Qualifying offer

From XOPedia

If a GM wants to have the right to match his free agents' contracts, the GM must submit a qualifying offer (QO) to that free agent before free agency starts. All qualifying offers are 1 year deals and are the only offers you can make to your own free agents. If the player receives no other offers in free agency, the player will sign that 1 year qualifying offer*. There are three types of qualifying offers:

• Low-level: 1 year/$0.35M deal - can match up to and including the equivalent of a 4/$4M/0% deal
• Mid-level: 1 year/$2.5M - can match up to and including the equivalent of a 5/$9M/0% deal
• High-level: 1 year/$6M - can match any contract

The decision making process here should be fairly simple: if you think your free agent might get a contract worth more than 5 years/$9M/0% increases, and that you'll want to match the contract and keep the player in that case, give him the high-level QO. If you think there's no way your free agent is worth $9M per year, but he could be worth more than $4M, give him the mid-level QO. Everyone else you can give the low-level QO.

[*] There is one exception to this: if you have offered a player a low-level QO and the player gets no other bids, you will have the option to restructure his deal in any way you please, as long as it is a legal contract.