Appel Falls Far From The Tree

LOS ANGELES, CA - MARCH 09:  The Stanford Tree...

Will Mark Appel be leaving The Tree behind and putting down new roots in Pittsburgh?

On the eve of this year’s baseball draft, many observers felt that Stanford pitcher Mark Appel (pronounced A-pell) would be picked #1 overall by the Houston Astros.  Appel and Georgia high school hitter Byron Buxton were 1-2 on most people’s draft board.

Many people had the toolsy Buxton ahead of Appel, but there’s always a risk/reward with high school players.  The Major League teams gets the raw material earlier, before a player learns so many bad habits.  But on the flip side, there’s a lot more opportunity for a player to simply stall in development or be overrun by injuries.  A college player is generally closer to a finished product.

When the Astros finally made their pick, it was Puerto Rican shortstop Carlos Correa.  Correa’s definitely a great player in his own right, and has a great narrative surrounding him (in a nutshell, hardworking parents sacrifice for kid’s dream, poor residents of his flood-prone neighborhood raise money for trips to tournaments).  However, he was generally considered to be a notch below Appel and Buxton – at best the third best player in the draft and probably a bit below that.

Mark Appel slid all the way to the Pittburgh Pirates at #8 – allowing the Bucs the chance to add him to a farm system that already includes stud pitching prospects Gerrit Cole and Jameson Taillon.

So why was the third best player picked with the top pick – and why did Mark Appel drop to eighth?

The Slotting System

For years, the commissioner’s office has advised teams on suggested bonuses for each spot in the draft.  However, this year there are penalties for exceeding the bonus recommendations.

How does it work?  Each spot in the first ten rounds of the draft is assigned a dollar value, with the number one picked being assigned a value of $7.2 million this year.  Players signed later than the 10th round must be signed for $100,000 or less.

Add up the amounts for a team’s picks, and that’s the amount they are allowed to spend on the players they draft in the first ten round rounds.  Each team will have a different amount – teams with high draft picks will have substantially higher amounts than those with worse picks.  If a player is picked at a slot valued at $1 million, a team could pay him $1.5 million … but they’d need to make up the difference on other players.  If a player does not sign, his amount is deducted from the amount the team is allocated.  In other words, if a team had a pool of $10 million and is unable to sign a player who had a $1 million value, they only have $9 million to sign their other draftees.

The penalties are steep.  Exceed the amount by just 5% and you pay a 75% luxury tax on the excess.  Exceed it by 10% and the tax jumps to 100% and you forfeit the next year’s first round pick.  Exceed the amount by 15% and you lose two future first round picks.

The Effect

Two basic strategies are likely to unfold.  The first strategy is like to make the first round pick based as much on signability as talent, and use the financial savings to sign later guys.  In the case of the Astros, pick a guy like Correa at #1 and offer him a bonus equivalent with the #2 or #3 slot.  They can save a million dollars or so and then picked some fairly tough to sign guys later in the draft (for example, Lance McCullers Jr. at #41) and pay them a bit more than the recommendation for that slot.

Conversely, if you think you are going to go over slot on your top pick, you can save money on the later picks.  For example, if you have picks 1, 25, and 42 you might pick the best player at #1, but opt for the 40th best guy at #25 and the 60th best guy at #42 and get those guys to sign for less than slot.

A possible third strategy would be to trade down in the draft … but draft picks can’t be traded.

The net effect is that the basic premise of the draft is broken.  A draft is supposed to be an efficient means for distributing a talent.  In a normal draft, the top player SHOULD be picked first and the 20th best talent should be picked (roughly) 20th.  With the new slotting rules, the “draft” really becomes more of a math logic puzzle than an actual draft.

A Loophole

In theory, the slotting is an attempt to keep teams with deep pockets (Yankees) from scooping up all the best talent by making it known that they’ll pay huge bonuses.  Studies have show that draft bonuses are actually a cost-effective means of acquiring talent (when compared to alterative methods such as free agency), but obviously most owners would prefer to keep bonuses as low as possible.

However, the system actually does create an unique opportunity for a team willing to pay the penalty.  As I understand it, the largest penalty is the two lost picks and 100% luxury tax if a team exceed the bonus pool amount by 15%.  That is to say, if you have a pool of $10 million, you lose two picks if you spend $10,150,000 or if you spend $20,000,000.  Other than the extra money paid in luxury tax, the penalty is the same.

If a team is pretty sure it’s going to go 15% over slot, they may make it know that they’ll pay way over slot in an attempt to get elite talent to drop to them – basically, shooting the moon and going WAY over budget. 

Let’s say that a team has picks 15, 41, and 48 in the current year’s draft.  The team has several emerging young stars and will likely pick very late in the draft for the next few years.  Let’s project them picking 23rd next year and 25th the year after.

The team makes it known that they will pay big bonuses for premium talent.  The top player in the draft falls to them at #15.  The sixth best guy falls at them at #41 and the 12th best guy falls to them at #48 – all because high demands from the players cause them to drop in the draft.  The team exceeds the bonus pool amount by a lot, and forfeits first round picks in the next two drafts.

Effectively, the team has traded picks 15, 23, 25, 41, and 48 for picks 1, 6, and 12.

Is this a fair trade?  Let’s consult a draft value chart (it’s a NFL-based chart, but the basic premise is similar).  Here are the values for each of the picks:

  • 1 – 3000
  • 6 – 1600
  • 12 – 1200
  • 15 – 1050
  • 23 – 760
  • 25 – 720
  • 41 – 490
  • 48 – 420

Picks 1, 6, and 12 are worth a combined 5800 points.  Picks 15, 23, 25, 41, and 48 are worth a combined 3440 points.  If you’re the Yankees, you pick those three top prospects, pay them, pay the luxury tax, and forfeit your first round picks in the next two years – because you’ll get more talent that way than by picking talent-appropriate players at each slot.

How to Fix the System

Clearly, I think the system is broken.  It’s fair, then, to ask me to propose a solution.  How would I fix the draft?

I think allowing teams to trade picks would make a lot of sense.  The current rule banning trades of picks (and draftees until they have been under contract for a year) seems to be in place merely to prevent General Managers from making huge mistakes.  Really?  These are supposed to be the best and brightest baseball minds.  Why do they need bumpers in their bowling alley?

If you allow trades, a team without a lot of money could still extract maximum value from a pick.  They might trade the #1 pick for the #15 pick and a couple of good prospects (or even a veteran who could contribute immediately).  The Yankees and Red Sox still might snap up a lot of the good young players, but they’d have to pay for them with talent (draft picks and players) as well as cash.  Currently, they can just throw money at players.

I’ve gone on the record many time as being opposed to any sort of caps on salaries, preferring to allow a free market to set amounts.  But if a cap must exist, I’d suggest an overall cap on player expenditures.  This means combining salaries for current major and minor league players, as well as bonuses paid to any draftees or foreign free agents.  Team A could decide to spend a big chunk of their allotment on draftee bonuses while Team B decides to spend most of their money on free agents – but both strategies would be equally valid.

Another thought would be to replace signing  bonuses with roster bonuses at the end of each season.  This would force a player to prove something before getting money.  However, the team would also be forced to make a commitment.  If they decided that a player wasn’t worth the roster bonus, the player would immediately become an unrestricted free agent.  We could call it the “fish or cut bait” clause.

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