Summary


The MLB free agent compensation rules changed significantly under the 2012-2016 CBA. Under the new CBA, teams will only receive draft compensation if another team signs one of their “Qualified Free Agents” who were tendered a “Qualifying Offer.” Compensation will be in the form of a compensation draft pick in the supplemental round in between the first and second rounds of the amateur draft.

Definitions


A “Qualified Free Agent” is a free agent player who was with his former team for the entire past season – whether it be in the majors, in the minors, on the disabled list, or on some other inactive list.

A “Qualifying Offer” is an offer of a one-year contract for the next season equal to the average “Salary” of the 125 highest-paid players in the league each year (based on all players on 40-man rosters and 60-day DL on August 31 of the recently completed season). “Salary” shall include base salary, prorated signing bonus, prorated portion of first future team buyout option, and any bonuses earned that year. The Qualifying Offer must be tendered before the end of a five-day “Quiet Period” which takes place immediately after the conclusion of the World Series. The player has seven days from the end of the Quiet Period to accept the Qualifying Offer.

"Qualifying Offers" for the 2013-14 off-season are set at $14.1 million.

Compensation


To receive compensation, the former team must tender a Qualifying Offer, the player must decline (or not accept) the offer, and the player must sign a major league contract with another major league team before the next year amateur draft. Compensation will be a supplemental round draft pick in the next draft. The supplemental round will be in reverse order of winning percentage from the recently completed season. Teams with multiple picks in the supplemental round will get those picks slotted consecutively. If two teams have the same winning percentage, the preceding seasons winning percentage is the tiebreaker.

Forfeiture


A team signing a compensable Qualified Free Agent forfeits its highest available pick in the next draft. If a team signs more than one compensable Qualified Free Agent, it will forfeit its next highest selection, even if it is a supplemental round pick. No team shall be required to forfeit a selection in the top 10 of the first round. All draft picks shall be forfeitable except those awarded to the former team for failing to sign a prior year’s pick. Forfeited picks are not awarded to the Qualified Free Agent's former team as they were under the prior rules. They instead disappear altogether.

Miscellaneous


Teams and players cannot enter in a contract stating that the team will not extend a Qualifying Offer or that a Player will not accept a Qualifying Offer if one is tendered to him. Violations will lead to punishment by the Commissioner’s Office which may include the forfeiture of draft picks.

Compensation for Failure to Sign High Draft Picks


Teams that fail to sign a first or second round pick will be compensated by receiving a virtually identical pick (plus one) in the following year's draft (ex., a team that fails to sign the No. 5 pick in 2006 receives the No. 6 pick in 2007). A team that fails to sign a second round pick gets virtually the identical pick the following season regardless of the round (for example, if Boston fails to sign pick #62, it will receive pick #62A (~63) in the next year's draft, regardless of whether pick #62A falls in the supplemental round, the second round, or the third round). A team that fails to sign a third-round pick receives a sandwich pick between the third and fourth rounds. None of these picks may be forfeited. Additionally, these compensation picks cannot be parlayed into compensation picks in a later draft. If a player selected as compensation for failure to sign a previous year's draftee also goes unsigned, the team does not have a right to compensation for the unsigned player.