It's hot stove season in Major League Baseball, and all the big names are still out there: Juan Soto, Corbin Burnes, Max Fried, Pete Alonso, Alex Bregman, Teoscar Hernandez, Willy Adames, Anthony Santander, and Christian Walker.
Besides being unsigned, they have something else in common: they declined their team's qualifying offer. The MLB invented the qualifying offer in 2012 to level the playing field between big-market and small-market teams. Now, they need to tweak the system to accomplish that goal better.
How does it work?
A team can extend a qualifying offer to as many of their impending free agents as they want as long as a) that player has never received a qualifying offer before and b) they played the entire season preceding for that team (i.e., the player wasn't part of a mid-season trade).
If a player accepts the qualifying offer, they re-sign with their previous team for one year with a salary equal to the average of the top 125 contracts in baseball.
It gets complicated if a player declines the qualifying offer, but they are free agents. If they sign with another team, that team will forfeit draft picks and sometimes international free-agent bonus money, and their original team will receive a separate draft pick in return. It all depends on the market status of a team, as well as whether or not they are a Competitive Balance Tax payor.
Who benefits the most from this system?
Considering that only 14 of 144 players have ever accepted the qualifying offer in its history, it's safe to say the biggest beneficiaries have been the teams receiving draft pick compensation.
However, it also benefits the players in some roundabout ways. Once a team knows they have to forfeit a draft pick to sign a player, they are likelier to sign them to a longer contract and, therefore, higher total dollar amounts.
However, the qualifying offer may also thin player markets because teams are eager to keep their top draft picks. Bidding may be limited to fewer teams, which may drive down the value of the contract.
The team signing the free agent doesn't benefit at all, other than acquiring the player; they have to forfeit money and draft pick compensation.
Is the system working?
Receiving a draft pick to soften the blow when players leave during free agency is always helpful. Ideally, however, the system would keep players with their original teams without depriving them of financial opportunities. After all, baseball is better when teams keep their homegrown stars; it keeps fans happy and allows players to build legacies by becoming local legends for their city.
The system now is little more than a tax that free-spending teams have to pay to stingy teams. Baseball already has revenue-sharing programs, so owners don't need more incentives not to spend money.
How do we improve it?
If the goal is to encourage more players to accept a qualifying offer, there are a couple of apparent tweaks that could be made.
First, the MLB could reduce the number of players included in the average when calculating the qualifying salary. With the top 125 player salaries included, the offer stood at $21.05M this year. If they dropped the average down to 30 players, it would be approximately $32M, which would be the 19th highest salary in baseball.
Looking at this year's list of players who rejected the qualifying offer, only Corbin Burnes and Juan Soto are locks to earn more than $32M annually. A 30-player average would represent the 30 teams in the sport.
Another idea is to include multi-year qualifying offers. If teams could offer three-year contracts at the same rate as one-year contracts (i.e., two years at $42.10M or three years $63.15M, more players might accept. Teams sometimes offer the QO, hoping the player will decline it so they can get a draft pick. That is the kind of cynicism that these tweaks hope to remediate.
MLB could also incorporate a right of last refusal into the current system and increase the draft pick compensation. Then, teams could match whatever other teams offered their stars, but if they chose not to match, they wouldn't get the draft picks. In the NFL, the analogous system to the qualifying offer is called the (non-exclusive) Franchise Tag, and the draft pick penalty for signing a franchised player is so significant that it has not happened since 2000.
It's clear that the current system is broken, unless its only purpose is to reward cheap owners with draft picks.
Players rarely accept the qualifying offer, and declining one is a poison pill in their free-agent journey as teams must give up draft picks to sign them. The MLB must clarify what the qualifying offer intends to do: reward teams for being cheap, or help sustain relationships? If it's the latter, they need to change the system accordingly.