New rules on draft spending will harm both players and teams
Major League Baseball's new Collective Bargaining Agreement, which will be announced Tuesday afternoon, will extend the sport's unprecedented stretch of labor peace to 21 years, and while the modus operandi is compromise, there's one concession that both sides should have reconsidered.
The new rules governing draft spending -- most notably, that a team's budget for amateur player signing bonuses each year is taxed with strict penalties for exceeding a set limit -- aren't just bad news for the players. They're also an impediment to savvy teams, especially in small markets, from adding talent.
Big spending on the draft isn't just a big-market tactic. Clubs such as the Pirates and the Red Sox, who inhabit opposite ends of the payroll spectrum, have used over-slot spending to their advantage in recent years, adding more talented players at a juncture of their careers (i.e. the beginning) when a few extra hundred-thousand dollars can be a difference-maker in getting them to sign.
The league may have sought a system of hard slotting but eventually found traction on a compromise of an overall draft tax for exceeding a suggested cap; each team's monetary limit will be based on its draft-order position and number of picks, according to a source. The club that drafts first in each round will have a larger budget than the club that drafts last. Also, teams with more supplemental draft picks will have a budget that allows for additional expenditure.
This limit won't prohibit over-slot spending, but it will make it harder for teams to be aggressive in adding amateur talent. In addition to the potential inability to sign later-round picks out of feat for exceeding its limit, teams that go over can be penalized by the league either with a steep tax or by the loss of draft picks.
These new rules could cost baseball some talented players, as athletes with college scholarships for another sport (most commonly football) are often the recipients of over-slot bonus money as an attempt to pry them away from their other interest.
In this world of labor compromise, the union's willingness to limit draft expenditure might as well have been a trade-off for revamping the draft-pick compensation system for free agents. In the past, a statistical formula had been used to determine if players were either Type A or Type B free-agents. Teams who lost Type A players received the first-round draft pick of the team that signed him as well as an additional pick in the so-called "sandwich round" between rounds 1 and 2. Teams who lost a Type B would get only a pick in that supplemental round.
Now, however, in order to get compensation if a player leaves for a new club, a team must offer its free agents the average of the top 125 contracts.
It's likely that the union only fought the draft limit so far, given that the players in question -- amateurs -- aren't yet dues-paying members in a group where seniority is important.
Visit a major league clubhouse the day after a team's first-round pick is signed and you'll find some eye-rolling and brow-raising over the gaudy bonuses given to some of the league's top picks. After all, many first-round picks who never make the majors will still make more money by signing their name than big-leaguers who were late-round picks will make in the first three seasons in the majors.
But that only pertains to a handful of the elite prospects. For many, an extra $50,000 or $100,000 can be a determining factor in signing a contract, unlike free agents who are usually paid with big, round numbers. So often veterans are given contracts in which their average annual value is a whole number -- $10 million per year, rather than, say, $9.6 million -- yet that $400,000 could make the difference between signing a promising draft pick or two rather than see them go to, or stay in, school.
Smaller-payroll teams have used the system to their advantage. The Pirates, for one, have done a great job in splurging on draft bonuses in order to add talent. Just last year, for instance, they spent $8 million on No. 1 overall pick Gerrit Cole, the hardthrowing righthander from UCLA; $5 million on second-round pick Josh Bell, a Dallas-area high school outfielder who had been committed to playing for the University of Texas; and even $600,000 on fifth-round pick Tyler Glasnow, a high school pitcher from California.
There's an economic multiplier in play: spend a little extra on a draft pick rather than spend a whole lot later on a free agent. Certainly, spending on amateurs carries greater risk with a less immediate dividend, but there is also the potential for greater reward, too, as amateur players are under team control for six seasons with three of them typically compensated with a salary at or near the major league minimum.
Pirates team president Frank Coonelly previously worked in the commissioner's office where he helped pressure clubs into adhering to suggested bonus guidelines, but in Pittsburgh he and general manager Neal Huntington have adeptly overhauled their farm system with blue-chip prospects, partly by exceeding the recommended limits. They spent a record $17 million in bonuses this year, which followed $31 million in bonuses over the previous three drafts, including $11.9 million in 2010.
Pittsburgh is only one example -- the Nationals and Royals are among the other like-minded clubs who have employed similar tactics. And, of course, a few big-market teams have done the same. The Red Sox have signed and traded their way to 20 draft picks in the first and sandwich rounds since 2005, an average of nearly three per year, many of whom have been signed to above-slot deals.
Building through the draft will continue to be the most cost-effective way to construct a team, but smart teams will now have a harder time using their aggressiveness to their advantage.