On Compensation

Well hey there!  Long time no see!  I have to apologize profusely about my lack of posts recently.  I hate to use school as an excuse but I’m doing my last term in undergrad and I certainly know where my priorities lie.  Won’t be as long until the next one, promise :).

During this off-season the issue of free agent compensation has been a focal point.  It slowed the beginning of the free agency period and it has delayed and decreased the value of players such as Orlando Cabrera, Adam Dunn, and Rafael Furcal.  Few teams seem willing to give up a first round pick for signing free agents and has thus deflated the value of said Type A players.  In recent years we have seen teams a) let Type A free agents go with less effort to resign for their compensation value, and b) sign as many Type A free agents in one off-season as they can to minimize the relative opportunity cost of each signing.  See: Oakland, Toronto 2006-07 off-season for part a, New York this past off-season for part b.

So first things first, why is there compensation to begin with?  When the players union fought to get free agency in opposition to the reserve clause, baseball was worried that it would just become a money grab and wanted to defend the advantage of the drafting team to retain their players.  So now we have things such as an exclusive negotiation period and Type A/B free agents.  Type A free agents was intended to benefit the lower fifteen teams and make players more inclined to stick with their previous team, which in a way this off-season has succeeded in the original intent.  Or has it?

Few players or agents predicted the bottom falling out of free agency the way it did or else many players would have agreed to the arbitration offer.  So the teams having the players did not tend to retain their services.  In addition, by having decreasing draft picks per free agent signing, the Yankees were able to grab up a slew of Type A free agents for relatively less each pick.  Since the opportunity cost was lower for the Yankees to sign AJ Burnett than, say, the Red Sox, the Yankees could afford to pay him more in real contract dollars – increasing the standard for the rest of the teams.

So not only are the players not retained by their teams it could be argued that the compensation system may be increasing the (seemingly) exponential salary growth of baseball’s top players.  I don’t think that’s what the owners wanted when they put the condition in.  The compensation system is rather flawed without even getting into how archaic the Elias Sports Bureau’s rating system is.

How does baseball fix this?  Baseball’s Collective Bargaining Agreement expires at the end of 2011 and there have been rumblings that this will be one of the issues the Major League Baseball Player’s Association will bring up during negotiations.  They could take cues from the other big three professional sports leagues in North America which have systems quite a bit different (just don’t ask me to explain the NFL’s).

Trade deadline day in hockey had be thinking a bit.  NHL players are traded to contending teams in exchange for draft picks as opposed to baseball where teams accumulate more draft picks by picking up those rent-a-players – NHL teams don’t gain compensation for losing free agents.  Their method leads to bigger drafts by the non-contending teams and worse drafts by competitive teams, presumably leading to faster team turnarounds.  It is a lot harder to value baseball draft picks however, and the NHL does have that new salary cap to clamp down on rampant salary inflation.

It’s a difficult question and I certainly don’t claim to have any answers.  I might post more later as I think about and discuss the concept.  Since we’re doing business analogues, any industry have anything close to similar?


One Response to On Compensation

  1. mvuavdun says:

    TbIBDr cimfvzkyksbs, [url=http://roqdostwkeuz.com/]roqdostwkeuz[/url], [link=http://tawebwsybeye.com/]tawebwsybeye[/link], http://xbplaanciivw.com/

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: