The Skyrocketing Qualifying Offer

Free agency is one of my favorite things of the offseason. While actual games would be preferable, having the chance of seeing some new blood on the roster. Last year, we saw the Twins sign Kurt Suzuki, Phil Hughes, and Ricky Nolasco to anchor the 2014 squad. While Nolasco contributed very little to the team, Suzuki and Hughes were pleasant surprises in yet another 90-loss season.

In spite of the spending from last offseason, many Twins fans still wish the team would try to sign a top free agent. However, the team greatly values its early round draft picks and has yet to give one up to acquire a player that had received a qualifying offer.

In past years, compensation for losing a star free agent was determined by the Type A and Type B designations. Thanks to a convoluted, out-of-date formula, a player's performance in his past two seasons determined whether he would become a Type A (top 20% of players which resulted in gaining the signing team's 1st round pick and also a compensation pick between rounds one and two) or Type B (between the top 20 and 40% of players, your team would gain a compensation pick between rounds one and two) as long as he had been offered arbitration. However, this system unfairly hurt players as those labeled as a Type A free agent would be avoided like the plague because teams felt the loss of their first round pick wasn't worth the acquisition of that player.

Starting in the 2012 season, MLB and the players' association negotiated a new system where the Type A and B designations would be eliminated in favor of a qualifying offer. Instead of using a formula to determine the best free agents, teams could just give the player a one-year contract offer at the cost of the average of the top 125 salaries in the major leagues. If the player declined and signed with another team, his prior team would still receive a first round pick.

Thus far, no free agent has accepted a qualifying offer since its inception, and we've still seen players lose out because of the new compensation system. This past season was most notably demonstrated by Kendrys Morales (after the draft so he didn't cost a pick any longer) and Stephen Drew (re-signed with the Red Sox), who both had to sign midseason because no team felt they were worth a draft pick. Other players that had their markets hurt were Nelson Cruz and Ervin Santana, although Santana eventually signed a one-year contract equal to the qualifying offer from 2013, while Cruz was forced to take a reduced salary of $8 million.

Although no player has accepted the qualifying offer yet, it's possible that this will change this year. For one, free agents have now seen what happened to Morales and Drew and may not want to go down the same path. Secondly though, the qualifying offer amount is worth so much now that it will become harder to say no.

Remember, I said that the qualifying offer amount is determined by the average of the top 125 salaries in the majors. In its first year, that amount was $13.3 million. Last season it was $14.1 million, and this offseason the qualifying offer was $15.3 million. Meanwhile, the average salary in baseball is also increasing. In 2012, the average major league salary was $3.2 million. 2013 featured an average salary of $3.4 million, and then last year it ballooned to nearly $4 million.

It may seem like the qualifying offer is getting a bit out of control, but the truth is that it's actually increasing at a slower rate than the major league average salary. The average salary has risen by 25% since 2012 and the qualifying offer has also increased over that same time frame, but at only 15%.

I'm a bit curious to see what results from this. If the qualifying offer keeps increasing, eventually it has to reach a point where it's so high that the risk of the player accepting the offer easily outweighs the gain of the draft pick. With the lack of qualifying offers, teams will be less averse to signing top free agents as they no longer carry draft pick compensation. This would theoretically create more competition to sign those players, driving up salaries for the top 125 even further, which would then continue to increase that qualifying offer the following offseason.

It's going to be interesting to see how the qualifying offer works in the future. I bet a $20 million QO won't be out of the question within the next 7-10 years, and we'll have to find out if MLB is okay with that or if they feel that they need to adjust free agent compensation once again.