New Collective Bargaining Agreement

Here is a basic overview of the major changes in the new Collective Bargaining Agreement and a brief analysis of how the changes will affect front office activity.

Super-Two Status

Beginning in 2012, more players than ever will be able to qualify as a Super-Two player which enables them to reach arbitration earlier. Of players with between 2 and 2.171 years of service time, the top 22% (in respect to service time) will be eligible for arbitration as Super-Two players – this represents a 37.5% increase from the previous 16% figure which often times resulted in a cutoff around 2.130-2.135 years of service time.

How does this affect my team? From now on, for clubs to avoid players with super-two status, they will have to wait even longer than the usual June 5th time frame to bring prospects to the major leagues. This further complicates the dilemma of competitive clubs keeping highly-touted prospects in the minors even though they are big-league ready.

A prime example of an early call-up resulting in millions of dollars of extra expense  is Tim Lincecum’s situation in 2007. If Lincy was brought up just one week later, he would not have qualified as a super-two and thus would have his contract be under team control for an additional year rather than him hitting arbitration early as a super-two. Lincy received $9M in his first year of arbitration – he would have earned less than $1M if he was not a super-two.

Cap on draft spending

This is arguably the most debilitating new rule for small-to-mid market clubs. Teams will now be capped on the amount they can spend on the amateur draft. Each team will be allotted a draft pool for the first 10 rounds. The pools will be determined by the slot value of the club’s draft picks: i.e. teams drafting at the top will have a larger pool than teams with later picks.

Last year 20 teams went over slot recommendations to sign draft picks. There is a reason this happens – small-market teams know they can not acquire top talent in free-agency because they will be out bid by the Yankees, Red Sox, Angels, Dodgers, etc. So instead of spending on free-agents, small market clubs pour money into the draft where they are able to get premium talent at a low price – a more efficient way of spending money. This will no longer be possible, without facing severe penalties (listed below)

Clubs that exceed their Signing Bonus Pools will be subject to penalties as follows:
Excess of Pool Penalty (Tax on Overage/Draft Picks)
• 0-5% (75% tax on overage)
• 5-10% (75% tax on overage and loss of 1st round pick)
• 10-15% (100% tax on overage and loss of 1st and 2nd round picks)
• 15%+ (100% tax on overage and loss of 1st round picks in next two drafts)

Last year the Pirates spent a record $17M on the draft to snag both Gerrit Cole and Josh Bell, convincing the latter to bypass college. They won’t be able to that again.

This system can still be exploited, but by rich teams that consistently win and draft towards the end of the first round. Example: The Yankees can notify agents that they will be going over slot on the draft and thus snag top talent while being able to afford the tax and the loss of first round picks (that probably will be at the end of the first round anyways). The A’s or the Pirates could never afford such maneuver.

Cap on international free agent spending

Capping international bonuses will ultimately have a similar affect on clubs as the cap on draft spending. Teams will now be limited to about $2.9M in bonus money per year for international signings. Clubs with worse records from the previous season will be allotted a larger pool.

This is the first step of the MLB ultimately heading towards an international draft but as of now it again severely limits small-market teams that spend internationally to compensate for not being able to compete in the free agent market.

Increase to major league minimum salary

The major league minimum will increase progressively from $414,000 in 2011 to: $480,000 in 2012; $490,000 in 2013; and $500,000 in to 2014.

Elimination of Type A and B status for draft-pick compensation

Right off the bat, this change hurts some of the more strategic front offices in the game. Here is a little background on how the Type A and B compensation system worked in the past. Players would be ranked by Elias based upon recent-years stats and the top free agents in each position would be Type A and the next tier would be Type B. If a team were to lose a Type A player during free agency, the club would receive the signing team’s protected 1st round pick plus a supplemental draft pick. For type B players, clubs would receive the signing team’s 2nd round pick as compensation. This was notoriously taken advantage of by GMs such as Theo Epstein who would trade for projected Type A and B players in order to rack up compensation picks.

This will no longer be possible. New rules eliminate the Elias ranking system and instead, draft pick compensation for free agents will only be available if the player played the entire season for the club, the club offers the player a one-year guaranteed contract with a salary equal to the average salary of the top 125-paid players from the previous season, and the player rejects the offer to sign with another team. To put this in perspective, the average salary of the top 125 paid players last season was about $12 million. This significantly reduces draft pick compensation only to teams losing premium talent and thus eliminates the ability of teams to rack up compensation draft picks.

Competitive balance lottery

The ten teams in the smallest markets and the ten teams with the lowest revenue will be eligible to take part in a draft lottery for the six picks following the completion of the first round of the MLB Amateur Draft. The chances of winning the lottery will be determined by the clubs’ winning percentage in the previous season. The eligible clubs not receiving the first six lottery picks, as well as other clubs that receive revenue share money, will be eligible for another six picks immediately following the second round.

The intriguing part to this is that the competitive balance lottery picks can be traded but cannot be sold for cash. This is the first time that MLB teams will be allowed to trade draft picks – how will the picks be valued? I’ll check in on that later.

Additional Playoff Team

Beginning in 2012 an additional wild card team will make the playoffs in each league. The two wild-card teams in each league will face-off in a one-game playoff.

With the addition of a playoff team in each league, the mid-season trade market will include more buyers and less sellers. Expect to see the value of premier players increase given the fact of increased demand.

For example: On the day of the trade deadline (7/31/2011) last season, the Tampa Bay Rays and Toronto Blue Jays were all but out of the playoff race being 8.5 and 10 games behind the Yankees for the wild card spot respectively. If the new rules were in place, the Rays would have only been 2 games back from the Angels for the second wild card spot while Toronto would have been just 3.5 games out.

This should also affect signings for players at the end of their careers or those with injury concerns. Small-market teams have more of an incentive to take a chance on “washed-up” players with a one-year deal. Here is the intuition: if the player does well and you are not in contention by mid-season, the club will be able to deal him off to contenders at a premium price given the increased demand from added playoff spots. Pittsburgh and Cleveland are two teams that already embrace this strategy – i.e. Erik Bedard and a slew of minor league contracts to veterans by Cleveland.

Click here for the MLB’s press release regarding the changes in the new five-year CBA. 

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