Baseball 101: Transactions and Regulations

Baseball 101 is an ongoing series from The Good Phight’s Allie Foster that breaks down some of the multifaceted aspects of baseball for those fans who might not be as familiar with the ins and outs of the game. In this sixth edition, she explains different roster transactions and regulations. You can read other entries here.

40-man Roster: The 40-man roster includes the 25-man roster, the 7- and 10-day injured lists, the bereavement/family medical emergency list, the paternity leave list, and some minor league players. In order to be added to the 25-man roster, a player must first be on the 40-man. Players on the 40-man roster are protected from the Rule 5 Draft.

Minor League Options: Players on the 40-man roster are given three Minor League options that allow them to be sent to the minors without needing to clear waivers. When a player is optioned to the minors for more than 20 days, he loses an option. An option applies to an entire season, so a player can be sent to the minors and recalled as many times as the team would like in that year. Optioned players are removed from the 25-man roster, but stay on the 40-man roster. When optioned, the player must remain in the minor leagues for at least ten days before he can be recalled to the majors, unless he is the 26th man for a double header or replacing a player on the injured list. Players can get a fourth option if they spend an entire option year out with an injury or use all three before they have completed five full pro seasons. Players with more than five years of experience must consent to being optioned.

[In 2020 the minimum number of days a player will need to remain in the minors will increase from 10 to 15.]

Outright Waivers: Outright waivers are used to remove a player from the 40-man roster and send him to the Minor Leagues. Once put on waivers, the other 29 clubs have the opportunity to claim him. If he gets claimed, the new club is responsible for his remaining salary. If a player clears waivers without being claimed, he can be sent to any Minor League team. Outright waivers can be used for players who are out of options to remove them from the 25-man roster. If a player has more than three years of Major League service or was previously outrighted in his career (regardless of what team) he can reject the assignment and opt for free agency. Players with more than three years but less than five years who reject an outright assignment forfeit any remaining salary. Those with more than five years experience are still owed any guaranteed money.

Release Waivers: Before a club can formally release a player, the player must clear unconditional release waivers. The other 29 teams have the opportunity to claim the player and add him to their 40-man roster, however the new team is responsible for the player’s salary. The player has the opportunity to reject that claim and enter free agency.

Designate for Assignment (DFA): When a player is designated for assignment, they are immediately removed from the 40-man roster. Within seven days of the transaction, the player can either be traded or placed on outright waivers. If the player is claimed, he is added to the new team’s 40-man roster. He can be optioned (if he has any remaining) or added to the 25-man roster. If he clears waivers, he can be assigned to the minors or be released. Clubs use this to clear a spot on the 40-man roster, usually for a newly-acquired player or to activate a player from the 60-day injured list.

10-and-5 Rights: Players who have at least ten years of Major League service and have spent the last five consecutive years with the same team can veto any trade scenario that is proposed. It’s essentially a built-in no trade clause. Previous Phillies who achieved these rights were Jimmy Rollins from 2010 to 2014, Chase Utley in 2013-14, and Ryan Howard from 2014 to 2016.

Rule 4 Draft: This is another name for the First-Year Player Draft, the amateur draft in June. Eligible players must be a resident of the US (including US territories) or Canada and must have graduated high school but not started college. Players attending college can be eligible if they have completed their junior year or turned 21 years old.

Rule 5 Draft: The Rule 5 Draft allows clubs without a full 40-man roster to select players from other clubs. Players on a club’s 40-man roster are not eligible. Clubs draft in reverse order of the standings from the previous season. Eligible players must have EITHER: Signed at age 18 or younger and have played professionally at least five years OR: Signed at age 19 or younger and have played professional at least four years. Clubs don’t have to make a selection, but those who do must pay $100k to the team they select a player from. Rule 5 picks are assigned directly to a team’s 25-man roster and must be placed on outright waivers to be removed for the following season. If the player clears waivers, he must be offered back to his previous club for $50k before being sent to the minors. The player must be active for at least 90 days in that season to avoid being subject to the next year’s draft. The player may be traded in that season, but the same restrictions apply to a new team as well. Notable Rule 5 picks in Phillies history include 2008 World Series Champion Shane Victorino, 2016 All-Star Odubel Herrera, 1993 National League Champion Dave Hollins and Hall of Fame pitcher Grover Cleveland Alexander.

Competitive Balance Draft Picks: The ten lowest-revenue clubs and ten smallest-market clubs are eligible to receive a Competitive Balance pick. Many of these teams qualify for both categories, so there are never 20 total teams. Eligible teams are assigned a pick in either Round A or Round B. Round A is between the first and second rounds of the draft and Round B is between the second and third rounds. Six clubs receive Round A picks based on a formula that considers winning percentage and revenue. Under the current CBA, those teams pick in Round A in 2017, 2019 and 2021. The remaining teams pick in Round B in those years. The groups of teams switch picking in Rounds A and B in alternating years. The teams remain the same for the entirety of the CBA. These clubs also receive more international bonus pool money: $5.5 million for Round A and $6 million for Round B. Picks can be traded, but may not be dealt only for cash and may only be traded by the club they were awarded to. This may still change before June, but as of now the 2019 Competitive Balance draft picks belong to: The Marlins, Rays, Reds, Pirates (a compensation for not signing Gunnar Hoglund), Athletics, Brewers and Twins in Round A and the Royals, Orioles, Pirates, Padres, Diamondbacks, Rockies, Indians and Cardinals in Round B.

Qualifying Offer: A one-year “qualifying offer” is worth the mean salary of MLB’s 125 highest-paid players. Players are eligible if they have never received a qualifying offer previously and if they spent the entire season on the team’s roster. In-season acquisitions are ineligible. The player has ten days to accept or decline, and is free to negotiate with other teams. Any team that signs a player who has rejected a qualifying offer is subject to the loss of one or more draft picks. There are three tiers of draft pick forfeiture, based on the financial status of the signing team. Teams’ highest first-round picks are exempt. These teams also pay a fine from their international bonus pool money. Any team over the luxury tax threshold that signs a Major League free agent that has rejected a qualifying offer will lose $1 million from their international signing pool in the following period. A team that is not over the luxury tax forfeits $500k from the signing pool. Compensatory picks (when a player rejects a team’s qualifying offer) in a given tier are ordered in accordance with the previous season’s standings.

Competitive Balance Tax: The Competitive Balance Tax is also known as the “luxury tax.” Each year, there is a predetermined payroll threshold. Any club that exceeds that threshold is taxed on each dollar above, with the tax rate increasing based on how many consecutive years the team has done so. The threshold for the 2019 season is $206 million. It will increase to $208 million in 2020 and $210 million in 2021. The first year a club exceeds the threshold, they must pay a 20% tax. The second year, that increases to 30%. For three or more consecutive years, the club must pay a 50% tax. If the club goes below the threshold, the penalty level resets. Clubs that exceed the threshold by $20-40 million are also subject to a 12% surtax. Those who exceed the threshold by more than $40 million are taxed at a 42.5% rate the first time and a 45% rate the following year(s). Teams that exceed $40 million over the threshold will also have their highest selection in the next Rule 4 Draft moved back ten places, unless the pick falls in the top six. In that case, the team’s second-selection moves back ten places.

International Amateur Bonus Pool Money: Clubs are subject to a bonus spending cap for amateur international free agents. This money is simply bonus money, NOT salary money. Each club receives $4.9 million to spend, except for those in the Competitive Balance Draft. Clubs can acquire additional international bonus pool money via trade, but can only trade in increments of $250k unless they have less than that remaining in their pool. They also can not acquire more than 75% of a team’s initial pool amount. The international signing period begins July 2 and continues through June 15 of the following year. Players considered international amateurs are: At least 16 years of age (or will turn 16 before September 1 of the current signing period) AND residents outside of US, Canada or Puerto Rico AND has not been enrolled in high school in any of those locations in the past calendar year. Signing bonuses of $10k or less do not count towards a club’s bonus pool. Under the previous CBA teams were permitted to exceed their bonus pool, but would face a penalty if they did. Under the current CBA, the spending pools may not be exceeded.

International Free Agency:

Cuba- Any player who is at least 25 years old and has played for Cuba’s national series, Serie Nacional, for at least six seasons is considered a professional, not an amateur.

Asia- Any player with at least nine years of service in Japan’s Nippon Professional Baseball (JPB) or the Korea Baseball Organization (KBO) is considered a free agent. Players are not subject to the Korean or Japanese posting systems, and teams are not subject to international free agency restrictions.

Korean Posting System: Players with less than nine years of professional experience can request to be “posted” for Major League clubs. All 30 MLB teams are allowed to bid for exclusive negotiating rights. The highest bidder gets one month to negotiate a contract. If an agreement is reached, the bid (or “release fee”) is awarded to the player’s former KBO club. If an agreement is not reached, the bid returns to the Major League club and the player returns to his KBO club. Players are only eligible for posting once per season. A club may only post one player at a time and can not allow more than one player to leave via the posting process per offseason. These players are subject to the international bonus pool money restrictions.

Japanese Posting System: The Japanese posting system is similar to the Korean posting system, with a few differences. The “release fee” is dependent on the guaranteed value of the contract a player signs with a Major League club. Players must be posted between November 1 and December 5, and all 30 clubs have 30 days to negotiate with a posted player. Like the Korean posting system, these players are also subject to the international bonus pool money restrictions.