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Draft Kings: The Royals And The New CBA

Sean M. Haffey - Getty Images

Thanks to baseball’s most recent Collective Bargaining Agreement, the Royals can essentially go all in and rebuild - at the same time.

The Kansas City Royals are going for it in 2017.

After a pennant in 2014 and a World Series ring in 2015, the Royals fell to third place in the American League Central. That decline instigated some whispers around the league that KC would be willing to deal a few of their championship cornerstones. After all, the small-market Royals probably cannot afford to bring back even one of Eric Hosmer, Mike Moustakas, or Lorenzo Cain. If the 2017 season looked like a lost cause, the Royals likely would have attempted to deal their stars and accelerate their rebuild.

However, on the strength of a nine-game winning streak, the Royals currently hold the second Wild Card spot and are within striking distance (2.0 GB) of the Cleveland Indians for first place in the AL Central. Not only have they kept their core, but they also acquired pitching help from the San Diego Padres (including the intriguing Trevor Cahill) on July 24th. Closer to the deadline, on July 30th, KC then acquired outfielder Melky Cabrera from the Chicago White Sox.

With a Pythagorean W-L record of exactly .500, the Royals were not three mediocre pitchers and an aging left fielder away from turning into a powerhouse capable of dethroning the Houston Astros. Given their commitment to 2017 and consequently, their retention of Hosmer, Moustakas, and Cain, the Royals definitely become a far more interesting team. Once the offseason begins, Kansas City will be the first real test case for free agent compensation under baseball’s new Collective Bargaining Agreement.

Image titleTony Dejak - AP Photo

CBA Background

Major League Baseball and the MLB Players’ Association agreed upon the current CBA this past December. This new labor agreement will run for the next five years, and is responsible for some of the visible changes in the formatting of the league today. For instance, the 10-day disabled list (replacing the 15-day DL) came about in the 2017 CBA. A full list of changes can be found here.

This past month, perhaps the most-discussed change was that the All-Star Game would no longer determine which World Series team would receive home field advantage. However, the changes to draft pick compensation have subtly altered the landscape of the July 31st non-waiver trading deadline.

In the last CBA, an upcoming free agent who accrued a full season’s worth of service time with one team could receive a qualifying offer at the end of the season. This one-year contract would be worth the mean value of the top 125 contracts in the game, which last year was valued at $17.2 million. If said free agent declined the qualifying offer and signed with another team, that player’s old team would receive a draft pick either at the end of the first round or in a compensation round between the first and second rounds of the June draft.

That a potential first-round pick was attached to a player drove down the market for several free agents. Just consider the saga of Dexter Fowler: at the end of 2015 season, he rejected the Chicago Cubs’ qualifying offer of $15.8 million; after months of mild interest from other teams, he re-signed with the Cubs for one year and just $8 million. You can blame that on Fowler, his agent, or just the way the market shifted from November to February, but regardless it was an element of uncertainty that the Players’ Association grew to dislike.

Under the new CBA, the qualifying offer works a little differently. It is still a one-year deal worth the average of the top 125 contracts in the game, but compensation has undergone a dramatic change. The long version is here. The condensed version is that compensation depends on the luxury tax or revenue sharing status of the offering team and the total contract amount of the signed free agent.

As a quick rule of thumb, the Draft pick compensation breaks down like this:
*General rule: Compensation after Comp Round B
*Exception 1: Team paid luxury tax = compensation after fourth round
*Exception 2: Team received revenue sharing AND free agent signed for more than $50M = compensation after the first round – Anthony Castrovince, MLB.com

These adjustments are best explained in a real-world demonstration. On July 18th, the Detroit Tigers sent outfielder J.D. Martinez to the Arizona Diamondbacks for three prospects. Industry reactions to the Tigers’ prospect haul were underwhelming, to say the least. Sure, Martinez was a two-month rental, but he was also one of the best available hitters on the market before the trade. Why was he acquired so cheaply?

One answer, among many, is the compensation changes from the new CBA. The Tigers’ payroll is above the competitive balance tax threshold of $195 million. Under the new CBA, should a Tigers free agent – like Martinez – reject a qualifying offer, Detroit would receive compensation in the form of a draft pick at the end of the fourth round. At minimum, that is some 90 picks later than compensation under the old CBA. Detroit held such minimal leverage while shopping Martinez that it depressed the trade market value of a premier deadline bat.

So barring a change to the team’s payroll structure, general manager Al Avila can’t tell his counterparts that he’s prepared to hold onto Martinez for the purpose of collecting a high pick in the 2018 MLB Draft. The Tigers’ payroll is too large for him to do so. And that is yet another consideration at Trade Deadline 2017 that never mattered much before. – Jon Paul Morosi, MLB.com

The Role of the Royals

Given the impact of the new CBA, what makes the case of the Royals so intriguing? Put simply, KC is the anti-Detroit. Besides the obvious buyer-seller dichotomy, the Royals are one of 16 revenue-sharing recipients (according to Jon Paul Morosi). If another team signs one of their qualifying offer-rejecting free agents for a deal greater than $50 million, they will receive a draft pick between the first round and Competitive Balance Round A. Because of their status as a small-market team, the Royals have the advantage of the best possible compensation type for any lost free agents.

And you can bet the Royals have upcoming free agents. Hosmer, Moustakas, and Cain headline a group that also consists of All-Star lefty Jason Vargas and shortstop Alcides Escobar. Though Vargas has been sharp, his advanced metrics (4.08 FIP and 4.91 xFIP) reveal a worse pitcher who, at 34 years old, is not exactly an enticing arm (and who may very well fade down the stretch). As for Escobar, well, his .254 OBP and 47 wRC+ in 2017 probably do not earn him a one-year contract of about $18 million from any team. Nevertheless, Kansas City still controls three free-agents-to-be who merit qualifying offers and will likely score contracts greater than $50 million.

Image titleJay Biggerstaff - USA Today Sports

Because of Kansas City’s small payroll ($139.7 million) and limited flexibility for next season (about $123 million committed, per Baseball-Reference), chances are Hosmer, Moustakas, and Cain will not be wearing Royals blue come 2018. But that is not bad by any stretch for the Royals. If all three receive qualifying offers, reject, and then sign $50+ million deals elsewhere, Kansas City will have four of the top 40 draft picks next June. Sounds like a good rebuilding blueprint to me.

For those looking forward to a Royals rebuild (and eager to see them make a postseason push in 2017), there are still some potential speed bumps in the plan. For one, Kansas City’s payroll inflexibility might caution them from extending many qualifying offers. If they keep the same payroll (noted above), they have just $17 million to work with, which is slightly less than the expected qualifying offer amount. The Royals could probably afford for one player to accept the contract, but their payroll would not survive a doomsday scenario in which two or three of their upcoming free agents accept. The franchise’s monetary situation could be even worse, if we believe Ken Rosenthal’s report from last winter that the Royals’ breakeven point is a payroll of just $120 million.

Second, each of their core stars has a question mark or two surrounding them that might jeopardize a deal of $50 million or greater. Eric Hosmer, a Scott Boras client, does not have the offensive track record to justify the mega-contract he supposedly desires. Mike Moustakas represents legitimate home run power, but Mark Trumbo of the Baltimore Orioles cracked a league-leading 47 long balls last year and did not even get a contract of $40 million. Moustakas plays a more premium position and is a competent defender, which is more than Trumbo can say, but the point stands that power is not as expensive as it used to be. Lorenzo Cain has some injury history (just one season above 600 plate appearances) and his elite outfield defense has seen some decline over the past four full seasons. He is also the oldest of the three (31, versus 28 for Moustakas and 27 for Hosmer).

If these factors scare off a few teams and Hosmer, Moustakas, and/or Cain do not reach the $50 million mark, the Royals will still benefit from a draft pick after Competitive Balance Round B (following the second round). Obviously that is not as strong of a return as a first-rounder, but if you are the small-market Royals you have to take whatever assets you can to get back to contention. On balance, the respective positives of Hosmer, Moustakas, and Cain outweigh their flaws, so it is a safe bet that they could A.) reject their qualifying offers and B.) sign a more substantial deal elsewhere.

Image titleSteve Nesius - AP Photo

Concluding Thoughts

For now, the Royals are in the pennant race and committed to win in 2017, and that is exciting! It is a nice side effect of the new CBA, which overall seems to encourage financially weaker teams to spend more time, well, spending. After this season, the Royals might try to keep one of their cornerstones, but if all else fails they can accelerate their rebuild with excellent drafting positions.

Although Moneyball advised against small-market teams drafting high school players, the 2018 draft might be a good time for the Royals to risk on this volatile commodity. With the Alex Gordon albatross contract in the short-term future and several subpar seasons on the horizon, they might be able to stock up on younger prospects now and draft more projectable college players over the next few years. Should the pieces fall together, the Royals might harvest a crop of young talent similar to the dominant Astros or Cubs.

Regardless of how the Royals implement their rebuilding strategy, they are in a great position to put together another elite core. Next year might be a frustrating one in Kansas City, but we might get another Royals revival a few years down the road. Similarly, time will tell if other low-revenue teams replicate KC’s schema under the latest CBA.


All statistics/salary information are accurate as of July 31st, 2017 and, unless otherwise noted, were obtained from Baseball-Reference, FanGraphs, and MLB.com, respectively.

Edited by Jeremy Losak, Amelia Shein.

SQuiz
In what year did a player(s) first accept a team's one-year qualifying offer?
Created 8/2/17
  1. 2013
  2. 2014
  3. 2015
  4. 2016

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