Transaction Primer v1.0

Yes, the title of the site does mean something.

A few years ago, Rob Neyer wrote up a Transactions Primer for ESPN to cover   some of the major rules governing baseball transactions, which is still housed   at http://espn.go.com/mlb/s/1999/0908/46397.html.   Rob hasn’t had a chance to update it, so I figured I’d try my hand at filling   in some of the holes.

The Draft

This is where most American and Canadian athletes start his path to the Major   Leagues. The draft is held every year in June with clubs selecting players based   on reverse order of their win-loss records from the previous season and the   leagues alternating selections. The American League gets the first pick in odd-numbered   years with the National League obviously getting it in the even-numbered.

The number of rounds has varied historically, but a team has the option to   drop out of the draft at any point and if all the teams drop out, the draft   simply ends. If you are a resident of the United States, Canada, Puerto Rico   or any other U.S. territory, you’re eligible for the draft. Once you sign either   a major or minor league contract, you’re ineligible for all future drafts. Foreign-born   players are currently not subject to the draft.

A club keeps the rights to a player until a week before the next draft or enrollment   in a four-year college. Also, a club cannot draft a player in two consecutive   drafts without the player’s written consent.

Once a player drafted has signed with the club, he cannot be traded until the   following year’s amateur draft (the Pete Incaviglia Rule).

The Minors

In the minor leagues, the rosters are managed in quite a different manner than   the standard 25-man rosters in the majors. Minor league teams keep two separate   lists of players. The first is the Active List which, like in the NFL, denotes   which players are eligible for the current game while the second list, the Reserve   List, is the entire roster of the team.

AAA and AA clubs are allowed to put 24 players on the Active List for the first   30 days of the season, 23 players on the Active List from the 31st day until   August 10th and then 24 players again for the rest of the season, including   the playoffs. The Reserve List limit, however, is always 38 players for AAA   and 37 players for AA teams.

For A teams, the Active List limit is 25 players, for Short-Season A teams,   30 and for Rookie Teams, 35. All levels below AA allow clubs a Reserve Limit   of 35 players. Below A-ball, only 25 players may actually get into a single   game.

Players may be loaned to other minor league organizations, but must be returned   by September 30.

As in the majors, there are two disabled lists. The normal disabled list only   has a 7-day minimum as opposed to the 15 days used as the limit for the majors.   The 60-day DL, or Emergency Disabled List, works the same as in the majors;   the player doesn’t count against any roster limits but cannot be reinstated   until either 60 days have passed or the season ends.

Rule V Draft

Once a player is signed by an organization either through the draft or as a   free agent, the clock immediately starts ticking on the club’s exclusive rights   to the player.

After 3 complete minor league seasons (or 4 if the player was younger than   19 on the preceding June 5), a player comes to one of the major crossroads of   his career. At this point, a team has to decide if they want to sign the player   to a major-league contract (adding him to the 40-man roster which consists of   25 active players and 15 on optional assignment) or if they want to let the   other teams have a shot at him.

Players that have the minor league seasons required and are not added to the   40-man roster are eligible for baseball’s Rule V draft. A player can be drafted   by another organization for a sum of $50,000. The catch, however, is that if   the player is ever removed from his new team’s 25-man roster during the next   season, he has to be offered back to the original club for half the price, or   $25,000.

A player not on the 40-man roster and not taken in the Rule V draft remains   under contract with his current organization. If the player has less than 6   years of minor league service, he can elect to be a minor league free agent,   thus getting out of Rule V consideration for all intents and purposes.

The 40-Man Roster and Options

Now that the player is on the 40-man roster, another clock starts ticking.   He’s signed to what amounts to a major-league contract, but the organization   has a limited number of seasons in which to keep the player on the team for   good. A player can be removed from the 40-man roster at any time, but removing   a player from the 40-man roster results in the player having to pass through   waivers.

Once a player is added to the 40-man roster, the parent club can send him down   to the minors on "optional assignment" in 3 separate seasons. You   don’t need to actually be on the 25-man roster for an option year to be used;   being on the 40-man roster in spring training and optioned to the minors before   the season is enough to make the season count as an option year. If a player   is never sent down, however, he doesn’t use an option year.

Also, despite it being a major league contract, the minimum for players on   the 40-man roster and not the 25-man roster is $37,000 plus collective cost   of living increases since 1999.

After the three option years are up, a player must pass through waivers to   be placed on optional assignment.

When a player is designated for assignment, the player is essentially in limbo.   He doesn’t count against any of the roster sizes and this is used while you   either try to trade the player or get him to accept a minor league assignment.

When a player is placed on waivers, other teams have a shot at claiming him,   in order of worst record in the same league to best record in same league to   worst record in opposing league to best team in opposing league. For the first   month of the season, the W-L record of the previous season is used. When a team   places a waiver claim on a player, the new team is subject to the same option   rules. For example, if the Red Sox claim Joe Schmoe off waivers because he was   out of options when the Devil Rays sent him down, the Red Sox would then have   still to pass Schmo through waivers to send him down to their own minor league   team.

There are two disabled lists in the majors. The 15-day disabled list forces   teams to keep players out for a minimum of 15 days and does not count against   the 25-man roster. The 60-day or Emergency disabled list requires a minimum   of 60 days on the shelf and doesn’t count against either the 25-man or 40-man   roster.

Service Time

Service time is accrued for every day spent in the majors. If a player spends   20 days or less of the season on optional assignment, the player is given service   time for the entire season. This is to prevent various shenanigans if calling   up a player at the end of April to buy an extra year of rights.

Service time allows the player more authority over how his contract can be   assigned.

A player with 10 years or more Major League service, the last 5 being with   the team he’s currently on may not be assigned to another team without his consent.

A player with 5 years or more Major League service cannot be optioned to the   minors without his permission. He must be offered his release. In the case of   a player signed to a Major League contract as a free agent, and thus almost   certainly signed to a guarantee contract, still has to be paid according to   the provisions of his contract.

A player with 3 years or more Major League service may not 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 may elect to become a free agent whenever he is removed from the 40-man   roster starting with the second removal of his career. The player may opt to   not become a free agent but to become a free agent after the season.

A player with 5 years or more Major League service that is traded in the middle   of a multi-year contract may, 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 3 years.

Salaries and Arbitration

A player may not make less than the league minimum of $200,000.

Players with one or two years of service time and players between two and three   years of service time (except for the 17% with the most service time) can have   their contracts renewed automatically by the team if they cannot come to an   agreement. When renewing a contract, a team cannot reduce a player’s pay by   more than 20% from the prior year or 30% from the year before that.

Players with 3, 4, or 5 years of service time and the top 17% of the 2 year   players may opt for arbitration in order to come to a contract.

The club’ proposal may not be less than 80% of the player’s salary the previous   year. The exception here is that if a player won an arbitration award the prior   year that resulted in a 50% or greater salary increase, there is no maximum   paycut allowed in the proposal.

Arguments that are not allowed in an arbitration hearing include the state   of the team’s finances, previous offers made during salary negotiations between   the player and the team, any press comments or testimonials with the exception   of media-supported awards like the MVP Award or salaries in other sports or   occupations.

A player with a non-guaranteed contract or an arbitration award may be released   up until the 15th day of spring training with 30 days’ pay or from the 16th   day of spring training until the opening of the season with 45 days’ pay.

When a player is claimed on waivers, the new team takes on the contract. When
  a player is released in the middle of a guaranteed contract, the new team only
  has to pay league minimum with the old team footing the rest of the bill.

Free Agency and Compensation

A player that has accrued 6 complete years or more of service time at the end   of a season and does not have a contract is eligible for filing for free agency,   after which the player can sign with any team he wants.

To receive compensation for a player that signs with another team, the team   must offer the player salary arbitration.

The team must offer salary arbitration to the player by December 7 or will   not be allowed to negotiate with or sign the player until the following May   1. After arbitration is offered, the player has until December 19 to either   accept or refuse salary arbitration. If it is refused, the player can only negotiate   with the club until January 7th, after which no more negotiation can take place   until May 1.

The compensation formula is based off a negotiated formula, heavy on triple   crown stats, for the previous 2 seasons. Type A players are those that rank   in the top 30% of his position. Type B players are those that rank below top   30% but still in the top 50%. Type C players are those that rank in the top   60% but not the top 50%.

A type players fetch the 1st-round draft pick of teams in the top half of W-L   record or a 2nd-round draft pick of teams in the bottom half of W-L record and   an additional pick between the 1st and 2nd rounds. B types don’t get the sandwich   pick and C type players fetch a sandwich between the 2nd and 3rd rounds. The   higher the player’s ranking in the compensation formula, the higher priority   the old team gets in acquiring draft picks.

Something that’s never mentioned is that there are still limits to the type   of free agents that teams may sign.

If there are 14 or less type A and B players available, no team may sign more   than 1 type A or B player. If there are 15-38 available A and B players, no   team may sign more than 2. From 39-62 this becomes 3. The club quota increases   accordingly for higher totals of available free agents. There is no maximum   allowed for type C free agents. Lastly, a team can sign up to as many type A   and B free agents as they’ve lost, regardless of the above quota.

Major League free agents come with an automatic no-trade clause until after   the next June 15.