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How the new free agent compensation system works

By Dayn Perry | Baseball Writer
How will MLB's new compensation system affect teams that lose a marquee free agent like Josh Hamilton? (Getty Images)

One of the most important changes brought about by MLB's new collective bargaining agreement has to do with how teams are compensated for losing free agents. Since we're up against the free-agent signing period, let's take a look at those new rules and how they compare to the old ones.

Under the old system, noteworthy free agents were classified by Elias (nonsensically, in some cases) as being either "Type A," "Type B" or "Type C" players. Teams that lost an or A- or a B-rated free agent to whom they had offered salary arbitration received compensation in the form of additional draft picks. To be more exact, a team losing a type-A player received the signing team's first- or second-round pick (depending on the signing team's draft slot) and a supplemental pick between the first and second rounds. A team that lost a type-B player was given a supplemental choice only. The loss of a type-C resulted in no compensation.

The system now in place doesn't entail any arbitrary classifying of free agents. Instead, a team that wishes to receive compensation must submit a "qualifying offer" to the outgoing free agent. A qualifying offer constitutes a one-year proposal worth at least the annual average salary of the top 125 free agents from the previous winter. For this offseason, that comes to a one-year offer of $13.3 million.

If a team makes such a qualifying offer to an outgoing free agent and the free agent signs elsewhere, then his former team will receive a sandwich draft pick between the first and second rounds. The signing team, meanwhile, will forfeit its first-round choice -- unless it's a top-10 pick, in which case the team would give up a second-round pick. The lost picks don't go to any other team; rather, the teams behind the vanished pick all slide up a slot.

One other important change is now in place: To be entitled to compensation, a team must now have a departing free agent on its roster for the entirety of the season. Under the old framework, a team that acquired a walk-year player at, say, the non-waiver trade deadline could offer that player salary arbitration at season's end and thus be entitled to compensatory draft picks. That's no longer permitted.

For example, in previous years, the Angels would be compensated in the event that Zack Greinke signed elsewhere (provided, of course, they offered arbitration to him). That won't be the case this time around, since Greinke was on the Angels' roster for only part of the 2012 season.

So ... got all that?

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