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Can you explain how the free-agent compensation process works?

Can you explain how the free-agent compensation process works?

Every offseason, the Elias Sports Bureau compiles rankings of all major league players, based on the previous two years' stats. The players are ranked by position groups: catchers; designated hitters, first basemen and outfielders; second basemen, third basemen and shortstops; starting pitchers; and relief pitchers. The players are then broken down into Type A, Type B and unranked free agents.

Type A players are players rated in the top 20 percent of all players at their position. Type B players are players rated in the 21-40 percent bracket at their position. Because players are only compared to others at similar positions, some players might be a Type A but seem to be not as good as some Type B players, etc., but that's how the system works.

When a team loses a free agent who is ranked in one of the two categories, it receives compensation as follows (if and only if it offered the free agent arbitration before he signed with his new team):
  • Type A: Team losing player gets signing team's first-round pick as well as a supplemental first-round pick. If the signing team is picking in the first half of the first round, it loses its second-rounder instead of their first-rounder.
  • Type B: Team losing player gets a supplemental first-round pick.
If a team doesn't offer arbitration to its free agent, it gets nothing when he signs with another team. This brings up the next question of why don't the teams always offer arbitration? The answer is, they might simply be afraid he'll accept it. It's a gamble some teams aren't willing to take, even if it seems likely the player is heading out of town.