Draft Pools – Owners Try to Stop Themselves from Overspending on the Draft

marc w · February 20, 2012 at 11:32 pm · Filed Under Mariners 

One of the big questions going in to the negotiations of MLB’s new Collective Bargaining Agreement was whether we’d see “hard slotting” for the draft. Essentially, that’d mean that each draft position would have a dollar value assigned to it, and the player either accepted it or returned to school/signed with an independent team. This would prohibit teams from throwing multi-million dollar signing bonuses at high school stars who wanted to play in college, which, depending on your point of view, was either another way wealthy teams could subvert the purpose of the draft (to give parity a boost by allocating the best amateurs to the worst MLB teams) or prohibiting a smart team from taking a calculated risk in order to quickly close a talent gap. Recently, we learned about the compromise the players/owners agreed to (pdf)- aggregate draft pools instead of hard slotting.

First, let’s review what teams did last year. Each year, MLB has a recommended signing bonus for each pick in the draft with the overall #1 getting the most and a long, smooth descent from there. Each year, the teams ignore the Commissioner and sign whoever they want, with some teams saving money by signing players who’ll sign for “slot” and others throwing money at players with strong commitments to College teams. Last year the Pirates spent over $16m on their top 10 draft picks, signing #1 overall pick Gerrit Cole and then springing for high school OF Josh Bell (whom almost no one thought was signable) for $5 million, energizing their rebuild by essentially getting two first-round picks. The M’s spent almost $10 million on their top 10 (almost all of which went to Danny Hultzen and Brad Miller), but then spent another few million on late round guys like Jack Marder; they went over slot for many of their picks (Carter Capps, Cavan Cahoes, Marder, etc.), but didn’t go crazy on any one pick. This allowed them to reach for some guys who might not sign, but spread the risk around. The Cubs gave out two $1 million plus signing bonuses to two guys after the 10th round.

2011 wasn’t an example of the rich getting richer – the M’s, Pirates and Cubs were all under .500 last season and need the draft to restock. Signing guys like Bell, or Marder or Shawon Dunston, Jr. may be a better option for many teams than trading away cost-controlled players. It’s not always like this, of course, as the Tigers were able to sign Andrew Miller (whom many considered the #1 player in that draft) with the 6th pick when word of his exorbitant demands spread. The next year, they picked Rick Porcello at #27 and were able to sign him by paying him more than #3 overall pick Josh Vitters received from the Cubs, and just a few picks later, the Yankees gave their pick (#30 overall Andrew Brackman) more than Vitters got as well. There were some concerns that small-market teams simply couldn’t afford to take the best available player, and that the Yankees/Red Sox/Tigers/etc would essentially get their pick of the best talent at the end of the round.

This year, the CBA calls for an aggregate amount of money that each team can spend on its first ten picks – an amount that’s calculated based on the number of picks each team will have and the “slot” for each pick. More importantly, there are now consequences for teams that overspend. If a team exceeds its draft pool by up to 5%, it pays a luxury tax of 75% of the overage amount. If it spends 5-10% over the pool, the tax is 100% of the overage and the team loses a first round pick. 10-15% overage results in a 100% tax and the loss of a first and second-round pick, and overages above 15% result in forfeiting a first round pick in the next two drafts.

Thus, while there’s nothing to prevent a team from signing the next Josh Bell in 2012, they’d better like him a whole lot, because he’s probably going to cost them TWO #1 picks. You can go overslot for someone and avoid losing a draft pick, but you’re going to want to do so when your pool’s larger (a 5% overage on a pool of $11 million’s obviously going to buy you more than a 5% overage on a $1 million pool). Trading draft picks outright is still verboten, but this system seems to allow teams to do the equivalent of moving up in the draft by forfeiting future picks; since this quasi-”trade” is with the league and not a club, so there’s no risk of hearing “no.” Will scouting college seniors who may be willing to take below-slot bonuses become the new market inefficiency?

There’s no way to talk about an optimal strategy without seeing the draft board and talking to scouts about the relative strength of one class versus the next, but I can’t way to see how this plays out. Will teams try to stick within their pool and then, if they’re going to be close to 10%, go crazy and double their bonus (taking the equivalent of two or three first rounders in one year)? For a sense of scale here, the Pirates exceeded their slot bonuses by 268% last year; if you’re going to exceed the cap and face a stiff penalty at 6%, why WOULDN’T you go to 268%? Would a team be more likely to blow through its draft pool number if it felt that it was closer to contention (meaning the forfeited draft pick would be of lower value), or because it thought the subsequent draft class was weak? Are the penalties to severe, or do they not go far enough? Some are concerned that this will hurt poorer clubs, while those who wanted hard slotting would argue it doesn’t do enough to *protect* them.

The M’s have the 7th highest bonus, largely the result of having the #3 overall pick. The Angels have the smallest pool at $1.7 million total – the result of losing two top picks when they signed Albert Pujols and CJ Wilson. The M’s clearly have enough to sign whoever they want at #3, but a repeat of last year’s draft is probably out. Do you care? Do you hate the new rules, and why? Do you support any move that may prevent the Yankees from leveraging their wealth to buy up talent, or is Selig an idiot for taking away one of the few tools the Pirates had to try and compete with their larger rivals?

Comments

22 Responses to “Draft Pools – Owners Try to Stop Themselves from Overspending on the Draft”

  1. greentunic on February 21st, 2012 12:29 am

    Great write up Marc! The layers present in the differing strategies and their domino effects are mind boggling.

    The M’s clearly have enough to sign whoever they want at #3, but a repeat of last year’s draft is probably out.

    While this may seem implicit (now that there are caps), may there be a possibility that players simply sign for less now? I mean agents are surely aware that teams will be sticking to budgets more religiously now. Once players stop getting offers they want as a result of the new rules, perhaps they will stop asking for bonuses that cripple their potential team’s draft strategy?

    It’s like applying an artificial ceiling to a goods market. Agents cannot expect to keep getting the same bonuses now. I suspect this draft could be a mess of teams and players trying to figure out “market values” of talent. But afterward, I would not be surprised if teams can still have good drafts as players will have less negotiating power. Peter Brand would be a great person to ask. Economics major from Yale and baseball genius. Too bad he doesn’t exist.

    Love that the Angels will be handcuffed this draft!

  2. BackRub on February 21st, 2012 3:35 am

    On first reading I thought there was possibly a loophole with cap applying only to the first ten rounds, leaving teams free to overspend on later rounds. That’s not the case- bonuses over 100,000 after round 10 also apply to the cap.

    I don’t like these changes because it neutralizes a club competitive advantage in drafting/developing players. I think the Yankees owners are just about the only people I can see being for it. Even the team with the second largest payroll-the Red Sox- get an incredible amount of value out of the draft. There wasn’t a problem here that needed to be fixed; bonuses were not getting too high. Paying players overslot is a hugely profitable strategy for decent talent evaluator. Small market teams should be able to afford bonuses because this is an area were they should focus their limited money.

  3. Brantid on February 21st, 2012 3:50 am

    These changes are awful. But, in the end the only way the changes will be be overall detrimental is if the limitations push players to other sports. I bet there are a few isolated instances of that, but it won’t be widespread. Overall, my guess is that the talent pool diminishes for a couple of years as HS players and 3rd yr college players not selected early elect to go to or stay in college in an attempt to increase their draft position. So colleges and independent leagues will probably benefit. But after 2-3 years, I would expect the talent entering MLB through the draft to stabilize.

    That is an overall view…specific to teams it hurts teams that do try to build through the draft. It levels things, which usually sounds good, but when every other aspect of the game isn’t level, leveling one aspect isn’t a good thing. I really wonder if it would stand up to legal challenge as they are impacting players that aren’t represented.

  4. Paul B on February 21st, 2012 6:37 am

    I would guess that there will be a higher percentage of drafted players who don’t sign.

    Here’s an extreme example.

    Could a team give their entire bonus for the first 10 rounds to just one player, and then punt rounds 2 through 10, drafting players they have no intent of signing?

  5. gwangung on February 21st, 2012 7:55 am

    Bud Selig is an idiot. ALWAYS.

  6. Salty Dog on February 21st, 2012 8:03 am

    The one thing I really like about this is that it eliminates the ridiculous charade of some teams abiding by the “recommended” slot amounts and some teams not (and obviously it’s a continuum, not an either/or). Certainly this does eliminate one potential way for small-market teams to even the playing field, but it also means teams that previously tried to comply with MLB’s “recommendations” are no longer at a disadvantage.

    Another thought is that it really makes it advantageous for a player to get into MLB as early as possible, since the amount you can earn for your cost-controlled years (counting signing bonus toward that) is being depressed, which should lead to more money going to players who are arbitration-eligible or free agents. So yeah, you might get a better signing bonus by holding out for a year, but then you’ve also pushed back the age at which you’re arb-eligible and a free agent, which might end up losing you money in the end analysis (if you make it to the big leagues, obviously).

    It certainly will be interesting, if nothing else, since it’s a new system. Love it or hate it, I expect it to be entertaining. :-)

  7. Mariners35 on February 21st, 2012 8:31 am

    It is hard for me to have an objective viewon this, or an opinion on how it affects baseball overall, because of all the recent depressing recaps in the blogosphere about how few drafts have worked out for the M’s. :)

    Or put another way, let’s see two or three draft where we don’t see wild swing-and-misses on the top picks, and where the good players aren’t traded away for dross like Choo, Jones, etc. were. Two or three good drafts by the M’s, where the results of said drafts are managed well, will probably be so much of an improvement that it will negate most short-term disadvantage of the new draft rules.

  8. Paul B on February 21st, 2012 9:42 am

    2009 had Ackley and Nick Franklin. Seager too.

    That could turn out to be a good draft for the M’s.

  9. Mariners35 on February 21st, 2012 10:17 am

    Paul – yep, that’s a start, though Franklin and Seager haven’t done much at the major league level yet, and Ackley hasn’t had a full season yet. But yes, early returns are promising there.

  10. greentunic on February 21st, 2012 10:25 am

    Actually, the fact that Seager made it to the majors and had a positive WAR this quickly as a third rounder is very encouraging. Not to mention Ackley has done well in the majors too so far.

    And while Franklin has not made the majors as of yet, his progress and development have to be taken into account at the time. The 2009 draft is, so far, a fantastic draft for the M’s. That could change, but that’s where it stands right now.

  11. Celadus on February 21st, 2012 10:35 am

    Is there a limit on how much one can spend on independent league players? If not, what will prevent players from signing and playing in an independent league?

    Would Japanese leagues be able to sign some of these players, or is there an implicit or explicit agreement that US draft-eligible players won’t sign there? Or Australia? Or every European league?

    If I were a coveted college player, spending a year playing in Australia or Europe might be a nice gap year, particularly if I were looking at $10 million on the other side of it instead of $1 million on this side of it.

  12. onetreehugger on February 21st, 2012 10:53 am

    I don’t think this system is great, but I think it was time to try something new. How this will work out for the mid- and low-level teams we’ll only know once they try it.

    As for a team that was going to spend enough to lost the draft choices, why wouldn’t they just go way, way over, as I understand it if a team had 10 million to spend and they spent 25 million, one thing that would stop them if they weren’t the Yankees is that it would really cost them 40 million because their would be the 100% penalty on everything over 10 million. Do I have that right?

    The one thing I felt (no data here) was constant in the old system was that, all else being equal, Scott Boras clients got paid more. I suspect that will still be true, or at least I will percieve it that way.

    One last thing, didn’t the mariners have a player a couple of years ago that they took at some round with a verbal agreement that they would sign for the amount they would have gotten for the next round, then they didn’t keep the agreement? I suppose that could still happen.

  13. Clay on February 21st, 2012 11:03 am

    A team cannot “give their entire bonus for the first 10 rounds to just one player, and then punt rounds 2 through 10″. The pool is determined by adding up the suggested money for each of the teams picks. If a team does not sign a player with one of their picks, the money for that pick is removed from the pool.

    There is a way around the pool though. The team could draft one really expensive guy with their first pick, and come to pre-draft agreements with nine fifth year seniors who have no leverage and wouldn’t be drafted high otherwise – say for $50,000 apiece. Then they would have their entire pool minus $450,000.

    The issue with that is if you signed the first rounder first and any of the remaining nine failed to sign for any reason, you would have to forefit draft picks. Which would give them incredible leverage. And if you sign the bottom nine first, you can’t sign your guy until you ink them to a contract, which would also give them leverage. They could easily break their word and want more than $50,000, and the team would be at their mercy.

    I guess if you wanted to really be extreme a team could blow their entire pool on one guy in the first round and draft nine of the GM’s non-baseball playing friends and family. They would sign for $1.00 apiece, and since they are friends and family I doubt they would play games to get more money. But the Commissioners office would probably get mad and step in.

  14. Clay on February 21st, 2012 11:17 am

    I am against the new draft rules for three reasons.

    First, it will limit the amount of dual-sport athletes baseball can snare away from football. Bubba Starling last year, Joe Mauer, Matt Holliday were all well thought of high school football players that took big money to sign. There are also a ton of lesser players who had to be bought out of other sports. For example, Austin Jackson of the Tigers had to be bought out of a Georgia Tech Basketball scholarship in the late rounds- if the new rules applied its likely he would be in the NBA and not playing terrific defense in Detroit.

    Second, it removes an avenue that allowed lower income teams to compete. There are two ways for teams to add talent to their team – free agency and amateur draft/international free agency. Small payroll teams cannot compete in free agency, so their only hope has been to spend a lot in the draft and IFA. Under the current rules the only small payroll teams that can spend in the draft are the ones that suck – it will be harder for small teams that win (such as Tampa Bay) to acquire talent. Essentially, the new rules limit the amount one can spend in the draft and correspondingly make free agency more important. Which works to the benefit of big payroll teams.

    Third, the new rules benefit billionare owners at the expense of players. I’d rather see the money go to high-school and college kids who probably haven’t enjoyed that finanical security before, than owners who would use it to buy a third yacht or a faberge egg.

  15. Dobbs on February 21st, 2012 12:55 pm

    I can see how this could work where a team works the system to take advantage of it…

    but in general if the system doesn’t limit teams to a fundamental hard-slotting, that’s definitely a good thing.

    Now they just need to fix international signings, which has been a bigger issue I imagine of the haves and have nots.

  16. PinedaExpress on February 21st, 2012 3:12 pm

    IMO more of the first round type talents will be looking to have themselves added to the 40-man roster upon signing that contract. That is what would speed up thier arb schedule, much more than if they were to go back into the next years draft.

  17. just a fan on February 21st, 2012 4:28 pm

    I guess if you want to go overslot, just go ALL OUT. If the penalty for over 15% is losing two first round picks, then just draft a bunch of guys, and go berserk!

    Why shouldn’t the Yankees do that every year? They annually draft from 25-30 anyway.

  18. TerryMc on February 21st, 2012 6:36 pm

    I would also think this will have an affect on how quickly players picked in the top 10 rounds sign. Instead of having multiple players sign in the last 15 minutes of the last day before the signing period ended, would there be pressure on players to race and sign earlier so as to not have the team run out of cap room before their contract is completed.

    PaulB sort of touched on this above when he mentioned having one player eat up 100% of the cap and the other 9 players not being signed.

  19. Greeff on February 22nd, 2012 3:26 am

    i’m a bit bummed out by the new rules because i was really hoping for an international draft in the new CBA.

  20. betweenthelines on February 22nd, 2012 6:48 am

    Has anyone thought about what would happen if all the teams busted their budget by over 15%? What happens when every team loses 2 first round picks?

  21. Paul B on February 22nd, 2012 7:10 am

    This may be a case where a new set of rules causes more gaming of the system and results in unintended consequences.

    There may be a lot of clever things teams and players do under these restrictions.

    Teams and agents are kicking ideas around right now, I’m sure.

  22. Badbadger on February 22nd, 2012 9:37 am

    My preference would be that they just let owners spend whatever the heck they want to on signing bonuses. If the Yankees get to spend double the payroll of most teams then why the need to get wadded up about a signing bonuses? Either you want money parity or else you don’t.

    I’d rather have hard slotting than this. To me this looks like a mechanism to have more unsigned draft picks, which I never like.

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