The CBA’s Poison Pill Isn’t Very Poisonous

As the only league among the four major North American sports to operate without some form of a salary cap, Major League Baseball has always been in somewhat of a unique position. Without the traditional ceilings on team salary, the sport has always left itself open to financial disparity and all the articles and opinions that go along with it.

For 20 years, baseball has tried to curb big spenders through the use of luxury taxes. Six teams paid a total of $70 million in taxes this past year, and baseball decided to continue hammering away on high-payroll teams in the new CBA approved last December. While the financial penalties maybe caused teams to think twice before spending on the free-agent market, the luxury tax never directly affected a team’s ability to access one key pipeline of talent: the Rule 4 (or, June amateur) draft.

This all changed last December. As noted by Baseball America’s J.J. Cooper, exceeding the luxury-tax threshold will result in draft-related penalties beginning in 2018. The full list of sanctions is described on page 110 of the 2017-2021 Basic Agreement, but for those who don’t have that kind of time, they can be summarized in two points:

• If a team’s actual payroll exceeds $237 million in the 2018 season (increasing to $250 million in 2021), their highest draft pick will be moved back 10 places.
• If the offending team’s highest draft pick falls in the first six picks of the draft, their second-highest draft pick will be moved back 10 places instead.

For the first time, Major League Baseball has tried to affect a team’s ability to acquire amateur talent after spending large amounts of money. If a team wants to devote an outsized quantity of money (compared to the rest of the league) to acquiring established players, they have to risk the potential of their future by seeing a major source of young talent dry up slightly. However, if you look closely at the new penalties, you see less of a leash on high-payroll teams and more of an inadequate deterrent that will fail to provide any checks at all.

These new rules most clearly affect the Los Angeles Dodgers, who got to their current stature as the best team in the league (their recent slump notwithstanding) through good drafting, international spending, and a front office willing to do what it takes to pursue a World Series title this year. With a 2017 Opening Day total salary of $242 million, the Dodgers seem to be a lock to push the limits of payroll spending in 2018.

For other teams, the future is less obvious. Organizations such as the Cubs, Red Sox, and Yankees all have young talent that will be getting more expensive over the coming years. All three clubs have also historically exhibited a willingness to spend. Would these teams be willing to sacrifice draft position in 2020 or 2021 to retain and supplement their current cores? The answer is dependent on the value of the draft picks in question.

The value of a draft pick has been discussed many times over. We can avoid the finer points, however, and just hit the highlights.

It’s not surprising to learn that a player’s probability of reaching the show falls off a cliff if he’s not included among the draft’s top few selections. The first pick has an 83% chance of reaching the majors; the 30th pick comes in at a 58% chance; and the 941st pick has a mere 4% chance of recording a single MLB plate appearances. (Props to Kevin Kiermaier on beating those odds.)

Assuming a player even gets to the majors, it’s no guarantee that he’ll have any success. Still, it will come as no surprise, either, to learn that higher-drafted players perform better if they reach the majors. The top pick is expected to put up 19 Runs Above Replacement (RAR) per season (a shade above 2 WAR); the 25th pick comes in at 7 RAR per season (a mark that Mike Trout beats 11 times over); and the 246th pick can be expected to put up 3.5 RAR per season (although Paul Goldschmidt may argue with that).

Combining these two pieces of information, we can find what a team loses when their highest pick gets lowered. Teams experience their biggest losses at the top of the draft. Even in that case, however, the difference is only 6.7 RAR per season. Anyways, it’s very unlikely that a high-spending team will fall on their face to the point of a top-10 pick. While the exact relationship between payroll and wins remains a matter for debate, it’s much more likely that a team with a high payroll will be competitive and ultimately earn a pick in the 25-to-30 range.

For the 25th and 30th picks, teams could expect to lose a mere 2 RAR per season were their picks downgraded 10 spots. That’s not really going to hurt too much. Maybe it’s possible that players picked between 25 and 30 have appreciably higher ceilings than picks 35 to 40, rendering those lower picks noticeably worse? It’s possible, but not likely. On average, teams would expect to lose 2.2 RAR in ceiling. And if a team over the salary threshold signed a qualifying offer for a free agent the prior offseason, their highest draft pick will be closer to No. 60, at which point teams are looking at barely any loss on average or ceiling. Ultimately, the only deterrent present seems to be for high-spending teams with poor records, which really doesn’t accomplish the goal for which Major League Baseball seems to have aimed with these penalties.

If the draft-pick penalties set forth in the new CBA were intended merely to pay lip service to the idea of truly punishing baseball’s financial elite, then the current resolution will accomplish this goal. However, if the goal was to enact a true deterrent to the spending of high-payroll teams, losing out on approximately 2 RAR per season (or less) will not cause such teams to think twice about spending that extra dollar.

All that said, the idea of draft-pick penalties for high-spending teams is a step in the right direction. At some point in the future, it’s conceivable that teams will lose their highest draft pick for spending above a salary threshold, similar to how teams are punished for spending above their amateur bonus pool or signing free agents with qualifying offers. At that point, teams will be faced with the prospect of losing a likely future major leaguer, with the chance of losing out on a solid starter if that player reaches his ceiling. A couple years of losing out on a highly prized amateur talent, or even just the threat of such a loss, would pose a legitimate impediment to any team regardless of their team salary.