How Does Free Agency Work in Baseball? (Part 2 of 3)

11/10/2011

For the rest of our series on free agency:

Part 1: A history of free agency in baseball

Part 2: How free agency currently works in baseball

Part 3: Type A and Type B free agents and compensation

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Basics:

Players become eligible for free agency by having six years of service time (the amount of time on a 25-man major league roster) and not having an existing contract with a team. The free agency period begins the day after the World Series ends, and their current team has a 15 day window to exclusively negotiate with the player. Once the player files for free agency and the 15 day window closes, they are free to sign with any team, and for whatever price.

For more details on the Rule 5 draft, the arbitration process, and what makes a Super Two player, read more after the jump.

After the draft:

As a holdover from the Reserve Clause, players are bound contractually to the team that drafted them for three seasons, automatically resigning one year deals for each year. Because of this, players are rarely signed for more than the league minimum. After three seasons, the player must be placed on the team’s 40-man roster or be made eligible for the Rule 5 draft.

How does the Rule 5 draft work?

Baseball America as a great explaination for the Rule 5 draft on their FAQ page:

The Rule 5 draft takes place every year during the Winter Meetings. Players who are not on a 40-man roster and have four years of minor league service (five years if they signed when they were younger than 19 on the June 5 immediately prior to their signing) are eligible to be selected in the major league phase of the draft. In order for a team to make a selection, it must have an opening on its 40-man roster. Teams must pay $50,000 to select a player in the draft, payable to the team which loses the player.

Players selected must remain on the selecting team’s 25-man major league roster throughout the next season or be offered back to the team from which they were drafted (for $25,000).

Baseball’s arbitration process

Players become eligible for arbitration if they fall into one of the following categories:

  1. They have more than three years but less than six years of service time.
  2. They are a “Super Two” player (details below)
  3. A player that has more than six years of service time and has filed for free agency, but has been offered arbitration by the team and accepts the offer

The team must offer arbitration to the player by December 12, and they cannot offer less than 80% of the player’s salary the previous season and 70% of their salary from two seasons before.  There is no limit to the amount the player requests.  Provided a deal is not reached, the two sides meet in early February before a panel of three independent arbiters and both sides make their case.  After the arguments are made, the panel awards the player a one-year contract at one of the two listed salaries, and they cannot meet in the middle.  This winner-take-all approach helps to foster negotiation before arbitration is needed.  For an informative report on the arbitration process, Baseball Prospectus has a thorough and comprehensive look at the details in their archives.

What is a “Super Two” player?

A Super Two player is simply an exception to the rule that players are completely under team control during the first three years they are with the team, meaning that a limited number of players with less than three years of service time are also eligible for arbitration.  They qualify as a Super Two player if they accumulated at least 86 days of major league service time the previous season, and they were in the top 17 percent of playing time of players in their class (those players who also have between two and three years of major league experience). Phew. Because of this, the cutoff can change from season to season, but historically players with more than two years and 128 days are classified as Super Two players, and thus are also eligible for salary arbitration that offseason.

Free Agency and Compensation

The compensation process will be covered in Part 3, including how Type A and Type B free agents work.