Better Know a Process: The MLB Draft and Signing System

 

Okay so MLB just had it’s draft and I’m sure that many of you are confused about what exactly all these terms like “slots” and “signability” and “tools” are so here’s my effort to explain.

What Exactly is Different About the MLB Draft

Multiple Entries- Unlike the the other major leagues, players can enter their names into the draft repeatedly and not forfeit their amateur eligibility. This translates to “A player can be drafted out of high school and choose to go to college if they don’t like the offer.” For example, when current Astros pitcher Gerrit Cole was in college, he was drafted #8 overall but chose not to sign, he was drafted #1 the next year (Getting him more money).

Teams can gain picks by not signing players– If a team isn’t able to sign one of it’s early draft picks, then it gets a compensation pick the next year. If your team has the #8 overall pick and isn’t able to sign that player, then they get around the #9 overall pick the next year. Perhaps the most successful example of this is when the Astros were unable to sign a pitcher they drafted #1 overall and then used the #2 pick on future star 3B Alex Bregman the next year.

Picks can’t be traded– Outside of a s select few picks in the middle rounds, teams aren’t allowed to trade draft picks. Reasons for this are poorly defined but essentially come down to keeping a team like the Marlins from deciding they aren’t going to participate in development. This ensures the potential labor force of players is always large enough.

Longer Ramp up time – As you probably figured out , there’s a developmental delay before a player is ready to play at the major league level that simply doesn’t exist in the other major North American sports(even elite picks usually need 2-3 years of development) . This means that teams generally won’t be able to recognize if they are going to get a return on investment for years.

Signing Bonuses, not contracts – Players negotiate a signing bonus of anywhere from nothing (late round picks) to 8 million dollars (top of the draft). Outside of whatever bonus money they receive, these players effectively make $0 until they get promoted to the major leagues, which even for elite talents, takes 2-3 years. Given that this can take longer , or a player may never reach the majors, they are incentivized to try and get as large a bonus as possible.

So What’s the Deal with slots?

At this point in the year you’re hearing lots about how players are signing “At/above/below” their drafted slot and are probably rather confused so here’s the simplified version:

  1. In the early rounds of the draft every pick has a “slot” value , for example the #1 overall pick his year had a slot value of just over eight million dollars. The sum of all your slots is your team’s draft pool and if you don’t sign a player, you lose all the value from his slot (i.e. you can’t use that 8 million to get other players to sign above slot).
  2. Teams are allowed to spend over the draft pool but the penalties are severe and it rarely happens
  3. Convincing a player to sign for less than slot means that the team now has extra money to offer another player they might not otherwise be able to sign above slot money. Conversely, signing a player for over slot means that teams have to find picks to take less than slot elsewhere

General Assumptions

Going forward you should assume that the motivations are as follows

  1. Players want to maximize earnings from bonuses but may take less due to a variety of factors which come down to “not taking the money now could lead to less money later, no money later or more money later.”
  1. Teams want to sign as many drafted players as possible while spending no more than the total value of their draft pool.

Why would a player ever take less than slot?

There’s a couple different reasons for a player to accept less than slot, but it usually comes down to a mix of the player assessing risk, and the leverage that the player and team have. While players can and often do decide not to sign with the team that drafted them in the hopes that another year of development will get them a better offer, there is the risk of injury or decline, which turns the amount of money they get into $0, so some players will take less than slot in order to guarantee they get a payday.

The other aspect of leverage is a player’s eligibility in college. Broadly speaking , college seniors usually have to take whatever they get offered because not signing means that the only option they have is a year in independent league ball before re-entering the draft, which is undesirable, not only because of the risk, but also because it means sacrificing a year in a players earning prime.

A practical example: Jon Bagodonuts is a college junior pitcher who was picked in the mid first round. Bagodonuts was an elite pitcher whose value fell because of some concerns about an arm injury that cost him a month of the season. Jon’s slot value is 5 million dollars but his team is only offering 4 million with the hope of using the extra money to sign a 20 year old shortstop they took in round 2. While Jon believes he is worth more money, he has to consider that a bad senior year could result in receiving much less and another arm injury could cost him any kind of bonus at all. Given that even a good senior year will result in reduced negotiating leverage, Bagodonuts would probably take this offer.

Another Example: Jim Everyman is a high school senior and viewed as a generational talent at centerfield, he was taken early and is being offered his slot value of around 6 million. Jim believes that if he goes to college and performs at or above expectations he can get an overslot offer next year, which is roughly 1 million dollars more. However, signing now at age 18 will get him a huge payday and if he promotes to the majors quickly, allows him to hit free agency in his early-mid twenties. Hitting free agency in his mid twenties and playing to his potential could allow him to earn a record setting contract while every year of college could take $20 million off his free agent contract due to teams offering less money to players approaching 30. Everyman may or may not take the offer based on his assessment of the risk playing a year in college and his willingness to take 1 million more a year from now or defer the larger returns to when he hits free agency in 8-9 years. Unlike the above case, the decision is less clear cut because position player risk is significantly lower than pitchers.

When Do Teams Offer More Than Slot?

Usually when they are drafting younger players that have “signability concerns”. Signability concerns means the player is really good, usually not a pitcher and has the leverage of being able to make a case that they will turn down the money. Also, while you typically don’t see players put out a number, teams have a general sense of what it would take to get them to sign As you probably guessed this tends to be younger players who do get overslot while college seniors are largely at the mercy of whomever drafts them.

I hear a lot about a guy being a “Toolsy player” what does that mean?

Essentially that they have the building blocks to be really good at a lot of elements of baseball. One of the big divides in draft strategy is “draft for tools” and “Draft for talent. Drafting for tools translates to usually focusing your draft preferences on younger high school players or players with 1-2 years of college, who while further from being MLB ready will usually have a higher potential ceiling but carry more risk of not panning out. Drafting for talent is the idea of raking players who are more developed (but also maybe not the same performance ceiling) but generally carry a lower risk.

Why is my team drafting a (Position) we have great young talent there already?

In most cases teams aren’t evaluating a player just for the role he played in high school or college but are looking at a variety of potential roles they can develop into. Some prominent cases of this are Bryce Harper (drafted as a catcher), Daniel Murphy (drafted as a 3B), Anthony Rendon (drafted as 2B/3B) and Sean Doolittle (Drafted as a 1B, seriously). The Nationals, for example, have a top prospect named Carter Kieboom who is playing SS . In all likelihood , if Kieboom becomes major league ready, he probably gets called up as a 2B/3B in a year or two since Trea Turner is likely to block him at shortstop for the foreseeable future. Furthermore, the developmental curve means that by the time that power hitting right fielder is ready for the majors your star right fielder might be bad or gone.

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