Five-Round MLB Draft a Shortsighted, Pound-Foolish Move

While many have moved on to a potential renegotiated deal between the players and owners to get the season underway, MLB’s decision to stage a five-round amateur draft shouldn’t get lost in the shuffle. On Friday, Jeff Passan and Kiley McDaniel broke the news that this year’s June draft will last just five rounds. The news wasn’t a total surprise given that when the players and owners negotiated back in March, the sides agreed that the draft would be at least five rounds, but would be considerably shortened. However, given the relatively low present and future cost of having even five more rounds, it’s something of a surprise that the owners refused to put down the half a million dollars per team in 2020, with a quarter million dollars more in bonuses payable in 2021 and 2022.

The agreement in March specified that the draft would stick to 2019 slot amounts, saving owners a little over $8 million from what was in the CBA. In addition, teams would have to pay just $100,000 of player’s bonuses now, with the rest of the payments split between 2021 and 2022. In 2020, that means owners will spend around $15 million in signing bonuses, a $300 million reduction from a year ago. Coupled with the delayed international signing date, the owners are seeing $400 million in 2020 savings, with roughly $80 million of those savings permanent. Last year, teams spent $50 million more than their allotted amount on bonuses for players after the 10th round, which won’t happen this year. There’s also $30 million allotted for rounds six through 10, which also won’t happen this year. According to Passan, that decision didn’t sit well with front offices:

Given the $100,000 limit on bonuses to be paid this year, owners opted not to spend half a million per team right now and $1 million spread over the next three years to prevent 150 talented amateurs from turning pro. Teams can sign players after the draft, but undrafted free agents are limited to $20,000 bonuses. The types of players drafted before the 10th round are not the types who agree to $20,000 bonuses unless teams are shifting around money to give other players larger bonuses. The players who would have received decent bonuses in these rounds are now going to stay in school for another year or in the case of high school players, go to college or junior college in the hopes of being drafted in future years. There’s an argument to be made that all of these players will eventually get drafted, so it doesn’t make much of a difference for teams. That argument is not strong.

First, let’s look at the general value lost from foregoing just the sixth through 10th rounds. Last year, I estimated the present-day value of draft picks by looking at those players’ likely future production. While the most value in the draft is in the top rounds, on average, picks in the sixth and seventh rounds were worth about $2.5 million each, with picks in the eighth through 10th rounds worth about $1.5 million each. In total, that’s about $285 million in value and an average of close to $2 million per pick. The value teams get from these picks is close to 10-times the cost. On average, teams typically end up with a roughly average player every single year from those picks.

Teams might believe that they can simply get the players they missed in future years, but that isn’t the case because the number of picks any one team has is always going to be limited. While the talent is better in rounds eight through 10 than it is in say 11-15, the difference isn’t significant enough that getting a bunch of eight to 10-round talents in rounds 11-15 the following year can possibly make up the difference of forgoing rounds six through 10 this year. To put it another way, drafting 10 slightly better players in 2021 in rounds six to 15 next year can’t come close to the value of drafting five players in rounds six to 10 this year and then drafting another 10 roughly similar players next year. Because these prospects are outside the top 150 picks to begin with, they are already not sure prospects destined to make an impact. Quantity is more important than quality at this stage, so teams can have more opportunities to try to turn low-level prospects into major league contributors.

To cherry-pick with one illustration, in 2010, the Mets drafted Greg Peavey in the sixth round, Jeff Walters in the seventh round, and Kenny McDowall in the eighth round. None of these players made the majors. Tenth round pick Akeel Morris made the big leagues, but has been below replacement level. In the ninth round, the Mets picked Jacob deGrom.

The next year, the only decent contributor the Mets drafted in the first 20 rounds after first-round picks Brandon Nimmo and Michael Fulmer was Robert Gsellman in the 13th round. They also drafted John Gant in the 21st round; the big value pick in that draft was Seth Lugo in the 34th round.

The 2011 draft wasn’t a great one for the Mets after the first round. It happens. That’s why it is better for a team to have as many picks as possible, to increase the chances of developing a good player. It might be unfair to cite the Met’s 2010 draft because deGrom is an unquestionably great success and not generally representative of the kind of players teams take in rounds six to 10. He’s also a player who might not even be in the big leagues if there weren’t at least 10 rounds in the 2010 draft.

The players major league teams are passing on this year might not make it back to them in future years. The October after deGrom was drafted, he had Tommy John surgery. If there had been just five rounds the year he was actually drafted, deGrom very likely goes back to school for his senior year. There’s a decent chance he would have still needed Tommy John surgery at some point and it quite likely would have been before the draft. If deGrom was coming off an injury-riddled senior season, or hadn’t pitched at all due to a surgery that would have kept him out a full year after the draft, he might well have gone undrafted and potentially pursued a career outside of baseball with his college degree. The winner of the last two NL Cy Young awards might not even be playing baseball with a five-round draft in 2010.

The sport isn’t necessarily going to lose the next Jacob deGrom with a shortened draft this season, but it certainly seems a silly risk to take for $30 million spread out over the next three years, especially considering that even if there isn’t a deGrom-level player, teams will lose out on bringing more talented players into the professional ranks. Over the last decade, we’ve seen increased success from younger players, and part of the effect of that increase has been lower salaries for veterans as they hit free agency. That doesn’t happen in a vacuum, and the phenomenon is hardly guaranteed to continue. The league is purposefully reducing the number of talented young players in this country. Advances in international scouting and team facilities have exploded of late, but there’s no guarantee that they will continue at such a high level or increase in productivity at the same rate, particularly as expansion could increase the number of players on major league rosters by a healthy amount. Even if teams feel the need to be concerned about the size of their payrolls, reducing the number of good, young players in the sport invariably makes those older, veteran players better relative to their peers, and the veterans are a lot more expensive.

Lowering the potential talent level in baseball lowers the quality of play for fans and potentially decreases interest in the sport over the long-term, though that deficit is perhaps more intangible and theoretical. Passing up on young, cost-controlled talent only to have to pay for more expensive later on is just bad business. It’s shortsighted and its justifications are flimsy. In a time of uncertainty, MLB should be trying to bring as many talented young players as possible into the professional ranks. Failing to do so for what amounts to one minimum-salaried player this year plus half that amount the next two years prioritizes the 2020 bottom line over the sport’s future.





Craig Edwards can be found on twitter @craigjedwards.

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drewsylvania
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drewsylvania

Have the owners suddenly become vulture capitalists?

dukewinslow
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dukewinslow

As a monopsony on talent the quality of said talent doesn’t really matter. No one else is buying baseball talent.

drewsylvania
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drewsylvania

Another data point in support of starting a rival league.

Spa City
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Spa City

Agreed.

There seems to be a viable market for a third major league at this point.

Could they use college stadiums initially? Or could they co-locate teams on a single campus with several small ballparks? If they can’t have fans (or can’t bring in large, densely packed crowds), maybe a third major league could thrive on a single campus with several fields, and broadcast revenue only?

Bobby Ayala
Member

Uh explain how there is a viable market for a ‘third’ major league. (And explain what the existing second major league is.)

dukewinslow
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dukewinslow

it’s a big country. Starting a regional league with aggressive cost controls and a national tv deal that avoids markets with teams already (which are not optimized for market size as it is) might, MIGHT work. I’d say the odds are against you. But you put 10 teams in California, maybe you hold on long enough to be a competitor.

Shuki
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Shuki

MLB is made up of two major leagues, the National and American leagues. Adding an additional pro (non-minor) league would be the third major league.

As to the viability, that’s a separate question I don’t have an answer for.

Spa City
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Spa City

Um, there are 2 currently existing major leagues: National and American.

We do not need to agree about whether there is a market for a third league.

Dominikk85
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Dominikk85

All attempts to create a competing league in major sports have failed in the last 50 years or so. Just look at the ABA in basketball or xfl in football.

Don’t forget there are already indy leagues and they all struggle financially.

If you wanted to do it it would need to be a super rich media company like Disney investing billions to make it work and even then it is a long shot. And what interest do they have to do that?

In the end in those constructs long term only one of the leagues will survive

Shuki
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Shuki

I don’t think you can equate the ABA to the XFL. The ABA partially merged into the NBA and the non-merger teams ended up with one of the sweetest never-ending revenue deals possible. Each family that owned a folded team is still paid to this day a portion of national broadcast rights. It was so innovative teams were added to the NBA, rules were changed (3 point shot) and stars joined the league.

TerryMc
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TerryMc

Not quite correct on broadcast rights. There were two ABA teams that were not part of the ABA/NBA merger. Kentucky took a one time payout. St Louis took a percentage of media monies in perpetuity. That decision probably took many years to pay for itself but now is a goose laying golden eggs.

martyvan90
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martyvan90

I’m all for it. Maybe if Trump doesn’t get reelected you can convince him ala USFL.

drewsylvania
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drewsylvania

I don’t know. People want to see *their* players. KBO isn’t the same to most fans. And a lot of them want the feeling of seeing the best.

dukewinslow
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dukewinslow

sure but no one has “their” players before they’re major leaguers (some exceptions for college baseball teams with rabid fans)

fdterr
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fdterr

Control of a lower level of talent doesn’t matter if the fans don’t want to watch said talent

gtagomori
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gtagomori

That’s right. And that’s one reason baseball team value increases by 10s to 100s of MILLIONS per year. They are not capitalists, they are monopolists. Next time one asks for a free stadium remember ask yourself the last time a MLB actually went belly up (not sold and relocated)

Shalesh
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Shalesh

The near-zero interest rate policy of the last 12 years and the growing advertising for live TV content has increased team (and all asset) values more than “monopolist” conditions, which have been present in all sports leagues for at least 50+ years.

Red
Member

I am sure the various independent leagues that already exist wouldn’t mind a national TV deal.

Brian Reinhart
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Some of them have been for quite some time – the Ricketts, Jim Crane, good ol’ Jeffrey Loria. If you pull up the list of owners on Wiki, there are a lot of white men in their 70s who made their money in banking, real estate, wealth management, private equity, ski resort ownership, selling things to Warren Buffett, etc.

frangipard
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frangipard

Way to inject race into the converation.

Red
Member

re: “way to inject race into the conversation”, re: older white MLB owners – the power and wealth gap in America persists *because* we sterilize racial disparity from every conversation

“Black people account for about 12% of the U.S. population, but occupy only 3.2% of the senior leadership roles at large companies in the U.S. and just 0.8% of all Fortune 500 CEO positions, according to the analysis by the Center for Talent Innovation, a workplace think tank in New York City.”

olethros
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olethros

Nothing sudden about it. Most of them already were that, which is how they got the money to buy a team in the first place. The days of a local businessman owning the local team and caring about it as a civic asset/point of pride first and an investment second are long gone, with a couple of exceptions that probably won’t last another decade.

drewsylvania
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drewsylvania

Yeah, but they seem a lot more committed to destroying the league since Manfred arrived.

dukewinslow
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dukewinslow

it’s more complicated than that. No one’s private banker is advising them to lever up and buy a team. These are, generally, not very smart people in the third or fourth generation of wealth, who want a toy and also to make some money on the side. The pig headed management style of so many owner suggest that they also want to run something THEIR way, which is really hard to do with their day job (running a multi billion dollar firm or whatever).

SandyK
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SandyK

You don’t become a billionaire in this country without being at least vulture-capitalist-adjacent.

dukewinslow
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dukewinslow

people without money need to borrow money to do things.

SandyK
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SandyK

America, unlike most other wealthy democracies, has decided on a policy response to this need that maximizes profit and minimizes risk for the already-wealthy person while minimizing profit and maximizing risk for the people without it. The inevitable and intended result is low social mobility and high levels of inequality.

dukewinslow
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dukewinslow

I’m not sure what the point of your comment is. you want to run a business of a certain size, you need external funding. Which means either asking for it from someone with it, or having it already (not really external funding). The people who provide that money are frequently not very nice. It’s just efficient. It’s the way things are. Any other system is basically nonsense.

Are there things that can be done to improve social mobility? Yeah. Disallow inheritances. Society doesn’t experience any utility from them.
But I’m not sure what that’s got to do with anything.

SandyK
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SandyK

My point is that we have chosen to regulate the process of seeking financing for your business in such a way as to minimize risk for the people with the money. That’s not how it has to be done, as seen by the fact that it’s not done that way elsewhere. There’s a lot less vulture capitalism happening in other wealthy democracies like Germany or South Korea, because they regulate their financial markets more strictly.

dukewinslow
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dukewinslow

South Korea’s firms are essentially state run enterprises that quash all potential competition through overt price wars and product dumping. Not necessarily a great way to foster competition or innovation. Until very recently, they were a dictatorship. I don’t think that’s a particularly good example.

Germany doesn’t regulate anything all that well, particularly financial services, and the DB fiasco runs the risk of bringing the whole country down as a result. They’re staring at a bailout no one wants to or should perform on a company that was essentially a criminal enterprise.
However, it’s very socially mobile and largely egalitarian…. because they can exploit the massive economic inequality and development in the eurozone to maintain it.
By bringing these two countries up, are you arguing that the United States government should be in the business of picking which firms win and lose? Because that’s largely what happens here, and I don’t think, given how elections go, that’s what anyone wants.

I largely think that we could have a much more egalitarian society and effective aggressive regulatory state, but jacobin talking points aren’t going to cut it.

SandyK
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SandyK

You claim to support a more egalitarian regulatory state, while also arguing that there can be no possible changes to the current regulatory regime and attacking anyone who suggests that there can be. So I’m not sure how you expect anyone to take you seriously as anything other than a defender of the status quo.

dukewinslow
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dukewinslow

I don’t argue that there are no changes to make (wealth tax, effective enforcement of pre existing regulations, actually arresting people for committing financial crimes would be a start).

I’m saying that two examples of pretty corrupt quasi state run economies where firms basically lean on the government to suppress competition and differentially enforce regulation are not great examples of places that have “figured it out.” Basically the opposite. You just don’t have any idea what you’re talking about, is all.

SandyK
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SandyK

Yes, there’s certainly no examples here in the US of firms leaning on the government to suppress competition and differently enforce regulation. You certainly aren’t making the claim that the US is less-corrupt and more equally regulated than other wealthy democracies, in the comments section of a blog dedicated to an industry that has received its own individual exemption to US anti-trust laws. You are very smart and know everything!

dukewinslow
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dukewinslow

regulatory capture is bad. But we, as Americans, don’t have explicit national champion firms like Germany and SK do (who rely on a broken American financial regulatory system, btw, to keep litigation out of european courts). You just picked bad examples.

hobbes020
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hobbes020

That smarmy tone really helps make your argument, good work.

Andy
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Andy

I think this discussion is missing something important. In Baseball, for a player to make it to the major leagues, he has to overcome a barrel… a dozen barrels… of objections, disadvantages, stereotypes, doubts, obstacles, etc. The number of people you have to convince to have faith in you is endless, the number of times you have to rebound is also endless. And therefore, in order to push through all of that against such huge odds, you have to have an abnormal dedication to your dream. I read your discussion about how unfair real life is on a Baseball-focused website, and wonder how you’re missing the connection that real life is also loaded with objections, obstacles, people doubting you etc. Policy responses? Financial regulation? Egalitarian regulatory state? If you want to believe the deck is stacked against you, that’s cool. But you are in America, i suppose. Here, the ‘impossible’ maybe exists all around us, but only until somebody believes they can make it possible.

frangipard
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frangipard

Disallowing inheritance is just as likely to inhibit social mobility. One of the main motivators for people to be productive is to pass on wealth and opportunities to their kids.

Now, if you wanna say “cap” instead of “disallow” that’s a little better. But you’re still creating a whole host of perverse incentives to do things people otherwise wouldn’t. (e.g. buy a shitload of “gifts” for you kid before you die, so the government won’t take them.)

bookbook
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bookbook

There are (well, “were”) a fairly effective combination of estate taxes and maximum gift allowances that could work to limit the deleterious effects of inherited dynasties. A small handful of ultra wealthy families, led by the Mars and Koch fortunes, have managed to destroy this in the space of thirty years. The GOP owns most of the “credit,” but the Democratic Party is far from blameless on this. (We’ve gone from $1 million exemption with 55% tax beyond that amount up to $11 million ($22 per couple), with 40% tax. The loopholes beyond those totals are clever and annoyingly effective, involving charitable gifts, trusts, and magic accounting beans.)

gtagomori
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gtagomori

Never support an owner as a rule. With few exceptions they are horrible greedy, needy, insecure jerks. Capitalists? BS. They are exploiters. They get politicians to give them taxpayer dollars either through tax breaks or by using eminent domain to steal land. But they are also short sided and stupid when acting as a group.

fredsbank
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fredsbank

“suddenly” ? Have you not paid attention to the economics of the sport the last several years?