The wider view on the draft and economics

DMZ · June 7, 2006 at 1:35 pm · Filed Under Mariners 

There’s been a lot of good discussion around here about the economic and competitive implications of the draft, and what it means for baseball. Arguing against the draft, it’s seemed at times, creates the perception you’re arguing that small-market teams should wither up and die.

So I’ve given a long-simmering article I’ve been working on a quick polish and pushed it out. This is where I am on the baseball economics issues, so that my arguments against the draft can have a little context.

I support revenue sharing done well.
I oppose public funding of stadiums.
I support allowing teams to build their teams any way they wish.
I support a free market for baseball talent in general (so no drafts) and understand that’s not going to happen.
Teams should work without a net.

From the top:

Unless baseball allows teams to move freely, it needs to do revenue sharing, because its messed up territorial rules means some teams have massive economic advantages that are for all intents unsurmountable for even the best owners of other teams.

Take the Mariners. They’ve done an amazing job marketing and building a fan base in Seattle in the last ten years, helped of course by the new stadium. But no matter how well they do, they’re never going to have the media contract the Yankees will get, because the Yankees are one of only two teams in the largest metro area in the country.

That said, I favor revenue sharing done right: there are some really good plans out there (Keith Woolner, mine), but it’s clear that today’s plan does a lot to discourage some teams from working towards being competitive. Any plan that hurts the Indians and Mariners for doing a great job while giving money to bad teams in large markets is hurting the game.

Funding stadiums –this has been hashed out before, I’ll gloss over this.

To the big point, then: if the economics of baseball are leveled, I’d like to see teams run off in all different directions. If they want to spend on Dominican baseball academies, great. Free agents? Good for them. Domestic talent? Knock yourself out.

Right now, the weird way talent acquisition works means that American players are hugely underpaid compared to foreign players of comparable ability, for reasons that are pretty clear if you think about the economics of the whole thing. That’s unfair to domestic players, and I’m baffled why this never gets mentioned.

What you’d see would be a lot like what you see in international scouting now, only on a much larger scale. For the top prospects, there’d be open competition and (quite likely) it would look crazy (see the Travis Lee incident). But smart teams could build their farm systems however they liked, and given the risk/reward ratio of the draft, it’s quite likely that you’d see guys like Andrew Miller get their $8m, but other interesting non-star prep players teams like and that fit well into their system would get modest, rational deals.

It also means that teams in need would compete equally. If the Royals were bought out tomorrow by a new ownership group and wanted to revitalize the farm system, they could do it – they wouldn’t be limited to getting one top domestic prospect in the draft, a pretty good one in the 2nd round, and so on. They could go after everyone they thought might help, all at once.

Teams could look for value across markets – anyway, I’m digressing.

When teams are able to compete fairly in the marketplace, we’d see an explosion in the ability of teams to do cool and interesting things, and to rise and fall on their own abilities, rather than being supported in failure by badly-implemented revenue sharing and a draft that hurts competition for domestic prep athletes. There’d be no reason to have a draft at all.

To me, these issues go hand in hand, and this is why I oppose more revenue sharing as it’s currently done and putting ever-greater pressure to restrain draftee salaries, which together are sold as part of a plan to achieve greater competitiveness: it’s further down a road that we know already doesn’t help the game.

I hope that makes things a little clearer. Level the field, let ’em play.


60 Responses to “The wider view on the draft and economics”

  1. Oly Rainiers Fan on June 7th, 2006 7:00 pm

    Re: San Diego when Joan Kroc tried to give them the team and MLB prohibited it…. I think the text went something like… because of the unique elements of this type of business (a league is composed of separate entities competing against one another but also dependent upon each other’s success), any kind of municipal/public ownership is likely to be too bureaucratic (too slow to make decisions that often need to be made quickly) and more importantly, incapable of having the kind of monetary freedom to be able to pursue those decisions (like signing an expensive draft pick, if that’s what the decision is).

    Basically, MLB didn’t want to DEAL with municipalities since some of the ownership issues would necessarily become open to public disclosure, and didn’t figure taxpayers would vote to give those same municipalities a big enough bank o’ money o a recurring basis to play. Working in government for 20 years, I’m inclined to agree with the latter.

    Incidentally, somebody way up top said something about the MLB being different than other leagues in the hiding of finances. Not true, just read up on Paul Allen’s hiding of Seahawks’ financials and exploiting a very small legal loophole to do so (in a case he would most likely lose if the state had the $ to legally fight his lawyers…). At least the Ms didn’t fight THAT, which was also a part of their deal they cut for public stadium funding.

  2. DMZ on June 7th, 2006 7:05 pm

    Okay, so here’re the big problems with salary floors.

    Right now, in any season salary growth is led by a couple of teams who that offseason have money to spend (new media deal, whatever) paying for top free agents. That makes it a lot easier for everyone else to argue for raises (whether it’s rational or not) – if I’m 70% of Alex Rodriguez, my starting point for negotiations is 70% of his salary. That’s why the MLBPA (and agents) are so huge on precedent-setting deals. In a salary-cap world, they can’t get that. To a lesser extent, revenue sharing hurts this, too.

    However, what really happens is that there’s only one Alex Rodriguez, and a lot of Juan Castros. The middle class in baseball is really, really thin. If you suck, your career looks like this if you’re lucky:

    And if you’re awesome, it’s
    cheap-cheap-cheap-cheap-woohoo! I’m rich!

    So. Let’s say there’s a salary floor implemented next year for the Marlins, who have a roster of cheap, fairly crappy players. The Marlins are going to want to come in at exactly the salary floor to ensure maximum profitability, so they’ve got $6m to burn or Selig takes away their revenue sharing (potentially).

    That $6m won’t buy them a good free agent. They don’t want to spend it on a multi-year deal, either, especially when they’ve got all these young players and don’t know what they’ll be doing in a year.

    So they’ll throw that $6m somewhere. But the free agent willing to take a one-year, $6m deal isn’t the kind of free agent that’ll help the Marlins compete in any substantial way. He may be taking away development time from a good player.

    The Marlins now have a league-minimum payroll, aren’t improved, still have no incentive to improve. Competitiveness isn’t helped at all.

    Further, the effect of pumping all the new money into the market is going to drive player salaries up. The Marlins, along with the other n teams who have to throw in more money, are all going to be competing for the same kind of player, and suddenly it’s the draft and the league-minimum teams are taking whoever’ll get them to the floor and not above, while average payroll rises and they lose ground because they’re spending on horrible guys to meet an artificial obligation.

  3. Oly Rainiers Fan on June 7th, 2006 7:07 pm

    #49: trying to compare the 4 (really, you’re counting hockey as major?) sports in America is tough to do. MLB is the hardest sport to excel at, takes the longest development time (players cannot go straight from either high school OR college and be MLB level, they really DO require seasoning in a farm system) – which, right there, makes a dramatic difference between MLB and NFL/NBA. NFL/NBA don’t have to pay for development of these players – high schools and colleges do.

    NHL does have a farm system, but it’s not oeprated all that much like that of MLB.

    The farm system does make MLB pretty unique among pro leagues. As a fan of the minors, I find myself torn between ‘yeah, I love watching the Rainiers because those players ARE likely to show up on my major league team one day’ and ‘yeah, I want to watch them because they play good baseball and it’s a better purer baseball atmosphere’. I could get that 2nd motivation if all the minors were independent leagues, and MLB ultimately only got to draft from the minors (AAA or AA) OR they just purchased players from the leagues (like they do from independents often).

  4. warner28 on June 7th, 2006 7:11 pm


    First off any salary floor would be phased in and the Marlins would not have to go from a 20 million dollar payroll to 60 million in 1 offseason.

    And second both the NFL and NBA have salary floors and the teams in those leagues are not throwing money at lousy players just to reach the floor. They throw money at lousy players because they are dumb.

    If done correctly the teams all naturally come up in payroll and eventually (if the other sports are and indication and I see no reason for them not to be) most teams are having more trouble staying under the cap than they are staying over the floor.

    And I have no idea what you are talking about with the corn analogy.

  5. warner28 on June 7th, 2006 7:16 pm


    I understand all that about minors but do not know what it has to do with revenue sharing and salary caps and floors.

    You just figure out how you will define major league salary and go from there. I would base it on the 40 man roster so minor leaguers on big league contracts would count but minor league contract bonuses would not for instance.

    Everything else happening in the minors would not count.

    I will admit the implementation of a cap and floor is a little more difficult than in the other sports but not impossible.

    And yes I count the NHL because the players are making millions and the owners are actually doing quite well now too. Record attendance (which is where hockey teams make their money) all over the league this year.

  6. warner28 on June 7th, 2006 7:20 pm


    I think where we disagree is that I think that if a team is forced to spend a certain amount of money they are going to do their best to spend it the bast possible way in order to win as much as possible even if they are right at the minimum.

    Why wouldn’t they?

    A winning team will make them more money than a losing team on the same payroll.

  7. Oly Rainiers Fan on June 7th, 2006 7:32 pm

    All I’m trying to say is that you can’t look at the ‘perceived’ solution for 1 type of business (in this case, NFL and NBA) and apply it to a very different larger business (MLB) without taking the uniqueness of the larger business into account. MLB not only produces the end-product (the pro team) but they also manufacture the pieces and parts that go INTO producing that product, whereas NFL and NBA just go buy those pieces and parts off a shelf from another, completely separate supplier. That makes MLB a very different kind of beast, as the revenue needs to go into much more than just the big teams’ payroll. Arguably, if you were to define a salary floor, you’d have to include the entire player development budget (both farm team operations and domestic and international scouting) in it, since that’s such a critical part of the entire thing.

    Salary caps and floors are often brought into these discussions because they seem so easy to understand, so easy to implement. But all they really do is transfer the money to the owners, away from the players. The money generated is still the same. The cable TV contracts don’t suddenly generate LESS money. I totally ‘get’ that people get p*ssed about players making so much money, but that money does not/will not just disappear if you institute a cap and/or floor. The players will still be paid what seems to us like an obscene amount, but all that they’re not getting paid is then going to the owners. And given the choice between whose pockets I’d RATHER see that money go into, I’ll take the players every time.

  8. warner28 on June 7th, 2006 7:40 pm

    Actually I have absolutely no problem with the salaries that the players make in any sport. I say go for it. I am not pissed about it at all.

    And I do not believe a salary cap/ floor combo. takes money away from the players it just redestributes it so that it is spread out over the entire league. This is especially true with a soft cap. I truly believe that in the long run a salary cap means more money for the players and owners and a better game for the fans.

    On the topic of having to include the entire minor league operation.

    I disagree, for the purposes of a cap or salary floor all you would need to inlcude are major league contracts.

    Let the teams spend whatever they want on the farm system. Those costs are very small relative to the big league operation anyway.

    I would also like to add that the NBA does now have a minor league (which is brand new) in which teams send their players and the NHL does the same. Granted neither are as extensive as MLB but they do exist and the caps work in those leagues.

  9. JH on June 9th, 2006 2:51 pm


    You say that domestic players are vastly underpaid compared with foreign players of comparable ability. Having done a fair amount of research into the matter, I see one major issue with this: foreign players don’t sign for near as much money as domestic players.

    The record bonus for a Latin-American amateur free agent is $2.25 million (Joel Guzman), or a shade less than the league’s recommended slot money for the 5th pick in the domestic amateur draft. At least 6 players this year will receive bonuses larger than the largest one ever handed out to a Latin-American player. I’m not aware of a single Latin-American pitcher who’s ever received a bonus of $1 million+ (last year’s consensus top dominican talent received $710K), though I don’t know for sure that this has never occurred.

    Seven-figure bonuses happen 1-2 times per year in the Latin-American market, and upwards of 30 domestically. Average signing bonuses are higher for drafted players than for players acquired via the international free market, and representation is far, far better. Talent agents receive 3-5% of their American-born players’ signing bonuses. For Latin-American players the agent’s cut typically runs from 30-40% (this info comes straight from an agent who represents several Latin-American players).

    I don’t see the free market better benefitting international signees than their American counterparts. Perhaps you have some different or more complete information, but I’d like to hear you expand on why you believe this to be the case.

  10. warner28 on June 9th, 2006 6:03 pm


    Does your info. include Cubans because I know several Cuban players have gotten monster bonuses.

    Another thing to consider is that most top Latin American talents sign at 16 or 17 a full 2-5 years before their American counterparts which often leads to them reaching free agency sooner.

    I am guessing that if American kids were signing at 16 the money would be much lower.

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