank as a Type A since the classification formula looks at PA, AVG, OBP, HR, and RBI for 1Bs, OFs, and DHs (4 out of 5 ain't bad for Dunn).

If the Reds offer Dunn arbitration, he may decline because he prefers to play elsewhere or prefers to seek a multiyear free agent contract. If he declines the Reds' offer and signs elsewhere, the Reds will receive two draft picks.

Let's say the Yankees sign Dunn. The Reds will then receive one '09 draft pick from the Yankees. If the Yankees have, say, the 22nd overall pick next June, the Reds get that in addition to their own normal first round pick. The Reds also get a supplemental draft pick squeezed in between the first and second round of the draft.

The Reds only get the Yankees' first-round pick if it falls between #16-30. The first 15 picks are protected. So if the Nationals sign Dunn, the Reds are kind of screwed because they do not get the Nats' #2 overall pick. Instead, they get the Nats' second round pick and the supplemental pick.

A free agent can also be classified as a Type B based on his stats from 2007-08. This might happen with Jon Garland. Say the Angels offer him arbitration and he declines and then signs with the Dodgers. The Dodgers would not give up any draft picks, but the Angels would get an extra pick between the first and second round.

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 Conor Jackson, Jarrod Saltalamacchia, Glen Perkins, Huston Street, Phil Hughes, Clay Buchholz, Jacoby Ellsbury, Joba Chamberlain, Colby Rasmus, and Ian Kennedy.

I owe most of my understanding of free agent compensation to ESPN's Keith Law. Check out his blog post on the topic from '06 as well as an MLBTR post about the ranking formulas based on info provided by Keith.

07-23-2008, 02:26 PM
Nice article walking us through the process.