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Free Agency Primer

A rundown of the rules about free agency in Major League Baseball

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Free agent Carlos Pena signs with the Astros in 2012
Bob Levey/Contributor/Getty Images Sport/Getty Images

Among the most confusing things for baseball fans is free agency. It's a complicated set of rules that's been negotiated in labor agreements between owners and players for more than 30 years, and the formula is tweaked with every agreement.

History of baseball free agency

From the 19th century through 1976, baseball players were bound to one team for life because of the reserve clause. Teams could renew contracts for one year for as long as they wanted to keep the player.

The beginnings of free agency began in 1969, when longtime Cardinals outfielder Curt Flood was traded to Philadelphia and refused to report. He appealed to the U.S. Supreme Court but lost, but his case put in place an arbitration system for players' union and owner disputes.

In 1975, pitchers Andy Messersmith and Dave McNally played without a contract, arguing that their contract could not be renewed if it was never signed. An arbitrator agreed, and they were declared free agents. With the reserve clause effectively abolished, the players' union and the owners then agreed to the rules governing free agency that the teams and players would follow.

After a player is drafted

A player is bound to the team that drafts him for three seasons in the minor leagues. Contracts are automatically renewed on a year-to-year basis.

After three years, a player must either be on a team's 40-man roster (as he is then considered as having a major-league contract) or he is eligible for what is called the Rule 5 draft (see below). Once he has played for three seasons and is on the 40-man roster, the team then has "options" on the player. They can send him to the minors and still keep him for three additional seasons with automatic contract renewals. Each player has three option years and can be sent up and down from the minors as many times as teams see fit during that period.

A player with three years or more service cannot be removed from the 40-man roster without his permission. The player can opt to be released immediately or at the end of the season.

A player also can elect to become a free agent whenever he is removed from the 40-man roster,starting with the second removal of his career.

Rule 5 draft

After three complete minor league seasons, a team has to decide if they want to keep a player and must sign the player to a major-league contract (adding him to the 40-man roster).

Players who aren't placed on the roster are eligible for the baseball Rule 5 draft. A player can be drafted by another organization for $50,000. But there is a risk for the drafting team: They must keep that player on the 25-man major-league roster for the entire next season or he is offered back to the original team for $25,000.

A player not on the 40-man roster and not taken in the Rule 5 draft remains under contract with his current organization. He can elect to become a minor-league free agent instead of being taken in the Rule 5 draft, but players want to be selected in the draft because it represents what could be a fast track to the majors, getting away from a team that does not believe he belongs on the 40-man roster.

Arbitration

Once a player has been on a roster for three seasons and isn't locked up with a long-term deal, he becomes eligible for salary arbitration. A player with at least two years experience is also eligible provided he is among the top 17 percent in cumulative playing time in the majors of players who are between two and three years of experience.

During arbitration, the team and player each present a dollar figure to an arbitrator, who then decides for either the player or the team based on comparable wages within baseball. Oftentimes, the arbitration process leads to a compromise salary before the ruling.

Major league free agency

A player with six or more years of major-league service (on the team's 40-man roster) who is not under contract for the following season is automatically a free agent.

Teams can receive compensation for the player with a draft pick in the following year's draft in June. To receive compensation, the team must offer the player salary arbitration.

It is then up to the player to either accept arbitration or sign with another team. The team must offer salary arbitration to the player by early December or the team will not be allowed to negotiate with or sign the player until the following May 1. After arbitration is offered, the player has two weeks to accept or refuse salary arbitration. If it is refused, the player can only negotiate with the club until Jan. 7. after which no more negotiation can take place until May 1.

Top free agents are classified as Type A (the top 20 percent at their position as determined by the Elias Sports Bureau), Type B (between 21 and 40 percent at his position). If a Type A free agent who had been offered arbitration signs with another team, the team receives two first-round draft picks the following June - either a first- or second-round pick of the new team (depending on a team's record the previous season) and a "sandwich" pick between the first and second rounds. Type B free agents earn just a "sandwich" pick.

If there are 14 or fewer Type A or Type B free agents available, no team can sign more than one type A or B player. If there are between 15-38, no team can sign more than two. If there are between 39 and 62, there's a limit of three. However, teams can sign as many Type A or B free agents as they've lost, regardless of the limits above.

Other rules

A player with five years or more major-league service who is traded in the middle of a multi-year contract can, during the offseason, require his new team to either trade him or let him become a free agent. If the player is eventually traded, he's not eligible to demand a trade again under the current contract and loses free agency rights for three years.

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