MLB Free Agency Rules

After a short conversation with a friend via text message I realized that the MLB rules concerning free agency are not common knowledge amongst most fans.  So, here is a short rundown of the free agency rules for those who may or may not believe that Eric Hosmer will be a Yankee in 2013.

Drafted Players (Rule 4 Amateur Draft):

A player is bound to the team that drafts him for three seasons in the minor leagues. Contracts are automatically renewed on a year-to-year basis.  The new collective bargaining agreement signed at the end of 2011 does not allow teams to sign draftees to major league contracts (like Aaron Crow's contract).

After three years, a player must either be on a team's 40-man roster (as he is then considered as having a major-league contract) or he is eligible for what is called the Rule 5 draft (see below). Once he has played for three seasons and is on the 40-man roster, the team then has "options" on the player. They can send him to the minors and still keep him for three additional seasons with automatic contract renewals. Each player has three option years and can be sent up and down from the minors as many times as teams see fit during that period.  That means players with less than 3 years of major league service time (1 year = 180 days in season on a major league roster) can be sent down to the minors as many times as his big league club requires.  The list of players on the Royals 25 man roster still possessing options includes:

Blake Wood
Louis Coleman
Tim Collins
Aaron Crow
Danny Duffy
Kelvin Herrera
Greg Holland
Felipe Paulino
Everett Teaford
Eric Hosmer
Mike Moustakas
Lorenzo Cain

A player with three years or more service cannot be removed from the 40-man roster without his permission. The player can opt to be released immediately or at the end of the season.  A player also can elect to become a free agent whenever he is removed from the 40-man roster, starting with the second removal of his career.

Rule 5 Draft:

After three complete minor league seasons, a team has to decide if they want to keep a player and must sign the player to a major-league contract (adding him to the 40-man roster).  Players who aren't placed on the roster are eligible for the baseball Rule 5 draft. A player can be drafted by another organization for $50,000. But there is a risk for the drafting team: They must keep that player on the 25-man major-league roster for the entire next season or he is offered back to the original team for $25,000.  A player not on the 40-man roster and not taken in the Rule 5 draft remains under contract with his current organization. He can elect to become a minor-league free agent instead of being taken in the Rule 5 draft, but players want to be selected in the draft because it represents what could be a fast track to the majors, getting away from a team that does not believe he belongs on the 40-man roster.

Notable Rule 5 selections: Joakim Soria, Johan Santana, Dan Uggla, Josh Hamilton, Jayson Werth, and Shane Victorino

Arbitration:

Once a player has been on a roster for three seasons and isn't locked up with a long-term deal, he becomes eligible for salary arbitration. A player with at least two years experience is also eligible provided he is among the top 17 percent in cumulative playing time in the majors of players who are between two and three years of experience.  During arbitration, the team and player each present a dollar figure to an arbitrator, who then decides for either the player or the team based on comparable wages within baseball. Oftentimes, the arbitration process leads to a compromise salary before the ruling.  This season, the 'super 2' designation is expected to be somewhere in the neighborhood of 2 years and 134 days (there is a sports management firm that figures this up ahead of time for sports nerds such as myself).  That means players like Eric Hosmer and Mike Moustakas will most likely not be eligible for 'super 2' status after the 2012 season.  They both will most likely be eligible for arbitration following the conclusion of the 2013 season (at least Hosmer will, Moustakas might not have enough service time for 'super 2') and their salaries will be determined by an arbitrator, but they will still be bound to the Royals until they have completed a full 6 seasons (@ 180 days per season) of major league service.

A player is free to negotiate a longer term contract with his existing club at any point prior to or during his arbitration years.  It is also important to point out that since Dayton Moore has been the GM of the Royals no player has actually made it to arbitration because the Royals have always come to terms with their arbitration eligible players prior to the actual hearing. 

The arbitration hearing has its own set of peculiarities.  First, the team and player must submit a salary number.  This past off season, prior to signing his long term contract, Alex Gordon submitted $6 million and the Royals offered $4 million.  Each side is then expected to argue why their number is the more appropriate figure.  This puts the team in the awkward position of explaining why a player they want to keep isn't a very good player.  It tends to lead to bad feelings.  If the arbitrator would have found that Alex Gordon was worth $1 more than the midpoint between the two submitted salary figures (in this case $5 million) then Gordon would have received the full $6 million for his 2012 salary.  If he would have found him to be $1 less valuable than the midpoint, he would have received the $4 million the team offered.  That is why both salary figures are important.  If Gordon asked for $6 million and the Royals offered $1 million, it would be much easier for Gordon to reach his claim because the midpoint would have been much lower.  This forces the teams to offer a legitimate salary and not simply a low-ball amount.

Free Agency:

A player with six or more years of major-league service (on the team's 40-man roster) who is not under contract for the following season is automatically a free agent.  Teams can receive compensation for the player with a draft pick in the following year's draft (Rule 4 draft) in June. To receive compensation, the team must offer the player salary arbitration.

So...what does this mean for the Royals?  Well, players like Eric Hosmer were not added to the 40 man roster until they were called up, so in effect, he will have to play for the Royals for seven seasons before he is eligible for free agency.  At the end of his sixth season he will only have accrued 5 years and 150 days (approx) of service time, so essentially, the Royals get a free year of major league play from a player simply because he did not start the 2011 season on the big league roster.  That means, barring a trade or long term contract, Eric Hosmer and Mike Moustakas will be the property of the Royals until at least the conclusion of the 2017 season.  More than likely, the Royals will know whether or not they will be able to work out a long term deal prior to that time and would look to trade Hosmer rather than risk losing him in free agency.  Such a trade would most likely occur sometime during the 2016 season or in the off season prior to the 2017 campaign.

No Mike, Hosmer will not be wearing pinstripes any time soon.  In fact, the Royals have done a pretty decent job of creating salary stability over the next 4 years by signing Escobar, Perez, Gordon, and Butler to long term and club-friendly deals.  So, over the next few seasons when you read about the Royals signing their young players to one-year deals, you need not worry about losing them to the Yankees the following season.  Although, with each one-year deal the chances of signing a club-friendly long term contract become less and less likely. 

Buster Olney, one of the ESPN baseball insiders, said a few weeks ago (on the radio)that it would probably take a contract offer somewhere in the neighborhood 9 years for $90 million in order to buy out 3 years of Eric Hosmer's free agency years.  If he pans out the way most fans expect and puts up a line somewhere in the neighborhood of .300/.365/.550, he could easily make anywhere from $40-$60 million during his 5 years of arbitration but that money would not be guaranteed.  It would be difficult to turn down a guaranteed $90 million in exchange for 3 extra years playing for the Royals and he would still be a free agent at age 29 and able to sign a $200 million contract with one of the big boys.  If he simply accepts the arbitration offers and gets to free agency following the 2017 season he will be 27 years old.  If he were to sign a 8-10 year contract with the Yankees at that time he would still only be able to sign one such deal during his career.  Nobody is going to sign a 35-37 year old (not in the steroid era) to a huge longterm deal.  So, why not guarantee yourself $90 million at age 22 and still get your $200+ million contract at age 29 or 30?  The math adds up in favor of signing a longterm deal with the Royals right now.  Plus, Scott Boras, his agent, would get 2 commissions, one at 22 and another at 29 or 30, so it would be a win-win for everyone involved.

Also, just so you know, every time I type Hosmer's name my spellcheck tries to correct it to Homer's.  A little Freudian slip from the old word processor.  Even computers with no human emotions can sense Hosmer's greatness....