Qualifying Offers, 2015

I'm going to update my post on this topic from last year. It explains this topic, which comes up every year at this time.

So, what's a Qualifying Offer? It's a one-year contract offer teams can make to their players who have filed for free agency. This year, a qualifying offer is $15.8 million for the 2016 season.

Why would teams offer that much money for one year? Two reasons. First, the best free agents are worth at least that much. Second, and more importantly, if the player rejects the qualifying offer, the team offering it gets compensation, and the team signing the player gets a penalty.

What's the compensation? If a team offers a player a qualifying offer and the player rejects it, the team gets an extra draft pick between the first round and second rounds of the amateur draft in June. The extra picks (called "sandwich picks") are allocated in reverse order of standing during the prior season.

What's the penalty? A team signing a player who rejects a qualifying offer forfeits its first draft choice in the June amateur draft. One exception: The first ten picks in the draft are "protected" and don't get forfeited. The teams with the worst ten records last season--the Phillies, Reds, Braves, A's, Rockies, Brewers, Marlins, Padres, Tigers and Mariners--won't lose their first round draft choice if they sign a player who received a qualifying offer. Instead, they'll give up their second-highest round draft pick instead. If a team signs more than one player who received a qualifying offer, it'll give up its next-highest draft pick. 

How onerous is that penalty? It depends on the player. The Nationals didn't think about the penalty when they signed Max Scherzer, arguably the best player in last year's free agent class. Losing a draft pick won't stop a team from pursuing a big star like Dodgers pitcher Zack Greinke or Cardinals outfielder Jason Heyward. At the lower end of players receiving qualifying offers, though, relinquishing a draft pick can result in teams being unwilling to sign a player. After the 2013 season, former Mariners DH Kendrys Morales and former Red Sox shortstop Stephen Drew received and rejected qualifying offers and couldn't find anyone to take them. Drew eventually re-signed with the Red Sox in May (there are not penalties or compensation when a free agent re-signs with his original team), and Morales signed with the Twins on June 8 (after the amateur draft, so there was no penalty). Both those players were pretty obviously screwed out of money by the draft pick penalty.

Why is there a penalty? In part it's because baseball wants to compensate teams that lose star players to free agency. But let's be clear: The sandwich pick that the teams receive for losing a player to whom they made a qualifying offer is their compensation. The loss of a draft pick only hurts the signing team. It doesn't help the team losing the player. By penalizing the signing team, it hurts the player, because it reduces his value. It ultimately serves to reduce free agent compensation.

How did they come up with the $15.8 million figure? It's the average salary of the 125 highest-paid players in baseball. It gets recalculated every year. Last year it was $15.3 million, the year before $14.1 million.

Are there problems with the system? CJ Nitkowski wrote a nice piece describing them last year. The most glaring are how they screw players at the bottom of the spectrum. There's also a huge loophole: Players who are traded during the last year of their contract aren't subject to qualifying offers or compensation. They include Blue Jays pitcher David Price, Mets outfielder Yoenis Cespedes, Royals pitcher Johnny Cueto and infielder-outfielder Ben Zobrist, Giants pitcher Mike Leake, and Astros pitcher Scott Kazmir. The two top pitchers in this year's free agent class are Price and Greinke. By virtue of being traded last year from Detroit to Toronto, the team signing Price avoids a draft pick penalty that the team signing Greinke will have to pay.

How often do players accept qualifying offers? It hasn't happened yet. Every player who's received a qualifying offer has rejected it since the system was implemented in 2012. That could change this year, as there were a record 20 players who received qualifying offers compared to twelve last year and thirteen the year before. It would appear that Padres pitcher Ian Kennedy, who was 9-15 with a 4.28 ERA last year and 29-38 with a 4.25 ERA over the past three years, is a candidate to accept a qualifying offer. However, a lot of analysts expect nobody to accept a qualifying offer, given players' preference for multi-year contracts rather than a one-year deal, even for $15.8 million.

Who's received qualifying offers? The twenty players are, by team:

• Baltimore pitcher Wei-Yin Chen, first baseman Chris Davis, and catcher Matt Wieters
• Chicago Cubs center fielder Dexter Fowler
• Chicago White Sox pitcher Jeff Samardzija
• Houston outfielder Colby Rasmus
• Kansas City left fielder Alex Gordon
• Los Angeles pitchers Zack Greinke and Brett Anderson and second baseman Howie Kendrick
• New York Mets second baseman Daniel Murphy
• St. Louis right fielder Jason Heyward and pitcher John Lackey
• San Diego pitcher Ian Kennedy and left fielder Justin Upton
• Seattle pitcher Hisashi Iwakuma
• Texas pitcher Yovani Gallardo
• Toronto pitcher Marco Estrada
• Washington shortstop Ian Desmond and pitcher Jordan Zimmermann

When do the players have to let the team know? The players who received qualifying offers were notified last Friday and they have a week to respond. So by the end of business on Friday, November 13, they have to make a decision.

What happens if they reject the offer? They become free agents, able to sign with any team (subject to the compensation for their former team and penalty for their signing team) described above.

Are the parties happy with the system? Players understandably don't like any system that reduces their value, and attaching a penalty to signing a player reduces their value. Owners like getting compensated for losing players. So that's the impasse, and the qualifying offer system is the latest attempt to bridge it. I expect the qualifying offer system to be modified the next time the players and owners negotiate their collective bargaining agreement. The current CBA runs through December 1, 2016.

Next Up: The Suddenly Competitive Cincinnati Reds

Not for anything good, mind you. Here are the teams with the eight worst records in the majors as of the All-Star break: 
Team          W  L Pct.  GB
Philadelphia 29 62 .319  --
Milwaukee    38 52 .422  9.5
Miami        38 51 .427 10
Colorado     39 49 .443 11.5
Oakland      41 50 .451 12
Cincinnati   39 47 .453 12.5

San Diego    41 49 .456 12.5
Seattle      41 48 .461 13

Here's where it was at the start of September:
Team          W  L Pct.  GB
Philadelphia 52 80 .394  --
Miami        53 79 .402  1
Colorado     53 76 .411  2.5
Atlanta      54 77 .412  2.5
Cincinnati   54 76 .415  3
Milwaukee    55 75 .423  4

Oakland      58 74 .439  6
Seattle      61 71 .462  9

And today:
Team          W  L Pct.  GB
Philadelphia 62 97 .390  --
Cincinnati   63 96 .396  1
Atlanta      64 95 .403  2
Colorado     66 93 .415  4
Oakland      66 93 .415  4
Milwaukee    68 91 .428  6

Miami        69 90 .434  7
Detroit      73 85 .462 11.5

Why's this relevant? Well, the worst record earns you the No. 1 pick in next summer's amateur draft. That's valuable. First picks, historically, do considerably better than other picks, even No. 2. So the difference between being the worst and the second-worst is significant. Cincinnati's been making an impressive drive for the that top draft choice! (And what in the world have the Marlins been thinking?)


How Are They Doing Lately? When a team moves up in the ranks of the worst teams in baseball, it's not because they're doing well. The Reds have lost 12 in a row going into the season-ending weekend series at PNC Park. The 1993 Reds also lost 12 straight, and the team could tie the 1930 and 1945 Reds with 13 straight losses tonight. (The all-time franchise record of 19 straight losses, set in 1914, is out of reach.) Unsurprisingly, Cincinnati has the worst record in the league over the last 30 days, 9-19. They've scored 4.0 runs per game, .001 runs per game more than the fourth-worst Cardinals, while giving up 5.6 runs per game, easily the most in the league, over a half a run more than the next-worst Braves.

What's Going Right? I've mentioned this a number of times, but two pitching figures that can reflect luck are batting average on balls in play and percentage of baserunners stranded. Most players and teams tend toward the league averages (.299 batting average on balls in play and 73% strand rate in the National League over the past 30 days). The Reds have allowed the highest batting average on balls in play and the stranded the lowest percentage of baserunners over the past 30 days, indicating they've probably been a little unlucky. 

What's Going Wrong? Over the past 30 days, the Reds are eleventh in the league in batting (.248), 13th in on base percentage (.308), and 13th in slugging (.388). They've struck out the fourth most frequently and walked the fourth most infrequently. They've had the second lowest rate of hard contact in the league. And the pitching has completely melted down; the bullpen ERA of 4.70 is the third worst in the league over the past 30 days, and the starters' 5.82 ERA is the second worst. 

Who's Hot? Joey Votto is closing out a sensational season, batting .329 with a .487 on base percentage and .482 slugging percentage over the past 30 days. He's got a .547 on base percentage in the second half of the season. The only players who've bested that over half a season are Babe Ruth, Ted Williams, and Barry Bonds. Second baseman Brandon Phillips (.317/.336/.433 slash line) is also winding up a strong second half; his .759 OPS trails only the Mets' Daniel Murphy (.824) and the Pirates' Neil Walker (.762) among regular second basemen in the National League since the All-Star break. Closer Aroldis Chapman, in limited save opportunities, has a 0.93 ERA and 16 strikeouts and just four hits allowed in 9.2 innings, covering the last 30 days.

Who's Not? No Reds starter has an ERA lower than 4.73 over the past 30 days, including the weekend's starters, Keyvius Sampson (6.52), Brandon Finnegan (6.00), and Josh Smith (7.07). The weakest bats over the past 30 days have been those of left/center fielder Jason Bourgeois (.237/.297/.335), utility man Ivan DeJesus (.222/.246/.370) and catcher Tucker Barnhart (.179/.238/.196).

What's the Outlook? The Pirates can't completely coast. Their magic number over the Cubs for home field in Wednesday's wild card play-in game is two, meaning they need a combination of two victories over the Reds and/or Brewers victories over the Cubs over the weekend to put the game in PNC Park. But we should expect to see some position players get time off. As for the Reds, they have to hope the Phillies can extend their four-game winning streak at home against the Marlins, opening the door for Cincinnati to nab the top draft pick next summer.

Last Night's Sweet Play

In case you don't start your day checking mlb.com videos, here's a fantastic double play from last night's Mets-Cards game.

Why On Base Percentage Matters

If You Don't Want to Read the Whole Thing: I assume you know what batting average is. On base percentage, which measures a batter's ability to get on base via hits, walks, and hit by pitches (hits by pitches?) is more closely related to run scoring than batting average. So when you want to learn how good a hitter is, on base percentage does a better job than batting average.

But If You Do: I haven't been posting anything during the postseason. This is the time of year when you have many ways to enjoy baseball, from nationally televised games to wall-to-wall coverage by major media to Twitter to baseball-specific sites that are absolutely on top of their games. Easy to get lost in that shuffle. My only post has been to lament the demise of small-market teams in the postseason, though I'll concede that a World Series matching the teams with the best regular season records in their respective leagues is aesthetically, if not emotionally, pleasing.

I'm going to use this hiatus to start what I expect will be a series of posts going into the basics of baseball analysis. One of the things I've learned in a long career as a financial analyst is that you've got to constantly question your assumptions. The rules that worked a decade ago may not still be applicable. So let's start questioning.

I'm going to start with on base percentage, or OBP. It measures the frequency with which a batter gets on base. The formula is (hits + walks + hit by pitch) / (at bats + walks + hit by pitch + sacrifice flies). You've seen me use it several times in posts. Why is it important? Or, as the casual fan may ask, why should I care about it when I have batting average?

To partially answer the second question, batting average (BA) is just hits divided by at bats. It measures the percentage of time that a player gets a base hit. A good hitter hits .300. Ty Cobb, Babe Ruth, Ted Williams, Rod Carew, Tony Gwynn...all .300 hitters. A .300 batting average is good. A .200 batting average isn't. So what's wrong with that? Why do I need OBP?

Well, let's look at batting. The object on offense is to score runs. Something that helps you score runs is good. Something that impedes scoring runs is bad. We can measure how good or how bad something is by using a statistic called correlation. Correlation measures how closely related two sets of numbers are. The higher the correlation, the stronger the relationship. The correlation coefficient is the statistic that correlation yields. It runs between 0 (no correlation at all) to 1 (perfect correlation). Once you get above 0.7 or so, you're talking about a pretty decent correlation, in general. (I've put a longer discussion of correlation in the tab Statistics at the top of the blog. You can go there to read it if you want. I figure many of you already know about correlation, and many others of you didn't come here for a math lesson.)

In order to measure how much a statistic like BA or OBP contributes to run production, I ran correlations. I used every season in the three-division era that began in 1995. That works out to 564 team seasons: 28 teams for each of 1995-97, and 30 teams starting in 1998, when Arizona and Florida joined the league.

The correlation coefficient between runs and batting average is 0.80. That's pretty high. What it means is that batting average explains a lot of how runs are scored (technically, about 65%).

Again, that's pretty high correlation. If we're trying to measure how runs are scored, batting average does a nice job, and that's based on 564 datapoints, so it's not random.

The thing is: on base percentage does better. The correlation between runs and OBP is 0.88. That's a good bit higher than for BA. If batting average provides 65% of the explanation of how runs are scored, on base percentage explains 78%. That's a big difference, big enough to make OBP much more useful than BA. Simply stated, on base percentage contributes more to scoring runs than batting average. 

We're talking about teams here, but this relationship applies to individuals as well. Consider, for example, two catchers: The Tigers' Alex Avila and the Angels' Chris Ianetta. They played about the same amount this year (379 plate appearances for Avila, 399 for Ianetta) with similar power (14 doubles, 1 triple, 11 homers for Avila; 15 doubles, no triples, 11 homers for Ianetta). Their batting averages were similar: .227 for Avila, .225 for Ianetta. Identical players? Not at all: Ianetta drew 68 walks and was hit twice, while Avila walked 44 times and was hit once. That difference gives Ianetta a .358 on base percentage, fifth best among the 24 catchers who played in 100 or more games, compared to Avila's .317, which ranks 16th. That makes Ianetta a more valuable offensive performer, given the importance of OBP. 

Or compare two second basemen, the Mets' Daniel Murphy and Tampa Bay's Ben Zobrist. In an almost identical number of plate appearances (697 for Murphy, 698 for Zobrist) they displayed similar power (38 doubles, 4 triples, 13 home runs for Murphy; 36, 3, and 12 for Zobrist) and Murphy had a better batting average, .286-.275. So was Murphy better? Nope. Zobrist got on base an additional 45 times that don't show up in batting average compared to Murphy (72 walks and 7 hit by pitch for Zobrist, 32 and 2 for Murphy). That gives Zobrist a much bigger edge in OBP (.354-.319) compared to Murphy's edge in the less important BA.

As you can tell, the biggest difference between BA and OBP is walks. A player who walks a lot boosts his OBP more than one who walks infrequently. You know that saying from the playground when you were a kid, "a walk's as good as a hit?" From the perspective of OBP (and from the perspective of scoring runs), that's exactly right.

What's a good OBP? This year the major league average OBP was .320 compared to .256 for batting average. The top three were Miguel Cabrera (.442), Joey Votto (.435), and Mike Trout (.432). The bottom three were Alcides Escobar (.259), Darwin Barney (.266), and Adeiny Hechavarria (.267). The 75th percentile was Adam Lind's .357, and the 25th percentile was Ryan Doumit's .314. If we're looking for a rule of thumb, like for a .300 hitter, well, there were 24 hitters who batted .300 or better in 2013. Chris Davis was 24th in OBP with .370. So let's say a .370 on base percentage is like a .300 batting average.

When you're watching the Series, you might see that Mike Napoli hit .259 this season compared to his likely first base counterpart, Matt Adams, who batted .284. Here's two other numbers: Napoli had a .360 on base percentage, while Adams' was .335. So you'll know that Napoli was actually the better offensive performer, and that's before you start comparing beards.