Before we get to Kyle Lohse and why he is being so negatively impacted by this clause, it's important to understand exactly what this rule is about. Under the old system, soon-to-be free agents would be classified as either Type A or Type B. These two classifications were based on talent level and determined by an independent organization. Type A and Type B free agents came with what is typically called a "restriction." If these free agents left an organization, the team that lost them would receive a draft pick as compensation and the signing team would surrender a draft pick (for Type A). While this rule was kind-hearted, teams started to take advantage of strategies that exposed it. For example, the Tampa Bay Rays made a habit of "recycling" relievers. Now, that term isn't an official term for the practice, but I think it fits. Essentially, the teams would bring in relievers with little value, work with them, look for them to be classified as Type A or Type B free agents, and then would let them walk in free agency and get easy compensation. Another way to take advantage of this system was to pull of a deal for a "half-season rental." Essentially the team trades quality prospects for a quality player (typically Type A free agents) with an expiring contract. At the end of the season, the team lets the player walk in free agency and receives compensation. With clubs that were great at drafting and developing young talent, these strategies created a way to remain competitive at the MLB level while constantly restocking the farm system. It is my strongest belief that a farm system is the greatest resource any team can have, so being able to do this was a huge thing for smart and small-market teams.
Everything changed when the CBA attacked. Under the illusion of wanting to help out smaller market teams by blocking the Red Sox and Yankees from using the above practices, the union and owners decided that the compensation system needed to be restructured. I have to admit, I was fully on board with restructuring the compensation system. Mediocre, dime-a-dozen relievers were being given Type A and Type B status and were bringing in high quality compensation. Teams were strapped by this system, because restocking a pen with mid-tier relievers in free agency wasn't worth the loss of an early draft pick (because teams can just promote high-minors guys that won't make it as starters). For this reason and others, the system was changed based on a system similar to the NBA's mid-level exception rule. Rather than talk in detail about this rule, I'll just explain MLB's take on it. Here is a step-by-step explanation of how this works:
1) Player's contract faces expiration
2) Team must decide whether or not to give player a "qualifying offer" (average salary of top 125 highest salaries in the given year)
3) Player can accept qualifying offer and remain with the team (one year deal for ~13 million dollars)
4) Player can deny qualifying offer and become a "restricted" free agent
5) When the player signs, the signing team surrenders its highest pick to the team that lost the player*
*The top 10 picks in June's draft are protected by this, so the "highest pick" for those teams picking top 10 would be either in the compensation round or the 2nd round.
Now we can get into Kyle Lohse. To set the stage (since you are now familiar with the rules), the Cardinals made Kyle Lohse a qualifying offer before free agency began. The team chose to make the offer because they believed that Lohse, coming off of a very strong year and being part of a weak SP free agent market, would turn it down and elect free agency. The Cardinals were right in this assumption (as they seem to be in most things...though this one was pretty obvious) meaning that Lohse is a "restricted" free agent (don't use this term with your friends, it's just a word I use so that people can know a player comes at the cost of a draft pick). So here we are past the start of the World Baseball Classic and Kyle Lohse (Scott Boras client) is still unemployed. Why? Because there's a very dangerous mix here that no team wants to be a part of:
1) Scott Boras is typically pretty good at his job. He is known for getting top dollar for his clients, and this year he knows that teams need starters.
2) Kyle Lohse is 34 years old and reports are that he wants a deal of 4+ years.
3) Kyle Lohse comes at the cost of the highest available draft pick a team can surrender.
See why Lohse is unemployed? His agent is holding out for top dollar and nobody (yet) thinks signing Lohse is worth surrendering a draft pick with all of the risk that is involved. Before I get into how this is going to be resolved, let's look at what Lohse should be worth without all of this context thrown in. Here is Lohse's 2012 slash line:
211 IP/ 134 ERA+/ 6.10 K/ 1.62 BB/ 0.81 HR/ 3.96 xFIP/ 4.20 tERA/ 4.06 SIERA/ 3.6 fWAR/ 5.5 RA/9 wins
Purely from a results standpoint, Lohse was one of the best pitchers in baseball last year. He logged a few miles while pitching extremely effectively. While his peripherals are not impressive at all, Lohse has two consecutive solid years with St. Louis, because he's been able to repeat his delivery and get consistent results. However, a grim past lingers behind Lohse. He's had a pretty similar xFIP- in years past, and his ERA results have been borderline horrific in certain years. Lohse has also had injury problems in the past, including a battle against a rare condition called exertional compartment syndrome (which he had surgery for in 2010). Knowing this past is important, because now it's time to project where Lohse will be. My personal expectations for Lohse are (assuming an average defense behind him) that he should maintain a K-rate in the mid-5's, BB-rate in the mid-2's, a strand rate in the high 60's, and a BABIP right around .300. With a steadily declining ground ball rate, this group of rates scares me going forward. His RA/9 wins should be around 2.5-3 if his defense plays adequately behind him and his rates don't jump all over the place. This being said, I'll assume these RA/9 values for Lohse's next five seasons:
2013 (34): 3.0
2014 (35): 2.5
2015 (36): 2.2
2016 (37): 1.7
2017 (38): 1.4
I believe that the teachings of Dave Duncan helped Lohse get away from his dark days as a starter, but I also believe that the Cardinals' defense has helped him quite a bit. I think these projections are fair (if not generous). Next, we assume a free agent dollar/WAR ratio around 5.2 over the next five years (I've used a similar model before...the number is a loose figure, and it may change significantly due to these new rules and lucrative TV contracts). Anyway, if we assume that number then Lohse is worth 56.2 million dollars over the next five years. Knowing Boras and the fact that Edwin Jackson brought in 13 million dollars a season, I would imagine Lohse is looking for something like 4 years, 56 million. Based on my model, this would be an overpayment of about 7 million dollars by the signing team.
This is where we reach an impasse. Boras and Lohse were (deservedly) looking for a lucrative contract. However, because of the restructuring of the new CBA, teams don't want to bother with Lohse's asking price (note: this problem existed in the old CBA as well). There are plenty of small market and large market teams that need pitchers (Kansas City, Minnesota, New York (AL), and Texas come to mind), but nobody in their right mind wants to spend fair market value for an aging pitcher who also costs a draft pick. Even if Lohse's price comes down, why would the Pirates ever want to sign him? They don't have a lot of money, so they are constantly trying to rebuild their farm. If they signed Lohse (a need), they'd be giving up a draft pick that they can't afford to lose.
In short: the compensation system was broken because small market teams couldn't afford to give up draft picks to sign overpriced free agents. Large market teams were reeling in compensation when they shouldn't have been doing so. It's clear that the Cardinals (a team not afraid to spend money) had no interest in bringing back Kyle Lohse. This rule doesn't help anyone if the player isn't leaving a team that absolutely can't afford to sign him. It blocks small market teams from having any interest in signing the player, and it drives down the cost of a free agent that has the draft pick attached to his name. Free agency was created to promote player earnings and create more distribution of revenue among the players. This rule is helping to do the opposite. As I mentioned before, the rule has its moments: if Lohse was leaving the Rays, they'd have no real shot at re-signing him and would deserve to be compensated for their loss. However, a large portion of the time that isn't happening. MLB needs to re-visit the compensation issue, because small market teams and players shouldn't be hurt by any system in free agency.
To Kyle Lohse: I hope you get signed soon, man. I also hope it's at a price you've earned through your hard work as a player.
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