Major League Baseball instituted the Qualifying Offer prior to the 2012 offseason. The QO system was a part of the Collective Bargaining Agreement and replaced the old type A and B free agent compensation system. A player who is eligible to leave as a free agent (and has spent the entire season prior with one team) can be issued a Qualifying Offer, a one year term equal to the average of the top 125 salaries from the previous season.
The player then has the choice to accept the Qualifying Offer and return to his team, or decline it and enter free agency. Any team that signs a player who has declined a QO will forfeit their highest unprotected draft pick (top 10 first round picks are protected) and the team who lost the player will gain a compensation pick in between the first and second round in the following year's draft.
The QO system was created as a way to attempt to keep competitive balance in place and help teams like the Brewers who can't afford to keep all of their free agents. However it has mainly served as a way to suppress the free agent market as several players over the past few years, like Kyle Lohse, Stephen Drew, and Kendrys Morales all found out first hand.
The Qualifying Offer was set at $15.8 mil this past offseason and a record 20 offers were made to potential free agents. Three players accepted: Colby Rasmus of the Astros, Matt Wieters of the Orioles, and Brett Anderson of the Dodgers. These players chose to lock in their salaries for 2016 rather than seek a potentially larger payday on the open market and will be able to re-enter a weaker free agent class next offseason.
Every winter the fine folks over at MLB Trade Rumors rank the top 50 free agents and offer their predictions where each player will end up and on what contract. With the recent signing of Ian Desmond, the last of the remaining 17 players who were issued QOs have now signed for the 2016 season. Using MLBTR's predictions (and accompanying free agent rankings), let's compare the projections with what the players actually signed for to determine how significant of a factor the QO played.
2. Jason Heyward
Projection: 10 years, $200 mil
Signed: CHC 8 years, $184 mil
Over/Under: -$16 mil
Heyward didn't quite reach his projection in terms of guarantee, but he did beat his projected AAV and left some money on the table in order to sign with Chicago.
3. Zack Greinke
Projection: 6 years, $156 mil
Signed: AZ 6 years, $206.5 mil
Over/Under: +$50.5 mil
The Diamondbacks went all-in this winter, and that included giving the largest average annual value ever to a 32 year Greinke over a six year term.
4. Justin Upton
Projection: 7 years, $147 mil
Signed: DET 6 years, $132.75 mil
Over/Under: -$14.25 mil
The outfield market was somewhat crowded this winter and things were slow to get rolling. Upton had to wait until mid-January to find a suitor in Detroit. He didn't get to his overall projection but did beat his forecasted average annual value.
5. Chris Davis
Projection: 6 years, $144 mil
Signed: BAL 7 years, $161 mil
Over/Under: +$17 mil
The market for Davis was also slow to develop, though he was considered the best power bat available on the market. In the end the Orioles ended up bidding against themselves to bring Davis, a favorite of owner Peter Angelos, back into the fold.
7. Jordan Zimmermann
Projection: 6 years, $126 mil
Signed: DET 5 years, $110 mil
Over/Under: -$16 mil
The Wisconsin native was the first Tommy John survivor to receive a $100 mil contract and was one of the first big free agents to sign this winter, way back in November. He was a part of Detroit's spending spree this winter and netted a nice AAV even though he didn't quite reach his projected guarantee.
9. Alex Gordon
Projection: 5 years, $105 mil
Signed: KC 4 years, $72 mil
Over/Under: -$33 mil
Gordon probably could've easily netted a higher guarantee than he did this winter but it turned out his heart was set on returning to the Royals, the only franchise he's ever known. He took a significant hometown discount to remain as an icon in Kansas City.
10. Ian Desmond
Projection: 5 years, $80 mil
Signed: TEX 1 year, $8 mil
Over/Under: -$72 mil
Desmond was one of the most glaring cases of the QO killing a player's market this winter. His overall slash line was down in 2015 but he had a nice second half and has a lengthy track record of being one of the most productive shortstops in the game. Overall there were few teams in need of shortstops this winter, though, and that combined with the draft pick consequences never really allowed Desmond's market to get off the ground. He sat available until after spring training started, signing just days ago to play left field with Texas for roughly half of what the Qualifying Offer would have guaranteed him. There's little doubt he regrets turning down the $107 mil extension Washington offered him a couple years ago, but as the 10th best free agent available he still should have been able to net a better guarantee this winter.
11. Jeff Samardzija
Projection: 5 years, $80 mil
Signed: SF 5 years, $90 mil
Over/Under: +$10 mil
Despite a down year in with the White Sox in 2015, Samadzija was still able to beat his projection by a healthy amount on the open market. He might still have some untapped upside and has less wear on his arm than others his age due to his time as a reliever, and San Francisco certainly wasn't scared off by having to give up a draft pick.
13. Wei-Yin Chen
Projection: 5 years, $80 mil
Signed: MIA 5 years, $80 mil
Over/Under: $0
Chen quietly established himself as one of the better lefty starters in the game during his time with the Orioles. It's in the Marlins' best interest to try and put a team around Giancarlo Stanton, and the draft compensation did not slow them from signing Chen to his projected amount.
16. Dexter Fowler
Projection: 4 years, $60 mil
Signed: CHC 1 year, $13 mil
Over/Under: -$47 mil
The crowded outfield market and the Qualifying Offer served to torpedo Fowler's chances at reaching his projected contract. He had a career year in his walk year and at one point, it looked like he would be signing a three year deal with Baltimore. When that went south he surprisingly signed a one year, $8 mil deal with a $9 mil option/$5 mil buyout to return to Chicago. He'll now have to compete for at-bats in a crowded Cubs outfield and hope he performs well enough to be able to net a multi-year guarantee on the open market next winter.
17. Daniel Murphy
Projection: 4 years, $56 mil
Signed: WAS 3 years, $37.5 mil
Over/Under: -$18.5 mil
Some thought Murphy would cash in big time this winter thanks to his postseason heroics, but that did not prove to be the case. Shaky defense and a more average than All-Star offensive track record combined with being saddled with the QO served to suppress his overall earnings potential. It didn't help his cause either that many notable middle infielders were moved on the trade market, as well.
19. Ian Kennedy
Projection: 4 years, $52 mil
Signed: KC 5 years, $70 mil
Over/Under: +$18 mil
Kennedy didn't have a great season last year in San Diego and has always struggled with the home run ball. The Royals believe he can thrive in their cavernous ballpark and in front of their elite defense, however, and paid him handsomely for the opportunity. Kennedy's QO didn't stop the Royals from paying him well above his projection, though the contract has already been panned as one of the 25 worst albatrosses in the league.
20. Yovani Gallardo
Projection: 4 years, $52 mil
Signed: BAL 2 years, $22 mil
Over/Under: -$30 mil
The former Brewers' stalwart has dealt with diminished velocity and strikeout rates over the past few seasons, and his solid run prevention hasn't been supported by estimators in recent years. Gallardo's biggest calling card is his durability having made 30+ starts each season since 2009, though he's not considered an innings-eater thanks to high pitch counts. His market was slow to develop as teams were wary of parting with a first round pick for an average hurler like Yovani, though there were rumblings about the Royals or Rockies perhaps having interest. Gallardo had to wait until February to agree to a three year, $35 mil contract with Baltimore before an issue arose during their notoriously stringent physical and Yo was forced to instead settle for the lesser two year guarantee with a club option.
22. Howie Kendrick
Projection: 4 year, $50 mil
Signed: LAD 2 years, $20 mil
Over/Under: -$30 mil
Kendrick has long been one of the league's better second baseman and remains an above-average hitter at the dish, but like Murphy the QO and active middle infield market tanked his earning power. The Diamondbacks were thought to be front-runners for his services at one point but balked at the money involved, and Kendrick eventually re-signed with LA at a significantly reduced rate.
24. John Lackey
Projection: 3 years, $50 mil
Signed: CHC 2 years, $32 mil
Over/Under: -$18 mil
Lackey has a lengthy track record of success and was terrific for St. Louis last year while earning the league minimum. The fact that he only netted a two year guarantee is probably due more to his age (37) than QO status, and the Cubs being on the cusp of a World Series bid probably helped lure Lackey to Chicago.
25. Hisashi Iwakuma
Projection: 3 years, $45 mil
Signed: SEA 1 year, $12 mil
Over/Under: -$33 mil
Iwakuma had a three year, $45 mil agreement to sign with the Dodgers at one point, but that deal fell through after he failed the physical exam. Instead the 34 year old returned to familiar land in Seattle on a one year deal with two vesting options, but a guarantee of only $12 mil shows just how much leverage he lost.
29. Marco Estrada
Projection: 3 years, $30 mil
Signed: TOR 2 years, $26 mil
Over/Under: -$4 mil
The former Brewer enjoyed a career year and postseason success in Toronto, but a middling track record in the years prior lead many to believe Estrada might accept the Qualifying Offer. Before he had the chance, however, Toronto swooped in to re-sign him to a two year deal.
__________________________________________
Overall, the 17 free agents who did not accept their Qualifying Offers came in at a total of $236.25 mil below their projected contracts. Arguments could be made for at least six of the players, especially the late-signing Gallardo, Fowler, and Desmond, that the Qualifying Offer significantly hindered their market.
The Qualifying Offer system has proven to be overly punitive to players, many of whom are making their first attempt at being paid what their fair-market value is through free agency. Instead the QO has become a boon to both large and small market owners, who can use it as an excuse to suppress the future earnings potential of players after artificially limiting their income through the reserve clause for their first six years anyway. With baseball more popular and profitable than ever, it's a safe bet that the players will demand to address the issue of the Qualifying Offer during upcoming talks for the next Collective Bargaining Agreement.