Eliminating the Qualifying Offer Isn’t Worth Much

© Dale Zanine-USA TODAY Sports

The baseball season is back! Rejoice! No time for bad feelings – it’s a celebration, and we’re all invited. I don’t really think the rest of this article is something you have to read right now, but I’ll level with you: I had already done the research for it, and it’s worth writing about, so before we descend into a non-stop festival of free agent signings and trades, you’re getting an article about a decision that the MLBPA won’t have to reckon with for a few months yet.

Before we got a merciful end to the CBA back-and-forth, a deal was proposed by MLB that would institute an international draft in exchange for eliminating the qualifying offer system. One detail of the reporting on this issue bugged me: at least one “industry source” gave an estimate for the value of the QO system that I found hard to believe:

I don’t doubt Drellich’s reporting, but that number sounded wildly high to me. A single-digit group of players receive the qualifying offer each year; they’d have to be losing $10 million per player to make the math make sense. The draft picks that teams surrender to sign those players aren’t worth that much. The highest possible estimate for the cost of those picks comes in around $8 million per player, and that’s for teams with a luxury tax bill (or CBT, if you’re into acronyms).

To settle this question, I decided to look at all of the free agents who have received qualifying offers since the first year of the current QO system, the 2017-18 offseason. I’ve previously estimated what teams pay per WARin free agency, which gave me a useful database to start the investigation.

In each year, I split the set of free agents into two groups: players who received a qualifying offer and players who didn’t. I removed relievers from both groups, as the relationship between WAR and salary is different for relievers and might confound the results. In the non-qualifying-offer group, I also removed players projected for less than 2 WAR; as my previous work showed, players projected to be above-average (a subset that includes players who receive qualifying offers) are paid at a higher rate per win in free agency. To get a fair sense for how much the qualifying offer “costs” the players who receive it, we need to compare them to the correct cohort.

With the players divvied up, I took their preseason Steamer projection in the year they signed their contract, assigned a generic aging penalty for the years of their contract where they’re expected to be in decline, and used the contract terms to work out how much money each player received per projected WAR. Let’s take Justin Verlander as an example. This year, he’s projected for 3.5 WAR per Steamer. Next year, he’ll receive an aging penalty; I applied a 0.4 WAR penalty each year starting with a player’s age-29 season. That means I projected him for 3.1 WAR in 2023, and 6.6 WAR over the two years of his contract.

Verlander received a two-year, $50 million contract. $50 million divided by 6.6 WAR is $7.6 million per projected win above replacement. I ignored the player option in his contract, and ignored options and opt outs in all contracts; this makes for simpler analysis, as the values of those clauses are subjective. This adds a potential error to my calculations, but I deemed it an acceptable shortcut. I repeated this calculation for every player in both groups.

This gave me an estimate for what $/WAR players without the QO received, an estimate for what players with the QO received, and the difference between the two. From there, I multiplied that $/WAR differential by the amount of WAR the QO-receiving group was projected to accrue over the length of their contracts. The results:

Qualifying Offer Effect
Offseason Non-RP QO’s Non-QO QO Difference % Difference Total Dollar Effect
2018 7 $9.3 M/WAR $8.8 M/WAR -$0.5 M/WAR -5.4% -$26 M
2019 6 $7.9 M/WAR $6.8 M/WAR -$1.1 M/WAR -13.9% -$91.7 M
2020 9 $9.5 M/WAR $9.5 M/WAR $0 M/WAR 0% $0 M
2021 6 $5.4 M/WAR $7.0 M/WAR $1.6 M/WAR +29.6% $112 M
2022 6 $8.4 M/WAR $8.4 M/WAR $0 M/WAR 0% $0 M

Well, that’s certainly not what I expected! The effect is quite small overall, and if you take the 2020-21 numbers at face value, players receiving the qualifying offer have actually made more money per projected WAR than their non-qualifying offer compatriots. That offseason was one of the strangest in recent memory, and players who accepted the qualifying offer did quite well relative to the rest of the market, so there are perhaps reasons to ignore or downplay that data point. Even if you don’t trust that one, however, there doesn’t appear to be much of a qualifying offer penalty on average.

There are plenty of potential problems with this analysis. For one, the sample size is quite small. For another, a few players where Steamer’s projections – or my extrapolation of them – disagree with industry consensus could drive the results one way or another. I compared this against the ZiPS projections as a quick check, though, and the results were roughly the same. There could be a cohort effect where the types of players who receive qualifying offers tend to be valued more highly by teams than by public projection systems. There could simply be a bias towards star players receiving a higher rate in deals than we’ve forecasted, though there are plenty of star players in both groups – there’s not a clear tilt one way or the other in terms of projected WAR per player.

That’s just me hedging, though. I think the takeaway here is that the qualifying offer doesn’t have much of an impact on free agent compensation. It sounds unlikely, but there simply isn’t much evidence of a large effect, or really much effect at all. Of course, there are individual instances of players who lost out due to the qualifying offer – think of Mike Moustakas, who ended up making $8.7 million in 2018 after turning down the QO, or Dallas Keuchel, who ended up not signing until midway through the season and inked a one-year deal worth $13 million.

But Moustakas and Keuchel both did okay for themselves in the end. Moustakas took another one-year deal worth $10 million and then got a four-year, $64 million deal the next year. In aggregate, he got $82.7 million for a projected 7.2 WAR, a $11.5 million-per-WAR rate that outstripped average payouts over that time period. Keuchel signed a three-year, $55.5 million deal that paid him $9.4 million per projected WAR after that season – he didn’t leave much on the table despite that abbreviated 2019 season.

Those subsequent contracts weren’t included in my analysis of the cost of a qualifying offer, but I think they’re instructive. Moustakas and Keuchel are cautionary tales about how a QO tag can chill the market for a player, and they both ended up making a boatload of money anyway. The offer was a one-year bump in the road, but it didn’t derail their careers. Craig Kimbrel is another oft-cited name. I excluded him from my study because he’s a reliever, but he signed a three-year, $42 million contract, accrued 1.2 WAR (1.7 RA9-WAR, if you’re against FIP for relievers), and then got another $16 million when the White Sox picked up his club option. It doesn’t sound like his market ended up being all that chilled, does it?

It’s unlikely that there’s no qualifying offer penalty at all, but I think a fair estimation of its magnitude lands in the $10-$20 million per year area, and I wouldn’t be shocked if it even came in a bit lower than that. There simply isn’t much indication that players suffer lasting harm from it. Superstars get paid anyway, and average players who see their long-term markets vanish due to a qualifying offer can take a short-term deal and try their luck again the next year.

If you’ll allow me to editorialize for a moment, I just don’t see much point in fighting for these particular marginal millions. The union won a number of concessions from MLB in this CBA that I think will make the game better for players and fans. Higher minimum salaries and a pre-arbitration bonus pool will get money to high-performing players more quickly, and ensure the rookies and short-career players who have become baseball’s workhorses better pay. The higher competitive balance tax thresholds should help provide a market for the middle relievers and decent bats who have been increasingly squeezed out by teams leery of going over the tax line. These are helpful changes for the union’s constituency.

Relative to that, the QO is small potatoes. It only affects a handful of players every year, and those players have, by definition, gone through arbitration three times and received a contract offer worth more than $15 million. The whole millionaires-versus-billionaires dichotomy is tired and misleading, but the union members receiving qualifying offers weren’t the ones getting left behind by the game’s recent trends.

It’s possible that the union understands this, which is why they’ve put it to the side until they have more time to talk about the international draft, an issue that a large chunk of the union’s membership feels strongly about. But I can’t get that Drellich report out of my head. Estimating the qualifying offer at $100 million per year makes it feel like a huge bargaining chip. Estimating it at $50 million still makes it feel like a meaningful one. But it just doesn’t seem to be.

Eliminating the qualifying offer likely wouldn’t change compensation by that much, and even if it did, that compensation wouldn’t go to the groups the union prioritized in the recent CBA negotiations. If they have a philosophical opposition to the QO, fine. It’s an artificial constraint on salaries, and unions generally don’t like those. But as a practical matter, it’s nothing more than a cosmetic change, no matter what industry sources say.

Ben is a writer at FanGraphs. He can be found on Twitter @_Ben_Clemens.

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5 months ago

unexpected! great analysis Ben