How MLB’s new labor agreement affects the Royals, especially regarding free agents
On early Wednesday night, in the hours before a midnight deadline, Major League Baseball’s owners and its players’ union agreed to terms on a five-year extension of their collective-bargaining agreement, calming nerves and eliciting a deep exhale as the sport prepares to kick its offseason into gear next week at the annual winter meetings.
The deal was met with widespread approval and delight — when this latest contract expires, the sport will have enjoyed 26 years of labor peace since the disastrous strike of 1994. But as the parameters of the deal filtered out — tweet by tweet, story by story — the new rules structure began to offer real-world implications.
On Wednesday, the owners and players agreed to a new luxury tax system, caps on international spending and an All-Star Game that no longer determines home-field advantage in the World Series. But for a small-market team like the Royals, a club with a core of players headed to free agency next offseason, the most pressing change involved the reform of the qualifying-offer system and compensation for lost free agents.
With Eric Hosmer, Mike Moustakas, Lorenzo Cain, Wade Davis and Danny Duffy all set to hit free agency after 2017, the continuation of some sort of compensation system was crucial. The Royals — and other teams — will still receive compensation for marquis free agents who depart. But the specifics have been altered.
Under the current system, teams could give a one-year “qualifying offer” to pending free agents, which was $17.2 million this offseason. If the free agent declined the offer and signed elsewhere, the team that lost the player received compensation in the form of a sandwich-round draft pick following the first round and before the second.
In addition, any team that signed a free agent who had declined a qualifying offer would surrender a draft pick, like the Royals did last year, when they lost their first-round pick after signing starter Ian Kennedy.
Under the new rules, according to a report by The Associated Press, a team losing a free agent who passed on a qualifying offer will receive an extra selection after the first round of the next draft — if the player signs a contract for $50 million or more. If the player signs for less than $50 million, the compensation pick will come before the third round. In addition, if a team is above the payroll luxury tax, the extra pick would come after the fourth round, yet that clause is not expected to affect the Royals, who are likely to never approach the luxury tax thresholds in payroll.
On the other side of the equation, if a team signs a free agent who declined a qualifying offer, the type of lost draft pick will hinge on that team’s revenue. If the team receives revenue sharing, it will lose a third-round pick. If the team is among the highest spenders and paid luxury tax during the previous season, it will forfeit its second- and fifth-highest picks (and $1 million in the international signing pool). If the team is in the middle, it will forfeit a second-round pick (and $500,000 of its international pool).
The Royals, in most seasons, will likely find themselves in the first or third group. For example, if the new rules would have been in effect last offseason, the Royals likely would have lost a third-round pick when it signed Kennedy, not a first-round selection.
The other change to the system, according to the AP: Players will be able to receive a qualifying offer only once in their career and will have 10 days to consider it instead of seven.
In theory, the Royals could find themselves with a bevy of additional picks in the 2018 draft if they do no re-sign Hosmer, Moustakas, Cain and others. All three players would be expected to garner more than $50 million on the open market, which would mean the Royals would receive picks following the first round. For an organization trying to rebuild and reload on the fly, those additional picks could be imperative.
The new collective-bargaining agreement, however, was not limited to changes to free agency and compensation. The Royals could also be affected directly by reforms in the international market and indirectly by changes to the luxury-tax system. Here’s a look at some of the key provisions:
International signing pool
In the months before the CBA expired, Major League Baseball lobbied for the implementation of an international draft, which would have fixed amateur prices in countries such as the Dominican Republic and Venezuela. The union pushed back hard against a draft. And in the end, the two sides agreed to spending caps on signing bonuses in the international market, according to published reports.
Each team will have a signing pool, ranging from $4.75 million for big-market clubs, to $5.25 million for medium-market teams, to $5.75 million for the smallest teams, according to reporter Jon Heyman.
The Royals would likely fall in the latter group, though the specifics of the rules are not yet official. In addition, teams will be able to trade every dollar of their international pool, while being able to acquire up 75 percent of their own pool amount, according to Yahoo Sports’ Jeff Passan.
In the long run, the spending caps would presumably benefit small-market teams such as the Royals, which could be regularly outspent by the game’s richest teams, even if the new rules are a possible hindrance in the short run.
Under general manager Dayton Moore, the Royals built a championship roster with the help of a focused and investment-heavy international scouting operation. For many years, the club has been among the highest spenders in Latin America. The gambit tapped into a needed talent pool for a team that cannot expect to be annual players in free agency.
The Royals found Salvador Perez, Yordano Ventura, Kelvin Herrera and Cheslor Cuthbert in Latin America, though only Cuthbert signed for more than a $1 million.
In recent years, of course, spending has been limited by caps on yearly bonus pools — though teams were able to go over their allotment and serve a two-year penalty, which the Royals did in 2015. For now, it’s unclear if that penalty will be grandfathered into the new system. Under the old system, the Royals would have been restricted from signing individual players for more than $300,000 in 2017.
One thing, though, is clear: The spending will be capped even tighter.
Competitive-balance system
Unlike its counterparts in the NFL and the NBA, baseball has operated for decades without a salary cap, the freest market in a sports landscape where labor prices are often held into place. But even MLB has had some price controls. Since 2003, the sport has operated with a competitive-balance tax — a luxury tax that penalizes teams that surpass a payroll threshold.
The Royals, of course, have never approached the floor for the luxury tax. But the overall system still impacts their ability to compete in the marketplace, so the latest changes could have an effect on baseball in Kansas City.
In the previous collective-bargaining agreement, teams violating the threshold paid between a 17.5 percent to 50 percent tax on the difference between payroll and the luxury-tax limit. In the latest agreement, the tax will be incremental and could rise to as high as 92 percent, according to reports. But the payroll threshold — which is currently at $189 million — will reportedly rise to $195 million in 2017 and increase every year before hitting $210 million in 2021. Barring some unforeseen change in revenue or philosophy, the Royals will not hit those levels. But the system could serve to constrain salaries, narrowing the playing field.
New rules for injuries, same rules for rosters
During negotiations, the idea of the 25-man active roster increasing to 26 was bandied about. The increased roster spot could have allowed a team like the Royals to employ a specialist like speedster Terrance Gore on a full-time basis. But by late Wednesday, the roster rules remained the same. Teams will field a 25-man roster during the regular season before being able to expand it to 40 in September.
While the roster remained the same, the rules for the disabled list did not. The 15-day disabled list is out; the 10-day disabled list is in. The new rule could benefit hitters with a nagging injury or pitchers who can now go on the DL and return after missing just two starts.
Rustin Dodd: 816-234-4937, @rustindodd. Download True Blue, The Star’s free Royals app.
This story was originally published December 1, 2016 at 1:32 PM with the headline "How MLB’s new labor agreement affects the Royals, especially regarding free agents."