Return on Over-Slot Signings (Part 2)

Earlier, we found that teams do indeed pay a premium to acquire early-round talent in the later rounds of the draft. (And I would suggest reading the first part of the study before you read this so that you are caught up on the methodology and some of the terminology). Today, we’ll look at over-slot signees selected from the supplemental to the tenth round, differences among position players and pitchers, as well as differences between high school and college players signed to over-slot deals.

While teams had to pay a fairly significant premium to acquire early-round talent in the later rounds, teams appear to have gotten solid, even good value signing players to over-slot bonuses in the supplemental round through the tenth round of the draft.

Below are the expected values of players signed to over-slot deals from the supplemental to the tenth round of the draft. Players are grouped by the bonus they received:

* Returns listed in millions.

For comparison, here is the return on ‘typical’ draftees (players within one z-score of the mean bonus given in each round) by round over the 2005-2009 drafts:

The results paint a fairly rosy picture for over-slot signings. In several of the groups, over-slot signees outperformed players from the round that typically received that bonus. (For example, players who received over-slot bonuses between $700,000 – $900,000 outperformed typical supplemental round picks in the sample, who received an average bonus of $812,000). In fact, aside from the $200,000 – $350,000 group, each group of over-slot signees compares at least reasonably well with typical players from the round corresponding to that particular bonus.

But I want to be careful not to overstate the findings of this analysis. The usual caveats with sample sizes apply, and the pools are small enough that the $150,000-$200,000 group received a huge boost because the Rays signed Desmond Jennings for $150,000 in the tenth round of the 2005 draft. With such a limited sample, it would be unwise to conclude from this data that players signed to over-slot deals from the supplemental to the tenth rounds are bargains.

That being said, the data supports the notion that teams do not have to pay the same premium to acquire the talents of over-slot players from the supplemental to the tenth round as they do in the later rounds. Furthermore, after the tenth round it was hard for teams to get 1st and second round talents (not surprising given the fact that teams compete to identify and draft potential impact players, and it’s rare that all but the least signable of these players make it out of the first ten rounds), players signed for big bonuses- close to and over 1 million dollars- performed similarly well to players taken in the supplemental and late first round. Players in this group who particularly distinguished themselves include Wil Myers, Joba Chamberlain, and Brett Anderson.

The finding that players signed in the early rounds to over-slot deals of near and over a million dollars have been yielded a similar return to players signed for that amount in the late first and supplemental rounds may mean that teams should be more aggressive in targeting players who slip early in the draft due to concerns about their signability.

I was also curious whether over-slot pitchers might prove to be better investments than over-slot position players.

Again, I split the over-slot players by the bonus they received. For the pitcher-position player analysis, I combined players with similar bonuses across the round they were selected to increase sample sizes.

* Expected value listed in millions of dollars. (Click to enlarge).

While the difference between pitchers and position players was not statistically significant, the numbers suggest that with more data we might find that over-slot pitchers would in fact provide more value than over-slot position players. Even in spite of having a larger percentage of total over-slot signees receiving bonuses below $500,000, over-slot pitchers, on average, were expected to provide more value than over-slot position players. And I think this result fits with our intuition. It’s so difficult to project which arms will be able to withstand the rigors of a professional workload, not to mention trying to anticipate which pitchers will be able to make progress with their secondary stuff and maybe grow into some more mph that the more pitchers you can get with arm strength and some ability the better chance you have.

Some readers who are more familiar with Wang’s research may attribute this analysis’ suggestion that over-slot pitchers may be better investments than over-slot position players as figment of the valuation system being used. According to Erik Mannings translation, pitchers under 23 years old who receive a C rating from John Sickels are estimated to be worth $2.1 million, while position players younger than 23 who also receive C grades are only worth .7 million. But the important thing to keep in perspective is that these values are based on an expectation of future performance. Furthermore, even pitchers who rank in the top 10 prospects in all of baseball are valued at only $16 million. Top ten hitters, by comparison, are worth $36.5 million. So I think it’s unfair to write off the potential difference as simply a product of the valuation system being used.

Finally, I looked at whether high school or college over-slot signees yielded better value in the sample.

* Values given in millions of dollars.

I don’t need to do much pontificating about what the data suggest in this case. College and high school over-slot signees of each bonus group ranked similarly, suggesting that teams are appropriately valuing both groups relative to the other.

Taking this study as a whole suggests that over-slot signings have have been good investments for teams, particularly those over-slot signees selected from the supplemental to the tenth round. Over-slot pitchers may outperform position players, but more data is needed. And college and high school over-slot signees appear to have provided equivalent value. There are obvious some short comings associated with using a player’s rank on a prospect list as the measure of future big league performance, but unfortunately the limited availability of bonus data before 2005 prevents us from using a more fitting metric.