Photo via Sportsnet
Background:
Most individuals who follow baseball have heard the term “qualifying offer,” but likely do not know what the term entails. The qualifying offer is a competitive balance measure implemented in the 2012-16 Collective Bargaining Agreement (CBA), restructured under the 2017-21 CBA and it remains in place for the duration of the current CBA that runs through 2026.[1] The qualifying offer allows clubs to receive compensatory draft picks for the loss of a free agent who does not accept a one-year “qualifying offer,” worth the mean salary of MLB’s 125 highest-paid players prior to the onset of free agency and only if: 1) that player has never received a qualifying offer previously in his career; and 2) that player spent the entire season on that club’s roster.[2] The player is given 10 days to accept or decline the qualifying offer and in that timeframe he is able to negotiate with other teams to gauge his market value, but if the offer is rejected the player proceeds with the typical free agent process.[3]
A club that gives a player a qualifying offer that is declined receives draft pick compensation. If that player signs with another club, that club gives up one draft pick as a penalty for signing the player. Something that may seem like a pleasant surprise for players set to hit the free agent market this off-season is that the qualifying offer is at an all-time high. However, free agent players tend to feel the qualifying offer undermines their value.
Current Outlook on the Qualifying Offer:
This year’s qualifying offer is set at $19.65 million, which is the highest it has ever been set. The qualifying offer changes on an annual basis because it is an average of the salaries of the 125 highest-paid players in baseball, and naturally as salaries increase with inflation and increased revenue in baseball, this leads to a direct relationship with the qualifying offer.[4] Although the offer is at its highest, the qualifying offer has not been universally liked by players and their agents. Players have found it to be a tool that limits their market, which is why top free agents typically reject the qualifying offer, but on the other hand, some players accept the offer as financial protection if their previous season was looked at as a down year or if they were injured.[5] Something to keep an eye on this offseason will be if players are more apt to accept the qualifying offer since it is the highest in the sport’s history, and whether teams are as willing to use the qualifying offer to keep their pending free agents.
Future of the Qualifying Offer:
There were talks in the last CBA negotiation to eliminate the qualifying offer. Under the terms agreed to in the current CBA, MLB and the MLBPA had the opportunity to agree on the implementation of an International Draft (explained more here) by July 25, 2022, which would have eliminated the qualifying offer system starting in the 2022-23 offseason.[6] However, the two sides did not agree to terms by the deadline and because of this the qualifying offer system will remain for the duration of the current CBA. It is likely 2026 (when the current CBA expires) will be the last time the sport uses the qualifying offer because of the International Draft’s importance to strengthening competitive balance in baseball, and the emphasis the league put on it during the previous CBA negotiations.
[1] https://www.mlb.com/glossary/transactions/qualifying-offer
[2] Id.
[3] Id.
[4] https://www.mlbtraderumors.com/2022/10/qualifying-offer-set-at-19-65mm-for-2022-23-offseason.html
[5] Id.
[6] https://www.mlb.com/glossary/transactions/qualifying-offer
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