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Nick Castellanos and a Qualifying Offer from the Reds

Nick Castellanos and a Qualifying Offer from the Reds
By Reds Content Plus • Issue #164 • View online

Should he stay or should he go?
Should he stay or should he go?
News: MLB has informed teams today that the “qualifying offer” this winter for the 2022 season is $18.4 million. Free agents extended a QO have until Dec. 1 to decide. (Buster Olney, ESPN)
Analysis: The qualifying offer rule was established in the CBA that started in 2012 and adjusted in the following CBA beginning in 2017. It’s designed to compensate major league organizations that lose players to free agency.
A club that wants to receive that compensation must make that player a 1-year salary offer for the “qualifying” amount. That QO salary is determined this time each year and is based on the average of the top 125 MLB salaries from the previous season. The two cases where QO are not permitted are: (1) if the player has been subject to a qualifying offer previously, or (2) if the player hadn’t played with the team for the entire previous season.
When a team makes a qualifying offer to a departing free agent, that player can accept the offer or decline. If he declines, that team receives a draft pick from the team the player signs with. So the signing team is punished.
There are two tiers to the compensatory draft picks. Tier 1 is for players who end up signing for more than $50 million with their new club. A Tier 1 draft pick comes during Compensatory Round A which is after the first round.
If the player signs for less than $50 million, the team losing out gets a Tier 2 pick, which falls during Compensatory Round B, after the second round and worth less.
Last year, the Reds lost Trevor Bauer to free agency and when he signed a $102 million contract with the Dodgers, the Reds were awarded a Tier 1 compensation pick. They chose 18-year-old OF Jay Allen who played 19 games in rookie ball and hit .328/.440/.557.
(The Reds never intended on re-signing Bauer, given his likely salary range. They went into the deal for Bauer’s acquisition assuming they would get a qualifying offer on the back end.)
In 2014, the Reds lost Shin-Soo Choo to free agency and chose Alex Blandino at #29 with the compensatory pick. In 2012, the Reds got Jesse Winker at #49 as a compensatory pick for losing free agent Ramon Hernandez. Todd Frazier was a compensatory pick for losing Rich Aurelia in 2007. Winker and Frazier were chosen under a different system.
That brings us back to Nick Castellanos.
Castellanos agreed to a four-year contract with the Reds paying him $64 million. As part of the deal, the club gave the outfielder two opt-out clauses, one after the 2020 season and one after 2021.
Castellanos didn’t exercise his opt-out last year but is widely expected (“incredibly surprising if he doesn’t” per MLB Trade Rumors) to take advantage of it this year, which he’ll announce in the next few days.
If Castellanos opts out, the Reds can make him a qualifying offer in the amount of $18.4 million. That figure is below the $18.9 million QO threshold last offseason.
If Castellanos accepts the QO, he’d then be on a 1-year contract for 2022 only. If Castellanos rejects it, the Reds will receive a draft pick, likely a Tier 1.
Nick Castellanos just had the best baseball summer of his career, putting up a 4.2 WAR (FanGraphs) / 3.3 WAR (Baseball-Reference) season. He batted .309 and hit 34 homers. His wRC+ of 140 means he was 40% better at run creation than the average major league hitter.
Why Castellanos Might Accept the QO
$18.4 million is more than the $16 million he is scheduled to be paid under his current contract. Beyond that, two factors may dampen Castellanos’ value in the free agent market.
First, the club that signs him would lose a draft pick, generally its second- or third-highest. In certain cases, teams also lose international bonus pool money. So there’s a cost to signing Castellanos because of the attached QO.
Second, the current CBA expires December 1. The ongoing negotiations may prove contentious and cause teams to be more cautious with new payroll commitments until they see how the terms end up. In a worst case scenario, negotiations might collapse and Castellanos not receive any offer at all.
If Nick Castellanos were to accept the Reds QO, he could play for $18.4 million in 2022, negotiate a long-term deal with the Reds, or enter the free agent market for 2023 without the overhang of the compensatory draft pick and the CBA uncertainty.
By his own account, he enjoyed his time with the Reds: “I don’t know what is going to happen, but this has been the most consistent, happiest I’ve been playing baseball,” Castellanos said at the end of the season (Bobby Nightengale). “I have a tremendous amount of respect for the Reds organization. Just the history of baseball for Cincinnati, how they played the game, the pride they took in playing the game, the chip on their shoulder they played the game with during the time period that they were successful and winning.”
Why Castellanos Might Reject the QO
At age 29, healthy, and coming off a career year with the Reds, Castellanos is at peak value. Period.
If he waits to enter the free agent market – even a year – he might be injured or coming off a less-good season, and would be a year older. Castellanos could easily judge those positive factors as larger than the negative factors for coming out right now.
As one of the best hitters available in the free agent market, I could easily see Castellanos getting 4-5 years at around $20 million AAV to play with a perennial winning team (White Sox?). It would be hard not to jump at that.
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