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The Free Agent Compensaton System


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#1 philly sox fan


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Posted 01 August 2007 - 08:49 PM

The relative value of draft picks associated with in-season rental trades has really became a significant and very public issue. Jeff Sackman at THT had a good article on this topic here:

Link

Wait, did I say good? He linked to one of my draft studies - it's a great!

Anyway, one thing that Sackman didn't mention is that type A free agents who are routinely referred to as "worth 2 first round picks" quite often deliver much less that. It's always been true that the idea that "1st round supplemental" picks are extra "first rounders" is more about semantics than intrinsic value. The expected return on draft picks in the late 20s and 30s declines so quickly that these picks would be much more accurately referred to as "super 2nd rounders" than "extra 1st rounders".

But beyond that it is quite often the case that the team that signs a Type A free agent has it's 1st round pick protected because the team had one of the 15 worst records in baseball. I'll get into this more in a bit, but it's likely that more and more of those teams will be in the market for Type As.

In the past the ideal sceneria for a team losing a Type A free agent was to get a second half first (#16-30) and a supp pick between #31-43 (on average there have been 13 supp round picks over the last several years). The average epxcted return might be something like picks #22 and #37. Those are pretty good picks. In my previous studies I estimated that those two picks would return 19.6 WARP3 and be worth 13M in 2007 free agent dollars.

Last year MLB overhauled the free agent compensation system shifting Type B free agents out of the 1st round (and away from the signing team) and into the supp round (and created from the ether). That change lead to a huge increase in the size of the supplemental round to an amazing 34 picks. There was a lot of discussion about how the Type B driven increase in the supp round.

However, what was overlooked is that there also was an increase of Type A free agents signed from a recent average of 13 per year up to 17. That also contributed to the increased size of the supp round. I'm pretty sure I mentioned this someplace in my longer studies, but one very interesting thing I noticed about those Type A free agents is that a minority actually returned the idealized late 1st rounder and supp pick. Most Type As returned a supp pick and a 2nd to 4th pick. Naturally those picks are less valuable than the hoped for late 1st rounder, but with the huge supp round separating the first and subsequent rounds those later compensatory picks are much less valuable than the ideal scenario.

Let's take a closer look at the seventeen Type A free agents that changed hands last year.

Table
Player Type Round slot 1 Round slot 2 Team Gain Team Lost
Frank Catalanotto A 1 16 1s 45 Toronto Texas
Carlos Lee A 1 17 1s 35 Texas Houston
Julio Lugo A 1 20 1s 39 LA Boston
Jason Schmidt A 1 22 1s 43 SF LA
Gary Matthews, Jr A 1 24 1s 44 Texas Anaheim
Moises Alou A 1 29 1s 32 SF NYM
Alfonso Soriano A 1s 31 2 67 Washington Cubs
Danys Baez A 1s 33 2 69 Atlanta Baltimore
Rich Aurilia A 1s 34 3 104 Cincinnati SF
Jeff Suppan A 1s 36 2 71 StL Milwaukee
David Dellucci A 1s 37 3 107 Philadelphia Cleveland
Justin Speier A 1s 38 2 88 Toronto Anaheim
Woody Williams A 1s 40 2 81 SD Houston
Barry Zito A 1s 41 2 74 Oakland SF
Roberto Hernandez A 1s 42 2 77 NYM Cleveland
Dave Roberts A 1s 46 4 134 SD SF
Chad Bradford A 1s 47 3 99 NYM Baltimore
32.5 71.1


Just six Type A free agents returned a late first rounder. Nearly twice as many returned a second compensatory pick after the ginormous supplemental round. On average these 17 Type As returned picks #33 and #71. Those two picks would return 11.3 WARP3 and be worth 6.8M in 2007 free agent dollars. That's a far cry from our idealized scenario that produced #22 and #37.

Here's a closer look at the six picks that returned a late 1st round pick.

Table
Player Type Round slot 1 Round slot 2 Team Gain Team Lost
Frank Catalanotto A 1 16 1s 45 Toronto Texas
Carlos Lee A 1 17 1s 35 Texas Houston
Julio Lugo A 1 20 1s 39 LA Boston
Jason Schmidt A 1 22 1s 43 SF LA
Gary Matthews, Jr A 1 24 1s 44 Texas Anaheim
Moises Alou A 1 29 1s 32 SF NYM
21.3 39.7


That average return of picks #21 and #40 is pretty close to our idealized case.

Here are the other eleven Type A free agents.

Table
Player Type Round slot 1 Round slot 2 Team Gain Team Lost
Alfonso Soriano A 1s 31 2 67 Washington Cubs
Danys Baez A 1s 33 2 69 Atlanta Baltimore
Jeff Suppan A 1s 36 2 71 StL Milwaukee
Justin Speier A 1s 38 2 88 Toronto Anaheim
Woody Williams A 1s 40 2 81 SD Houston
Barry Zito A 1s 41 2 74 Oakland SF
Roberto Hernandez A 1s 42 2 77 NYM Cleveland
Chad Bradford A 1s 47 3 99 NYM Baltimore
Rich Aurilia A 1s 34 3 104 Cincinnatti SF
David Dellucci A 1s 37 3 107 Philadelphia Cleveland
Dave Roberts A 1s 46 4 134 SD SF
38.6 88.3


These Type A free agents returned picks #39 and #88. Given the very large and very real decline in draft pruductivity at the end of the first round that's a huge decrease in compensation. Those two picks would return about 8.7 WARP3 and be worth 4.7M in 2007 free agent dollars.

Each GM that has acquired a free agent to be has stated that free agent compensation was a critical part of their decision to make the trade and I'm sure they can all determine who will be a Type A and B free agent. However, they will have no control over whether that free agent to be will be signed by a team that can lose it's first round pick netting the team that has acquired the free agent to be good comensation (ie picks #21, 40) or whether that free agent to be will be signed by a team with it's 1st round pick protected netting that team very mediocre compensation ( ie picks #39 and #88).

Since it's an easy sort and it helps make a couple points I thought it would be interesting to look at all of the 2007 compensation picks sorted by the teams that gained and lost picks.

First, the teams that gained picks.

Table
Player Type Round slot 1 Round slot 2 Team Gain Team Lost
Adam Kennedy B 1s 58 Anaheim
Craig Counsell B 1s 50 Arizona
Miguel Batista B 1s 61 Arizona
Danys Baez A 1s 33 2 69 Atlanta Baltimore
Alex Gonzalez B 1s 55 Boston
Keith Foulke B 1s 62 Boston
Rich Aurilia A 1s 34 3 104 Cincinnati SF
Scott Schoeneweis B 1s 53 Cincinnati
Juan Pierre B 1s 48 Cubs
Jamie Walker B 1s 60 Detroit
Julio Lugo A 1 20 1s 39 LA Boston
Roberto Hernandez A 1s 42 2 77 NYM Cleveland
Chad Bradford A 1s 47 3 99 NYM Baltimore
Barry Zito A 1s 41 2 74 Oakland SF
Frank Thomas B 1s 59 Oakland
David Dellucci A 1s 37 3 107 Philadelphia Cleveland
Woody Williams A 1s 40 2 81 SD Houston
Dave Roberts A 1s 46 4 134 SD SF
Chan Ho Park B 1s 57 SD
Alan Embree B 1s 63 SD
Ryan Klesko B 1s 64 SD
Jose Guillen B 1s 49 Seattle
Gil Meche B 1s 52 Seattle
Jason Schmidt A 1 22 1s 43 SF LA
Moises Alou A 1 29 1s 32 SF NYM
Mike Stanton B 1s 51 SF
Jeff Suppan A 1s 36 2 71 StL Milwaukee
Carlos Lee A 1 17 1s 35 Texas Houston
Gary Matthews, Jr A 1 24 1s 44 Texas Anaheim
Mark DeRosa B 1s 54 Texas
Frank Catalanotto A 1 16 1s 45 Toronto Texas
Justin Speier A 1s 38 2 88 Toronto Anaheim
Ted Lilly B 1s 56 Toronto
Alfonso Soriano A 1s 31 2 67 Washington Cubs


You can see a number of teams - San Diego most famously, but also Arizona and Boston amongst others - that benefited from some very mediocre Type B free agents. Oakland is the team that probably got scrwed the worst by the compensation system. Despite Barry Zito's struggles this year he should have been worth more than picks #41, 74 and its absurd that generic relievers routinely achieve Type A status and Frank Thomas, coming off a 4th place MVP finish was ranked a Type B and only returned pick #59.

The Blue Jays received several extra picks for losing three free agents and those players make a really concise case for how screwed up the system is. Catalanotto is a mediocre platoon OF who signed for 3 years at 13.5M and he earned Type A status and returned the very best pick possible, #16. Justin Speier is a fine setup releiver who was also a Type A and signed for 16M and returned a couple of picks. Ted Lilly is a pretty solid mid-rotation starter who signed for 40M, but was only a Type B free agent and returned just pick #56. The open market deemed Lilly worth 3-fold more than Catalonotto and Speier and yet he generated much less compensation.

Here are the teams that lost picks and I included all the Type Bs in order at the bottom just because I had skipped over them.

Table
Player Type Round slot 1 Round slot 2 Team Gain Team Lost
Gary Matthews, Jr A 1 24 1s 44 Texas Anaheim
Justin Speier A 1s 38 2 88 Toronto Anaheim
Danys Baez A 1s 33 2 69 Atlanta Baltimore
Chad Bradford A 1s 47 3 99 NYM Baltimore
Julio Lugo A 1 20 1s 39 LA Boston
Roberto Hernandez A 1s 42 2 77 NYM Cleveland
David Dellucci A 1s 37 3 107 Philadelphia Cleveland
Alfonso Soriano A 1s 31 2 67 Washington Cubs
Woody Williams A 1s 40 2 81 SD Houston
Carlos Lee A 1 17 1s 35 Texas Houston
Jason Schmidt A 1 22 1s 43 SF LA
Jeff Suppan A 1s 36 2 71 StL Milwaukee
Moises Alou A 1 29 1s 32 SF NYM
Rich Aurilia A 1s 34 3 104 Cincinnatti SF
Barry Zito A 1s 41 2 74 Oakland SF
Dave Roberts A 1s 46 4 134 SD SF
Frank Catalanotto A 1 16 1s 45 Toronto Texas
Juan Pierre B 1s 48 Cubs
Jose Guillen B 1s 49 Seattle
Craig Counsell B 1s 50 Arizona
Mike Stanton B 1s 51 SF
Gil Meche B 1s 52 Seattle
Scott Schoeneweis B 1s 53 Cincinnatti
Mark DeRosa B 1s 54 Texas
Alex Gonzalez B 1s 55 Boston
Ted Lilly B 1s 56 Toronto
Chan Ho Park B 1s 57 SD
Adam Kennedy B 1s 58 Anaheim
Frank Thomas B 1s 59 Oakland
Jamie Walker B 1s 60 Detroit
Miguel Batista B 1s 61 Arizona
Keith Foulke B 1s 62 Boston
Alan Embree B 1s 63 SD
Ryan Klesko B 1s 64 SD


I think the most interesting team here is Cleveland. The Indians front office is considered to be one of the best and most creative in the game. The 2006 team was a pretty good one that happened to have an off year and as a result their 1st round pick was protected even though they were very much a 2007 contender who would be a likely buyer in the 2006/07 off-season. They decided that put them in position to sign a couple of very mediocre, complementary Type A free agents while only giving up picks #77 and #107. I don't believe the Indians would have ever considered signing those players if it would have cost them their #1 pick. I think the strategy was sound, but clearly the execution left a lot to be desired.

Milwaukee is another team that benefited from being in a position of gearing up for a playoff run with a protected 1st rounder. They were able to spend 40M on a Type A free agent knowing they could keep pick #7. Who cares about pick #71 if you can make the playoffs for the first time in 25 years. I don't recall who the Brewers were bidding against last winter, but you can see what a huge advantage they would have had over a team that wasn't much better than them, but didn't have a protected first round pick. I know a lot of people wouldn't have given 40M to Suppan no matter what, but certainly a team that will have to give up a 2nd rd pick in the 70s has a much greater incentive to sign a player than a team that would have to give up a pick in the high teens or 20s.

Given the increasing parity that we seem to have due to the increased playoff format and revenue sharing I would expect to see a lot more situations were team just above and below the #15/16 protection break point are both in "go for it" mode and competing for the same player(s). Given far smaller cost that the team with the protected pick incurs we should see a lot of teams like the Indians and Brewers being very active in the Type A free agent market. If that's true, then we should also see the overall compensation for Type A free agents to remain skewed down away from the "2 first round picks" idealized scenario.