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MLB CBA Overhaul: Your Ideas?

The Rays currently have ten first round picks and 12 of the first 86 picks in the 2011 amatuer draft. Since 1980 there have been 8 teams to have 6 or more first round picks. The first team to have at least 6 picks was the Montreal Expos in the 1990 draft. In 1997, the Expos had a record 8 picks and the White Sox had 6. In 1999, the Baltimore Orioles had 7 first round draft picks and the Padres had 6. The 2002 Oakland Athletics, as detailed in Moneyball, had 7 picks. In 2007 the Giants and Padres each had six draft picks. The original intent for this story was more Rays-centric, as I focused my research on how these teams performed the season prior to losing their free agents, how they performed the season after they lost their free agents, and how the compensation system benefitted the team losing the free agent. I assembled the data but along the way I found myself being distracted with the details about how players were acquired prior to the amateur draft, why MLB has a draft, and how did the compensation system come into existence.

While compiling this story a common thread seemed to jump out at me at every turn, and that is that Major League Baseball has always had an equity problem. A select group of teams have been able to manipulate the system to give themselves a huge competitive advantage through fiscal strength. This gap in have and have-not's has always led to a change in the control of the distribution of players. As the system changed and the Major League Baseball Players Association (MLBPA) evolved into a strong union, the fight over free agency, specifically free agent compensation, has led to nearly all of the labor strife in the history of our game. As the current MLB Collective Bargaining Agreement (CBA) nears its expiration on December 11, 2011, the Rays stand ready to haul in a record number of draft picks. The Rays shouldn't have to lose their stars or a large number of established players to gain a possible competitive advantage, should they? (A quick look at a volume of picks vs money to spend on picks was recently covered on MLBTraderumors).

The free agent compensation system is in need of a complete overhaul (Ben Nicholson-Smith provides a history of the Elias Rankings over at It could be argued that the current system limits free agent movement by reducing the pool of teams players tagged by the Elias Bureau as having Type A status have to negotiate with. The Elias system that ranks free agents for the purpose of assigning a compensation label is outdated and another evaluating system is needed. Large market teams such as the Boston Red Sox and New York Yankees can lose their own Type A free agents, gather compensation draft picks, and sign multiple free agents with the risk of losing only one first round pick. The Yankees pulled that trick in 2009 with signing CC Sabathia, Mark Teixeira, and A.J. Burnett while only surrendering one first round pick (also a 2nd and 3rd round pick as well). The Boston Red Sox have benefitted tremendously from the financial ability to sign big dollar free agents to replace those they lose and still garner top draft pick compensation (see Boston's 2005 draft class and 2010 Free Agent Compensation). Pointing out the way the Yankees and Red Sox use the system is not an attempt to diminish what they do, it is an example of how the large market teams have learned to game the system. That, in combination with an expiring labor contract means that the system will be overhauled, to what degree we don't know, and that there is a chance that the free agent compensation resolution could lead to a work stoppage.

On top of the free agent compensation system, the arbitration process needs to be redesigned. Just in the past few weeks we've seen players in the middle of their arbitration years (Matt Garza and Zack Greinke) get traded. We've seen a 15 million dollar contract given to a player in his final arbitration year (Prince Fielder) and we've seen a reliever sign a 12 million dollar contract (Jonathan Papelbon) in his final arbitration year.

These are serious questions that the MLBPA and the Owners will have to face in the negotiations of the next CBA. These are questions that are going to hang over MLB all summer long and into the fall. In my opinion, the current system is in need of more than a minor tweeking and this is going to result in a work stoppage of some kind starting in mid-December 2011. With the obvious problems with the free agent system and the arbitration process, I am interested in your ideas on how to solve these problems and how the owners and MLBPA will be able to achieve a more of an equitable balance of player allocaton across major league baseball.

  • What type of system would you design if asked to outline the next Free Agent Compensation plan?
  • Would you continue to label players Type A and Type B, if so, what type of statistical basis would you center on?
  • Would you restrict large payroll teams from receiving draft compensation for loss of free agents?
  • Would you implement a draft slotting pay system?
  • Would you redesign the arbitration process that if a player that has a poor season after an inital arbi1 contract award that player could take a substantial pay cut in future arbitration years?
  • Will large revenue clubs resist change and hold the revenue sharing as a hammer over the smaller revenue clubs?
  • What changes would you make to the Rule 5 Draft System?

When we make arguments for or against a player's skill set, we usually use a set of statistics gathered from the past, usually present the data in a clear concise table or graph, or find a creative way to present the data to make a logical argument. I stumbled down a similar path, but instead of raw data to interpret, I continued to come across stories of how the Draft and Free Agent Compensation System came into being and the inequities that caused labor strife and finally the different ways the owners and MLBPA tried to remedy the problems. Many of you may know these stories and some may not. I've included the historical background as a replacement for statistical data, if needed, to see how prior player allocation systems were constructed in MLB.

The details on how the Major League Draft and Free Agent Compensation System came into being are included after the jump.

How Did MLB Get To The Amateur Draft?

From the late 1890's until 1964, amateur players were free to negotiate and sign with any team that was interested; they were in the truest definition, free agents. Once the player signed a contract he was perpetually bound by the reserve clause to that team. This meant the team was free to reassign, trade, sell, or release the player at any time. The only leverage a player had was to hold out and refuse to play. To prevent teams from monopolizing talent there was a limit on the number of players a team could have under contract. Since most amateur players were not ready for the major leagues they would sign a contract with a minor league team. The minor league team owned the player with the same contractual rights as the major league teams, meaning you could only be acquired by a major league team in a trade or by being sold.

Limiting the amount of players that a major league team could have under contract enabled minor league owners to overcharge for the talent they had under contract (many times in late season auctions). In the 1920's, St.Louis Cardinals owner Branch Rickey, to get around overpaying for players and the roster limit rules, began to purchase minor league teams. The Cardinals farm system would allow them to retain the best players and sell the rest of the players to other teams in need. Other teams caught on to this "farm system" and began buying up farm systems. The teams that were late to the party found themselves without a minor league team to buy. This meant these teams were unable to get the top talent available and had to pay more to acquire second tier prospects.

In order to redistribute some of the minor league talent, major league baseball had its Rule 5 draft. The Rule 5 draft originated in 1903 as it was a key piece of the agreement between the National League, American League, and the various minor leagues. The other inequity among players was the signing of top amateur talent. Since owners were able to underpay the players they had perpetual rights to, they were able to give large signing bonuses to unproven players. To prevent these rich teams with large farm systems from signing all the top amateur talent, major league baseball instituted the "Bonus Baby" rule. A player signed to a large bonus (varying amounts) had to be placed on the major league roster. The rule was challenged and rescinded in 1950 only to be revived in its strongest form in 1952. The 1952 rules stated that if you awarded a bonus of $4,000 or more to a player, that player had to immediately be placed on the 25 man roster and had to stay there for two full seasons.

Of course teams would look for ways around the Bonus Baby rule, but the most egregious act was committed by the New York Yankees and the Kansas City Athletics. The Athletics would draft Clete Boyer and sign him to a Bonus Baby contract. He'd spend his two years on the Athletics bench and just when the Athletics were allowed to send him to the minors they would instead send him to the New York Yankees as the player to be named later! The trade would complete a deal made the previous winter. Many other AL owners protested the trade but the league office allowed it to go through. Both leagues voted to rescind the Bonus Baby rule in 1957 but would be brought back in 1962 after the league added four teams. The new Bonus Rule was altered to force the player to spend one year on a major league roster.

The owners had a general understanding to cap signing bonuses at $100,000 but this would be tested in 1957 and again in 1965. In 1957, the Yankees would offer high school senior Carl Yastrzemski the highest bonus for a high school player in Yankee history of $40,000 but Yastrzemski (represented by his father) stood firm at his price of $100,000. The Braves would enter the bidding at $60,000 and the Phillies would offer $102,000. The elder Yastrzemski was not moved by the Phillies offer and the young Yastrzemski would enter college. While playing in college, the Red Sox would offer Yastrzemski $108,000, a two-year AAA contract at $10,000 per year, and agreed to pay the remainder of Yastrzemski's college education. In 1964, the California Angels were desperate to infuse talent onto their roster and were certain that University of Wisconsin outfielder Rick Reichardt was the next Carl Yastrzemski. The Angels would give Reichardt a $250,000 signing bonus. After the signing of Reichardt the owners determined that it was time to implement a system to control the distribution of talent. The Bonus Baby Rule system was replaced by the Amateur Draft in 1965.

How Did MLB Arrive At Free Agency?

It was during the Bonus Rule period of baseball that the MLBPA was founded, with Bob Feller as its first president. The MLBPA was formed to resolve the issue of inadequate pensions. The MLBPA began to be an effective entity at the same time as the Amateur Draft was being instituted. The MLBPA would hire labor economist Marvin Miller to be its Executive Director and would effectively negotiate the first Collective Bargaining Agreement (CBA) in 1968. The first CBA was very short and gave the players an increase in minimum salary and a larger expense allowance. The most important aspect of the deal was the building of a formal foundation to owner-player relations, including written procedures for arbitration of player grievances before the commissioner.

The CBA expired after the 1969 season and the second CBA agreement, this time a three year deal, would be signed in 1970. The players would win the right to have owner-player disputes not involving the "integrity of baseball" could be arbitrated by an independent three-member panel with the chairmen selected jointly by the players and the owners. While the negotiations of the second CBA were ongoing, the owners and MLBPA decided to not broach the Curt Flood situation and allow the courts to rule on it. Curt Flood, an eleven year veteran with the St.Louis Cardinals was traded to the Philadelphia Phillies. Flood was angry about the deal and challenged the clubs right to trade him. The case made it to the US Supreme Court where the Court ruled in favor of the owners.

The second CBA did not lead to peace between the owners and players. A dispute erupted over pension fund payments and the desire for the owners to accept binding arbitration in contract disputes. For the first time in the history of baseball the players went on strike. The strike would last 13 days from April 1, 1972 to April 13, 1972 and would end when the owners would agree to add an additional $500,000 to the pension fund and agree to binding arbitration.

The third CBA which covered the 1973 to 1975 seasons saw players with two full seasons of service have their salaries determined by an arbitrator and created the 10 and 5 rules which gave veterans with 10 years of major league service and at least five years with the same club the right to veto a trade. It was during this time that several players (Sparky Lyle & Bobby Tolan) would play through one season under the reserve clause, and then demand free agent rights in arbitration. The players would relent and sign a contract prior to the case going through to the arbitration process (usually with a slight raise), but in 1975, both Dave McNally and Andy Messersmith took their case to arbitration claiming that the reserve clause only provided the owners with a one-year option, not the right to perpetually renew. The arbitrator, Peter Seitz, ruled in favor of the players, a ruling which came down on the eve of the negotiations of the new CBA. The owners feared that every player in baseball could simply play one year without a contract and become a free agent; therefore, they locked the players out at the beginning of spring training 1976. After a few weeks commissioner Bowie Kuhn, against the wishes of many owners, ordered the camps opened and play to resume while the new CBA was negotiated.

By midseason 1976, a new 4-year CBA was signed which included that all players with at least six years experience could become free agents when their contracts expired, but the owners wanted limitations placed on free agency. One limitation was that a player could only file for free agency once every five years and that players could only negotiate with up to 12 teams besides his former club. The 12 teams would be determined by an annual draft of negotiating rights.

As predicted, free agency caused salaries between 1976 and 1980 to skyrocket (average salary 1976: $51,501, average salary 1980 $143,756). One way to limit free agency was to implement a compensation system where a team that lost a quality free agent was allowed to select a player from the signing clubs major league roster. At the time of the proposal, the only compensation a team received for losing a free agent was a draft pick. The players balked at this proposal, but with the strike deadline looming, the players and owners agreed on a CBA that settled all matters except free agency. The owners and players created a joint committee to determine the best way to tie compensation to free agency. The CBA stipulated that if a deal on free agency couldn't be reached by February, 1981 the owners could implement their plan, but if they did, the players had the right to strike.

Neither side had shown any ability to compromise on the free agent compensation, so the players would hit the picket lines in the summer of 1981. The strike would last from June 12, 1981 to July 31, 1981. When the dust settled the new "free agency" compensation system was instituted. A free agent compensation draft was set up that allowed a team that lost a quality free agent to pick a player for a pool of players made available by other ML teams. This is the birth of the Type A, Type B, and Type C label system. Only a Type A would trigger entry into the compensation draft. Type B would continue to result in draft pick compensation, but Type C would result in no compensation. Teams could protect 26 players in their organization form the draft, except teams that signed a Type A free agent, they could only protect 24. A team could opt out of signing any Type A free agents and not have to risk any players in the compensation draft. This draft was held in January or February and by any estimation was a disaster, but did have a great moment tied to it.

For one of the few times in history, the New York Yankees were on the losing side of a player acquisition battle. The Oakland Athletics had lost Tom Underwood to the Orioles and had a pick in the selection pool. The #1 pick in the 1984 draft was Tim Belcher who failed to sign with the Minnesota Twins and was eligible in the January, 1985 draft. The Yankees, with their financial resources, drafted and signed Belcher, and were very proud of themselves for this achievement. The Yankees had no idea that by signing Belcher before the compensation draft that he'd be eligible for the draft, but the Athletics knew and they selected him. A furious George Steinbrenner vowed to end the draft compensation system and found nobody to obstruct him and the 1985 CBA set up the draft compensation as we know it today.

There have been several work stoppages since the 1985 CBA (1990, 1995) was signed, there have been many changes to the June Amateur Draft (number of rounds, eliminating the January drafts, etc), changes to the free agent compensation system (surrendering your non-protected first round pick, a period of Type B and Type C compensation, and the elimination of Type C compensation) has been tweaked over the years but is now like so many other system in MLB in need of an overhaul. Will the MLBPA and the owners find a compensation system that doesn't lead to each side drawing a line in the sand resulting in a lockout/strike? Will there be a free agent compensation system that truly works in favor of the poorer clubs that doesn't restrict the movement of players? Will the next grading system utilize a different statistical system, one that takes into account defense and more sabermetric statistics rather than relying solely on traditional statistics? What type of system would you design if asked to outline the next Free Agent Compensation Plan?

Additional Reading:

Short Lived Free Agent Compensation Draft - Baseball Reference

A Contentious History: Baseball's Labor Fight - ESPN

Evolution of the Draft -

Rule V Draft - Baseball Reference (several links to The Hardball Times included)