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Understanding baseball’s new compensation system

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Forget about Type-A and Type-B. Forget about offering arbitration. Forget about first-round picks going from one team to another.

Baseball’s free agent compensation system has been radically changed by the new collective bargaining agreement, and in the next week or so we’re going to hear a lot about qualifying offers and eliminated first-round picks. If you want to have the changes broken down into bullet points, go here to MLB Trade Rumors. [3] If you want to have Jim Callis explain it quickly and easily, go here to Baseball America. [4]

If you don’t want to click a link, here are the basics.

Which free agents are eligible for compensation?
Only players who spent the entire season with one franchise are eligible for compensation. Any mid-season trade addition or waiver claim is ineligible. For the Yankees, that means guys like Ichiro Suzuki and Derek Lowe.

Every other free agent — anyone who did spend the entire season with one team — is eligible, as long as his former team is willing to offer a qualifying contract. This year, a qualifying contract is at least one year, $13.3 million [5] (that number will change year to year based on the average salary of the 125 highest-paid players in the game).

Players who are not given a qualifying offer become free agents with no compensation attached to them.

When do teams have to make a qualifying offer?
Teams have until five days after the World Series to make a qualifying offer. Players have seven days to accept to reject a qualifying offer.

If a player accepts a qualifying offer, he goes back to his former team for $13.3 million (or more, depending on the offer). If the player rejects the qualifying offer, he becomes a free agent, and his former team is eligible for compensation if he signs elsewhere.

What is the compensation for losing a qualified free agent?
There are no more Type-A and Type-B free agents. All compensation free agents are the same.

When player rejects a qualifying offer and signs elsewhere, his former team will receive one draft pick between the first and second rounds.

The player’s new team will lose its first-round pick (the top 10 picks are protected, so if the signing team picks in the top 10, it loses its second-round pick). Those lost picks go nowhere. They are simply lost and everyone else moves up a spot.

How does this affect the Yankees?
It really means they have two choices to make.

With guys like Andy Pettitte and Mariano Rivera, there’s really no risk in them signing elsewhere and nothing to be gained from a qualifying offer. Guys like Raul Ibanez, Freddy Garcia and Russell Martin aren’t $13-million players, so there’s no chance they’ll receive qualifying offers. Even Hiroki Kuroda, who was outstanding, made well below $13.3 million this year.

The two to consider are Nick Swisher and Rafael Soriano. For Swisher, $13.3 million would be a solid raise over what he was making this year, but he’s probably after a multi-year contract this winter (and even if he accepted, it wouldn’t be the worst thing in the world for the Yankees). Soriano is expected to opt out of $14 million, and he too is expected to be after a multi-year contract.

It seems likely that the Yankees will extend a qualifying offer to those two, and receive two additional draft picks when they sign elsewhere.

Associated Press photos