The basics of free agent compensation have been rehashed across the internet, however there are some more subtle things with the new CBA, that dramatically effect the draft, and especially draft strategy.
Qualifying Offers: A team can extend a qualifying offer to any of their free agents who have been with the team for the entire season equal to the average of the Top 125 salaries (in 2012 this was $13.3 million), the player had until Friday to accept that offer (just a one year contract) or reject it and become a free agent.
Free Agent Compensation: Any team that signs a player extended a qualifying offer forfeits their first round pick (if it is outside the Top 10) or their second round pick (if their first pick is within the Top 10). Their old team receives a pick at the end of the first round.
Where it Gets More Complicated:
The New Compensation Round: The first thing that is different is that the supplemental first round is gone. In 2012 there were 29 supplemental picks between the first and second round. The new compensation system reduces this number, every time a player is signed a draft pick is removed when a draft pick is added. The only way that additional picks will be added into the draft is if a team signs more than one free agent who declined a qualifying offer, in that case the team will forfeit their pick and each team who lost a free agent will receive a compensatory pick.
Following the free agent compensation picks will be six competitive balance picks that were selected in a lottery. These pick are tradeable between teams, but only during the regular season and a pick can only be traded once. After the second round an additional six competitive balance picks are awarded.
Not counting compensation picks for failing to sign a drafted player in the first three rounds (which are now protected for an additional year), there will be at most 20 added picks into the draft (this is contingent on a single team signing all of the free agents), but it is likely that there will be 12-15 additional picks in 2013, a dramatic decline from 2012. This means a second round pick is now more valuable, the second round pick obtained from Cincinnati used to select Dylan Cozens was pick #77, the Phillies second round pick this year is pick #52.
Draft Pools: Under the new CBA each team is award a draft pool to spend on their first ten rounds of picks (plus any over $100k spent on players after the 10th round). The draft pool while it can be spent to sign any player has a certain amount assigned to each pick. This means if a pick is forfeited due to compensation the pool amount assigned to it also is eliminated, additionally if a drafted player is not signed, the value associated with that pick is also removed from a team’s draft pool. A team can exceed their pool by up to 5% of their total pool value and only incur a 75% tax on the overages, any over 5% causes the forfeiture of up to two future first round picks.
How This Affects the Phillies:
The Pick: The 16th overall pick is a valuable commodity but has attached risk. The player selected still must make it through the developmental process with enough actualized skills to contribute on the major league level. However, the player holds value as a commodity for trades and future moves to help the major league roster. The 16th pick of the 2012 draft was Lucas Giolito, who on tools alone would be the #1 prospect in the Phillies system, with his injury concerns he would still be a top 3 prospect in the system. The 16th pick does not always yield a superstar, but more often than not the player available will possess the raw tools to be a well above average major leaguer. The selected player’s ceiling is likely close to that of the free agent being signed, however if that player comes up through the system the Phillies would have them at a much lower rate than the free agent and under club control for 6 years.
There is large inherent risk with each draft pick, more so than exists with a free agent with a larger sample size of data.
Additionally the pick could move up as high as #11 if the teams in front of the Phillies forfeit their pick (Mets, Mariners, Padres, Pirates, and Diamondbacks).
The Draft Pool: (All numbers are from the 2012 draft pick allotments, 2013 figures have not been released) For the 2013 draft the Phillies draft pool is $5,601,800, the allotment assigned to the #16 pick is $2,250,000. If the Phillies were to forfeit their pick in signing a free agent their total draft pool would drop to $3,351,800 to sign their first ten picks (rounds 2-10, with a pick in the third round for failure to sign Alec Rash).
With the pick the Phillies have a choice at #16, they can take a player who will be overslot and sign college seniors towards the end of the Top 10 rounds to save pool money, they can take a player at slot and continue on through the rounds with that strategy, or they could take a slightly lesser player (but still a solid first round talent or even a guy the Phillies rated higher but would sign for less such as the Astros and Correa in 2012) and save a couple hundred thousand dollars towards signing a better player with one of their later picks.
If the Phillies forfeit their pick it greatly reduces their ability to consider working any overslot moves later in the draft. The Phillies have been good at getting good talent for slot, but it would restrict their flexibility if a player falls that they did not think would be available. This is magnified by how much earlier the second round is, the Phillies second round pick #52, would previously have been in the supplemental first round, their two third round picks #89 and #96 are equivalent to previous second round picks.
Just thought I would get some discussion going on more than the superficial forfeiture of just a first round pick. It is more than just the player who could be select there, it has implications throughout the draft, especially without the means to make up for lost picks with either overslot spending or compensation picks from fringe players.