May 23, 2011
by Serenity Summers

The compensation system originated all the way back in now-defunct Major League Baseball (MLB).  For better or worse, this concept followed the grass root path to the PEBA.  Out of the four major sports, baseball is the only sport that does not employ a salary cap system.  For those not too familiar with the business side of sports, a salary cap is a limit on the amount of spending a team can spend on player salaries.

The goal of a salary cap is to promote parity and widespread competitive balance.  In the world of professional sports, it is odd to think that a league and its owners would want such an artificial system.  Sports and athletic competition are all about Darwinism, right?  It is survival of the fittest.  Time over time, you see it.  In the boxing ring, it is mano-a-mano.  It’s my best punch versus yours.  Only the strongest will survive.  In the trenches, it’s one 300 pound man versus another.  On the diamond, it’s just pitcher versus batter.  His best stuff versus yours.  As a child, sports taught you self-discipline and toughness.  This is what sports is all about and why we love it so much.

In the world of sports where the strongest survive, why devise such a crazy, artificial concoction known as the salary cap?  From afar, you would think a salary cap has no place in sports.  A salary cap represents everything that is not sports.  One of the primary selling points of the salary cap is the promotion of league-wide parity.  That’s odd, is it not?  Sports are all about your best versus my best.  Then why promote parity?

Instead of a salary cap, baseball uses a combination of the luxury tax and free agency compensation system.

Here’s how the new compensation works in 2011 (a change from how things worked last offseason):

• Type A: The player’s original team receives a sandwich round pick along with the highest available pick of the signing team. Picks in the top half of the 1^st round are shielded from compensation.

• Type B: The player’s original team receives a sandwich round pick.

Before MLB went belly up, the compensation system has been debated ad nauseam.  Opponents of the compensation system claimed that the system is unfair.  Arguments included:

• Type A/B ranking system is poorly implemented
• Type A and B free agents unable to find work
• Compensation system does not fairly compensate draft picks
• Relievers are overvalued
• Compensation system hurts competitive balance

Not surprisingly, it can be debated that the PEBA can house the same arguments.  Let’s examine last season’s free agent crop.  For the sake of semantics, any reference to market size will be used in relation to the fiscal budget (> $100 million) rather than the team’s city population or media market.

The Aging Free Agent: SP Kirby Gibson – 37 years old, Type A free agent (see also: Bernardo Marín, Christos Douglass and Dan Mosley)

An aging veteran, Gibson had the best season of his career in 2010.  His 2.55 ERA and 64.4 VORP were all career highs.  Despite his phenomenal season, Gibson’s demand was fairly lukewarm in the offseason.  He was signed just several weeks before Spring Training.  His market was limited by several reasons:

1. Big-market/top-tier teams – A majority of big-budget teams were already at the tip of the iceberg of their budget.  Teams like Aurora, Palm Springs and Charleston were already against the budget barrier.  Moreover, these teams already had good starting pitching depth, so the prospect of spending top dollar for a top pitcher was probably not all too appealing.  One of the few top-tier teams that had budget room and interest was Crystal Lake.  Crystal Lake opted to sign 36-year-old Kiyoemon Takeda of the LRS instead.  Perhaps Crystal Lake felt Takeda was the better pitcher, or perhaps the prospect of signing Takeda without compensation was more appealing than signing Gibson and his type A status.  Maybe it was a combination of both.  Like Crystal Lake, Bakersfield opted to sign quality starters Roberto Alonso and Akihisa Yamamoto without compensation.

2. Small-market teams/bottom-tier teams – It did not make much sense for Yuma or Kentucky to sign Gibson.  Gibson’s salary demands were too high to appeal to these rebuilding teams.  Moreover, Gibson’s age guarantees that he would not be able to stick around to help a team rebuild.

3. Mid-market teams – Gibson should have attracted this group of teams the most.  Unfortunately, Gibson’s age and type A status hurt him here.  Not having as much money as the Big-market teams, mid-market teams rely on efficient spending and building from within via the draft.  At 37 years old, Gibson’s pitching longevity was definitely a factor for GMs to consider especially those who knew they would have to give up a draft pick just to sign him.  Would a team risk losing a number one draft pick only for Gibson to pitch a season or two?  At least one team did not think it was worth it.  Rather than sign Gibson for a year or two and give up a draft pick, Florida went out on the trade market to acquire Cedric Mosley.  Despite giving up more value than a first rounder, the deal gave Florida security and value in knowing that Mosley would be pitching for the team for two seasons.  After two seasons, the team can either resign him or trade him.

This example shows how valuable draft picks can be – especially to mid-market teams.  If Gibson was 27 instead of 37 years old, perhaps more mid-market teams would have been interested.  It would have been easier to give up a draft pick if there was a chance Gibson could pitch more than 2 seasons for a signing team.  It also shows how poorly the ranking system is implemented.  Should a top-tier 37-year-old free agent pitcher have the same value as a top-tier 27-year-old-pitcher?  It also shows how a top talent can struggle to find work.

Mr. Gibson had to wait just weeks before Spring Training to get signed.  Who signed him?  Mid-market Manchester.  This signing made a lot of sense.  Unlike Florida, Manchester did not have to worry about losing a potential first round draft pick.  Finishing in the bottom half of the standings, Manchester was not obligated to give up a 1^st rounder.  Playing in the tightly competitive Pan-Atlantic and having gone from first-to-worst in one season, Manchester obviously believed it could easily go from worst-to-first in a span of a season.  The signing of Gibson would certainly help Manchester make a return trip to the playoffs.

The Overvalued Reliever: CL Andrew Sepkiechler – 31 years old, Type A free agent (see also: Dan Mosley and Christos Douglass)
Relief pitching and first base are probably the two positions that have the most surplus of talent and are readily replaced.  That is why you rarely see relief pitchers or first basemen get top dollar unless they are in the upper echelon of their job (Ramón Flores and Juan Suárez, for example).  You rarely see these positions get drafted in the top ten unless they are the cream of the crop.  Sepkiechler is what you considered an upper echelon closer.  He recorded 30+ saves for three consecutive seasons is a former All-Star.  But like Gibson, he did not receive many suitors.

1. Big-market/top-tier teams – Often times, bullpen is a luxury area and the final piece for top-tier teams to round out their roster.  That is why relievers are often traded during the season as teams try to squeeze out that extra ounce of competitive edge (see Aurora and their acquisition today of Héctor Pinto).  These top teams could certainly use a dominating closer like Sepkiechler or a premiere setup man in Christos Douglass.  Most likely, the thought of losing a 1^st round pick for a reliever was not even good value for these ostentatious teams.

2. Mid-market teams – A lot of mid-market teams could use another quality arm in the bullpen, but it is very rare that a mid-market team’s only pressing need is in the bullpen.  There are usually more important leaks in the roof to fix.  The prospect of losing a draft pick for a reliever is not too appealing, either.  If a mid-market team is willing to lose a draft pick to a free agent signing, the team will most likely look for a more premium position than relief pitching.  Fargo chose to give up its 1^st rounder to sign OF slugger Pedro Silva.  Manchester gave up a 2^nd rounder to sign type B free agent SP Jesús González.  Rather than lose a draft pick, Florida decided to sign LRS reliever, Osamu Kohara.

3. Small-market teams/bottom-tier teams – Relief pitching is a pretty good area for small-market teams.  A good quality reliever can help improve a team without breaking the bank.  Furthermore, bottom-tier teams do not have to worry about losing a valuable draft pick since these teams are in the bottom half of the standings.  Christos Douglass was signed by Kentucky and has helped boost the team’s bullpen tremendously (ranked 3^rd in the IL in bullpen ERA).

This case is a good example of how draft picks are valued more than a reliever.  Even the great Sepkiechler could not find a job.  He eventually settled for resigning with Gloucester, which of course did not have to worry about losing a draft pick for compensation.  It shows how much relievers are worth in baseball.  Sluggers like Silva and steady starters like González are worth the compensation gamble, but relievers are generally not, regardless of age.  Dan Mosley was unable to find work in the PEBA and had to turn to the Alianza Béisbol Al Sur de la Frontera.  This is another example of how convoluted the compensation rating system is.  Should Mosley, who only appeared in 58 games last season, be worth the same as Silva, who played in 156 games?

The Overrated Free Agent: 3B Bob Petersen – 33 years old, Type A free agent (see also: Theodore Boyd, Anthony Pace, Brian O’Donnell and Rocky Reed)
This list could go on and on.  There are many quality free agents who are great but not spectacular.  These players show flashes of brilliance coupled with question marks.  One such example is ex-Bear Bob Petersen.  Petersen had a career year in 2010 offensively, hitting a career best .293.  A former All-Leather recipient at the hot corner, Petersen is considered a quality player but not necessarily a perennial All-Star.  Prior to the 2010 season, Petersen posted sub-.300 on base percentage seasons in 2008 and 2009.  History showed that 2010 was a career year and perhaps an anomaly.  At 33 years of age, it is unlikely Petersen could consistently repeat his 2010 numbers for the next few seasons.  Despite the question marks, Petersen and his agent were seeking top-tier free agent money.

1. Big-market/top-tier teams – Several teams were in the market for a 3B.  Bakersfield assuredly had doubts of Petersen repeating his magical 2010 season as evidenced by their unwillingness to resign Petersen to a hefty deal.  If Bakersfield was hesitant, you can sure bet other big-market teams were, too.  Rather than lose a draft pick to a risky contract, Crystal Lake traded for the rights to youngster Barry Murdock.  New Orleans acquired Miguel Lluea in a trade.

2. Small-market teams/bottom-tier teams – Similar to Gibson, bottom-tier teams had very little interest in Petersen.  His contract demands were out their league.  Petersen did not likely fit in any bottom-tier team’s rebuilding movement, either.

3. Mid-market teams – Plenty of mid-market teams could use Petersen’s services.  Despite not having to give up a compensatory pick, Manchester filled their 3B needs with a cheaper and less risky option in a trade for Scott Brown.  Florida, who dealt Brown, replaced him with the Michael Kelly trade.  Petersen was too much of a perceived risk to warrant losing a compensation pick over.

In this example, players like Petersen present too much risk.  Ignoring the compensation fact, no team wanted to overpay for Petersen’s career year.  Even teams that did not have to give up a compensation pick were wary of Petersen.  If these teams had their reservations about Petersen, you can surely bet teams that had to give up a 1^st round pick had even more reservations.

There are only a select few top-tier free agents that teams are willing to lose compensation over.  Slugger and All-Star António Coronado is worthy of compensation.  But for guys like Petersen, Boyd, Pace and O’Donnell, there are just too many question marks.  Even IL 2010 Golden Arm winner Anthony Cox, could not find a job until the season got underway!  Like Petersen, Cox was perceived to have had a career year and teams were not willing to lose a draft pick over him.  It is noted, though, that Type A free agent Rocky Reed did find a job, but of course, he went on to sign with a team that did not require giving up a draft pick: the Duluth Warriors.

On top of these examples, there are also plenty of complications with the compensation system.  Fargo compensated Canton with a 1^st round draft pick for the signing of Pedro Silva.  Fargo went on to sign Type A free agent and ex-Fisherman Rikiya Taketo.  Since Fargo had already lost its 1^st rounder to Canton, Gloucester received nothing).  Why does one team receive compensation but not the other?  It is noted that this was under the 2010 compensation rules.  The 2011 compensation change helps fix this, but it still raises some question marks.  Under the 2011 rules, Canton would still receive Fargo‘s 1^st round draft pick.  Rather than receive nothing, Gloucester would have received a Fargo‘s second round draft pick.  That does make it fairer for Gloucester, but why does one compensated team receive a better pick than another when both players are Type A free agents?

Unlike MLB, the PEBA allows for amateur draft pick trading.  This certainly complicates the compensation system.  What if a team trades away its top draft choices and then decides to sign top-tier free agents afterwards?  Since the signing team does not possess top picks, teams that lose quality free agents are compensated minimally in this scenario.

So who does the compensation system benefit, exactly?  Is it Dan Mosley, who had to leave the country to find a job?  Rather than help even the playing field, the compensation system could very well be doing the opposite.  Sure, a mid-market team like Florida benefited in Gloucester‘s 2009 free agent signing of António Coronado.  That signing netted Florida a number one draft choice that resulted in #20 prospect Ronald Harmon.  But then again, the system discouraged a mid-market team like Florida from signing the likes of Kirby Gibson and Bernardo Marín.  Rather than sign these players, Florida chose to explore the trade market to obtain less risky options such as Cedric Mosley and Michael Kelly.

Mid-market teams are perhaps impacted the most by this system.  If Fargo‘s Pedro Silva is unable to live up to his contract, then the Dinosaurs will be hit with a double whammy.  Fargo would be insulted with a horrendous contract.  To add more salt to the wound, Fargo also lost the 19^th overall pick this year.  For a mid-market team, that’s quite a blow.  In hindsight, maybe Fargo should have tried the Florida route by trading for a less risky slugger – but then again, trading for a quality meant giving up quality pieces in return.  A mid-market team does not always have the luxury to give up young pieces like that.  So it is a give-and-take.  A mid-market team has to weigh their options and figure the more beneficial route: free agent compensated signing or trading.  Neither route is fool-proof, unfortunately.

Bottom-tier teams certainly benefit from the compensation system. Just look at Kentucky and Christos Douglass.  These teams do not have to worry about losing draft picks and can sign quality free agents at will.  Unfortunately, there is a catch in that a majority of quality free agents command top dollar.  Not many bottom-tier teams have the funds to take advantage of the compensation exemption.  Kentucky is not going to go out there and sign a free agent a 5-year, $86 million dollar deal.

Maybe a bottom-tier team can benefit from receiving compensation from losing a free agent?  Take London this year as an example.  With a budget slightly under $60 million, London can surely benefit from any system looking to even out the playing field, right?  Ironically enough, a team like London could possibly be hurt the most from this system.  Let’s say London cannot afford superstar Orlando Germán and decides to let him walk.  Letting Germán walk could net London 2 top draft picks, but then again, that’s not always a guarantee.  As of today’s standings, Bakersfield would be in the bottom half of the standings.  If Bakersfield signs Germán, London would get a sandwich pick and a 2^nd rounder instead of a 1^st.  London fans will tell you they would rather keep Germán than have any of those compensation packages.

Perhaps, it would be easier to sign Germán if London can improve its revenue streams.  Improving a team’s revenue stream means putting butts in the seats.  Fans will pay for a winning product.  London did just that last season.  They won despite the odds and small budget, but to keep winning, London would need to continue to add talent to their team.  The free agent market is a good place to look for help.  Due to budget reasons, superstar free agents are out of the question.  Rather than superstars, a collection of lesser talented (and less expensive) but still quality big leaguers could certainly help London.  Players like Dan Mosley, Rocky Reed and Jesús González are viable options for a team like London.  Unfortunately, all these players require draft pick compensation.  For a small budget team like London, draft picks are essential in preserving a pipeline of talent down on the farm.  So instead, London has to opt for quality players that are not owed compensation, such as the gem signing of Waylon Whaley.  But how often can you rely in finding gems like Whaley?  To add more insult, London was not even compensated for Golden Arm winner Anthony Cox.  Isn’t the compensation system supposed to help teams like London?

This is a slap in the face and a kick in the gut.  Not only did the compensation system not compensate for Cox, the system itself discouraged London from going after quality players.

If the compensation does not help the small and mid-market teams, then who does it help?  What about the big-market teams like Aurora and Crystal Lake?  Big-market teams are probably the least affected teams.  Sure, these big-market teams may not want to pony up a 1^st round draft pick for Andrew Sepkiechler, but what if Orlando Germán or Ramón Flores was on the market?  A 1^st round pick is a small price to pay for worldly talent.  A majority of these teams are likely to be picking at the end of the 1^st round anyway.  Teams selecting #13-15 may feel differently of giving up a draft pick than a team drafting #21-24.

It is debatable that it is the big-market teams that may stand as the biggest benefactors of this system.  Last season, we saw young, talented teams with lesser budgets make it to the playoffs in Fargo, London and Florida.  All three of these teams looked to use last season’s momentum as a stepping stone to join traditional powerhouses such as Aurora, Palm Springs, Crystal Lake, New Orleans and Charleston.  Accepting the compensation system, Fargo signed free agents Pedro Silva and Rikiya Taketo.  Refusing to play part in the compensation system, Florida went down the trade route to acquire Cedric Mosley and Michael Kelly.  London did neither.  Rather than lose draft picks or give up talent via trades, London signed an uncompensated Waylon Whaley.  All three teams had to pay a price.  Fargo lost an essential draft pick and potentially is on the hook for a bad contract.  Florida gave up several key prospects along with All-Star Carlos Mostas.  Standing pat, London has failed to recapture last season’s magic.  Attendance is down 1.3% in London.  If fan interest continues to wane, we may see Orlando Germán wear a different jersey in a couple of years.  Rather than help level the playing field, the compensation system may in fact be deterring smaller market teams from catching up with the big boys.

Hmmm, I wonder if Germán would look good in salmon?