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.

Loss Due to Lowered Draft Pick
Highest Pick P(Reach Majors) Expected RAR Median Player Ceiling Penalized Pick P(Reach Majors) Expected RAR Median RAR Ceiling
7 0.79 14.5 16.1 37.7 17 0.69 9.6 9.4 30.8
10 0.76 11.7 12.8 34.2 20 0.65 8.4 7.3 28.8
15 0.7 9.9 9.9 31.3 25 0.61 7.1 4.8 26.5
20 0.65 8.4 7.3 28.8 30 0.58 6.8 3.8 25.3
25 0.61 7.1 4.8 26.5 35 0.56 6.5 2.8 24.3
30 0.58 6.8 3.8 25.3 40 0.54 6.2 1.8 23.3
40 0.54 6.2 1.8 23.3 50 0.51 5.7 -1.2 21.4
50 0.51 5.7 -1.2 21.4 60 0.48 5.2 Minors 19.6
60 0.48 5.2 Minors 19.6 70 0.45 4.8 Minors 18.1

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.

Stephen Loftus is a Visiting Assistant Professor in Mathematical Sciences at Sweet Briar College in Virginia. In his spare time he usually can be found playing the pipe organ or working on his rambling sabermetric thoughts.

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5 years ago

One interesting thing about how this relates to the Dodgers is that they clearly saw this coming in how they have laid out their obligations. This is the last year for a bunch of large money contracts to players who aren’t offering meaningful contributions (17m Andre Ethier, 2m buyout of 2018 option, 21m Carl Crawford), have options on some players of questionable value (8.5m next year for Logan Forsythe is a team option), and next year brings more relief (the last season of Adrian Gonzales at 20m). For that matter, Yasiel Puig’s last year is 2018 also, and he could easily be replaced by Alex Verdugo by then if he doesn’t continue to improve. A bunch of their expensive fragile starters also expire after 2018 (McCarthy, Ryu, Kazmir, combined owed over $40m).

While they will certainly pick up some additional value in arb raises to valuable pre-free agent players, that’s literally 50m coming off the books before next year and another 60m+ to follow. They will need to extend Clayton Kershaw again (player opt-out after 2018), but he already makes 33m per year so no matter how gigantic his contract ends up, it’s not likely to go up a ton in AAV (40? 42? 45? Probably less than half of what Gonzales makes alone).

Of course, by 2020-2021 they will have arbitration/free agency issues with retaining the Seagers and Bellingers, but by then some of the most recent resignings will be expiring (Hill, 37 year old Justin Turner).

I think this poses a larger problem for some of the other teams given the way that the Dodgers have set up their contract expirations. They will probably go into next year below the luxury tax to reset their obligations there, and will shed all of their dead money in time to retain their new core talent.

5 years ago
Reply to  mikejunt

The Dodgers have 177 mil guaranteed money on the books to 11 players in 2018, that’s before the 2 options and all the arb cases. With just the players on roster right now for next year the team has an estimated payroll of 244 mil, that’s before trying to sign anyone out of the free agent market, or their own free agents or extensions. The contracts for AGon & Crawford came over from Boston, both teams at the time were under different FO leadership. They didn’t “see this coming” or if they did they didn’t prepare for it, or at least if they did see it coming they didn’t/don’t care (with all that money flow why would they?), the Dodgers have a very smart front office, their is what, like 10 former GM’s in the FO and if they wanted or cared to get under the luxury tax I’m sure they could but I doubt they care.

5 years ago
Reply to  mikejunt

Friedman and Zaidi are a bit smarter than Coletti was.

5 years ago
Reply to  johansantana17

Friedman and Zaidi had this plan since the Dodgers took all that money on from the Red Sox? No, the fact that 1 horrendous contract and 1 big but not terrible contract come off the books at the same time doesn’t at all mean that Friedman & Co planned it, it’s not like either of those guys were in line for an extension so really all that Friedman & Co did in all their infinite wisdom was to allow time to pass.