The Pirates’ Game Theory Dilemma

In an age where most picks are revealed on Twitter by Jim Callis or Keith Law, the Astros managed to pull off a legitimate surprise and took shortstop Carlos Correa with the first overall pick in the 2012 draft. Correa offered the Astros premium potential and the likelihood of saving a little bit of money on the selection, which then gave them the opportunity to take Lance McCullers Jr. with their second selection — so the pick had multiple benefits for the team.

But it also created a chain reaction that caused presumed top selection Mark Appel to slide all the way to Pittsburgh at No. 8. And in turn, that is going to make the Pirates decisions today perhaps the most interesting in recent draft history.

The Pirates have a total draft allocation of $6.56 million for their first 11 selections, $2.9 million of which is allocated to the pick that was used on Appel. The slot bonus for the first overall pick — where Appel, a Houston native, had to have hoped he was going — is $7.2 million, so it seems unlikely that Appel (and his agent Scott Boras) are simply going to accept the slot bonus and sign for $3 million. Instead, Boras is almost certainly going to tell them that Appel still expects a bonus that reflects that he was one of the premier players in the draft, and will expect that the Pirates will make sacrifices in later rounds in order to leave enough money to make Appel a stronger offer.

Those sacrifices have to be made today, however. The Pirates already used their second pick, No. 45 overall, on Barrett Barnes, a player who was expected to be a first/sandwich round selection, so is unlikely to give the team a significant discount in order to sign. If the Pirates are planning on making Appel an over-slot offer, they’ll need to take a significant amount of easy-sign guys in rounds two through 10 to reallocate the cash from those suggested bonuses to their top selection. For instance, if they go for guys who were expected to be taken in the 10th round with each of their next nine selections, they could attempt so sign each one for $125,000 apiece, the slot recommendation for every pick from 300 to 338. That would cost them $1.125 million, leaving them with an surplus of $1.4 million that could then be shifted to negotiations with Appel and allowing them to offer up to $4.4 million without entering the penalty tier that requires the forfeiture of their 2013 first round pick.

But here’s the thing — if the Pirates go that direction, they’ve just handed all the leverage in the world to Mark Appel and Scott Boras. The Pirates would have punted almost the entire 2012 draft, rolling all of the value they could have expected from rounds two through nine into making Appel a better offer in hopes of getting him signed. Not signing him at that point would be something of a disaster. Yes, they’d get the No. 9 pick in next year’s draft as compensation for not signing Appel, but they wouldn’t get any compensation for the sacrifices made to make him a stronger offer.

In previous years, teams would protect their leverage by taking a slew of hard-sign guys after the 10th round, and if negotiations with their top selection fell apart, they’d simply take some of the money they were offering to the higher draft pick and give it to the guy who fell because of his asking price. Under the new rules, however, that’s off the table. If the Pirates don’t sign Appel, the $2.9 million they’ve been allocated to sign him disappears. So, the Pirates essentially have to decide today — before they really have any idea of whether or not they can sign Appel — whether or not he’s worth punting the rest of their draft. If they think they can get him signed for something in the $4 million to $4.4 million range — and that he’s worth more than the value they’d extracted by taking a slot guy at No. 8 and in rounds two through 10 — they should draft a lot of college seniors today. But, if they go that direction, Appel and Boras suddenly hold all the cards — which is probably not a situation they want to find themselves in.

So, I think the Pirates will just play it straight, mostly follow their draft board and take guys who might garner them a little bit of savings but not reach for guys several rounds earlier than you might expect. Maybe they’ll work in one or two senior signs to save half a million or so, but I can’t imagine they want to give up the rest of their selections on the hopes that Boras plays along. However, if they just draft as if everything was normal, the later picks begin to assume more leverage than they should have any right to.

The Pirates can offer some slightly below-slot deals to the guys they select today to try and save some money to offer to Appel, but their only bargaining chip is the player’s desire to play professional baseball. If the kid (and his agent) decide that they’re not going to sign for anything less than slot, the Pirates have nothing to gain by refusing to sign him at that price, since that money disappears from their total draft allocation. For instance, consider this scenario:

The Pirates draft Prospect X with 69th pick, which has a slot value of $746,300. The team offers $675,000, and he counters with $725,000. Pittsburgh will have more money to offer to Appel if they sign the kid for his higher counteroffer than if they stick to their guns. Having a firm stance in negotiations would not only cause them to risk losing the player they took in the second round, but would actually reduce the amount of money they had to offer Appel.

So, essentially, the Pirates have a couple of choices today:

A. Overdraft guys who you know will sign for a fraction of the slot recommendations and use the savings to make Appel a better offer and increase the odds of signing him.

B. Follow the draft board, make decisions without regard to Appel’s likely demands and then hope that the agents don’t realize how much leverage they have in negotiations.

It’s a pretty fascinating pair of options. By taking the best player on the board with the eighth pick, the Pirates have put themselves in a bit of a pickle. That’s probably not the scenario MLB was hoping for when they came up with these new rules, as it puts the team in a position of having to choose self-harm in order to hold the line on budgets for the league. Under the old system, the Pirates could be rewarded for taking the best player on the board, and could simply invest more in their future product to help their team build a winner. Under this system, though, the Pirates are probably either going to lose their first round pick or take some serious reaches in later rounds.

These new rules were pitched as a benefit to teams like the Pirates. I wonder if Neal Hutington and the rest of his team today feel like the total team allocations are actually working in their favor.