On Effectively Wild episode 503, Ben and Sam answered an email question I submitted about the MLB Draft and whether any team would ever consider blowing past its pool allotment and incur future penalties (a forfeited first round pick in the next draft if exceeding the limit by 5%-10%, or the next two drafts for exceeding the pool by 10% or more) in order to maximize the return on the current draft.
Ultimately it was concluded that only a perfect storm of factors would make this worthwhile:
- A team is going from being “bad” to being “good” and is entering a period where they are likely to have a lower first round pick (instead of picking in the top 10, they will be picking between 20-30, for example)
- They are likely to be adding top players via free agency, and therefore will be surrendering their first and/or second round picks in the coming seasons anyway. Adding a talented player in the current draft via a way-over-slot bonus could mitigate that future lost pick.
- A team actually has identified multiple first round-level talents available at their picks because of signability issues, and is willing to bring these players into the system now, and largely punt future drafts.
- The team has the cash-in-hand to be able to pay a tax on the amount that they exceed the spending limit — Sam said that EVERY team should be exceeding their draft pools by 5% because that’s only a cash penalty. It only ties to future draft picks after the pool has been exceeded by more than 5%.
The 2017 draft kicked off this week and brings a new draft and qualifying offer rules thanks to the updated collective bargaining agreement. Via Maury Brown in Forbes from December, 2016:
- Beginning in 2018, Clubs with a payroll $40 million or more above the Tax Threshold shall have their highest selection in the next Rule 4 Draft moved back 10 places, except that the top six selections will be protected and those Clubs will have their 2nd highest selection moved back 10 places.
- Clubs may not tender a Qualifying Offer to a player who has previously received a Qualifying Offer.
- Clubs signing a Free Agent subject to compensation will no longer forfeit a first round selection, but will be subject to the following:
- A non-market disqualified Revenue Sharing Payee Club shall forfeit its third highest remaining selection in the next Rule 4 Draft.
- A Luxury Tax offender shall forfeit its second-highest and fifth-highest remaining selections in the next Rule 4 Draft and shall have its International Signing Bonus Pool (described below) reduced by $1,000,000 in the next full Signing Period.
- All other Clubs shall forfeit their second-highest remaining selection in the next Rule 4 Draft and shall have their International Signing Bonus Pool reduced by $500,000 in the next full Signing Bonus Period.
- All forfeited International Signing Bonus Pool monies will be distributed equally among all other Clubs. Competitive Balance Selections will be exempt from forfeiture.
So what does this mean for our hypothetical team that wants to blow past their spending limit? The past provisions for draft pick forfeiture and tax payments remain in place for teams that exceed their pools, but new restrictions do seem to make it less worthwhile, particularly those that tie the draft pool to the international pool.
What does a “perfect storm” of factors look like given the new rules?
- A team would still want to be in a worst-to-first situation where they have a high draft pick now but will have lower picks, and smaller pools anyway, in the future.
- Talented, first-round-caliber players will have to be available in the later rounds, most likely after the 10th round, in order to make the over-spend worth it for the immediate influx of players (and to make up for future lost picks)
- The team will have to be a non-tax paying team now, but will look to be a tax paying team in the future. That way, when a pick is moved 10 slots back in future years, in combination with the “worst to first” scenario, the pick goes from being in the 20-30 range to the 30-40 range, a penalty but not too significant of one.
- A team will be looking to sign a big name player in the coming offseasons, but they will no longer lose their top pick (they lose a lower pick instead)
- They would have to be willing to eat a reduction in their international bonus pool, which is already capped in future years through new CBA rules.
- They would still have to have significant cash on hand to cover overages and future luxury tax payments.
Does any team actually seem to fit all of these factors? The Arizona Diamondbacks are an interesting possibility, given a significant improvement in record this season (they’d be selecting in the back-third of the first round in 2018 if they keep up their current pace), a historical willingness to spend big money on free agents, and current non-taxpayer status.
Already, Arizona will have the 8th largest draft pool at $9,905,900, which includes picks #7, #44, #68, and #82. With four picks in the top-100, they can already add a good number of talented players before rolling the dice on players who drop beyond the first 10 rounds.
The Diamondbacks can go over their bonus limit by $495,295 and not have to surrender any future draft picks, merely paying the tax. If they go over between $495,295 and $990,590, they’ll pay the tax and give up a future first round pick. At $1,485,885, they’ll have to give up two future first round picks, but at that point they’re over the highest penalty, so they might as well continue drafting players and signing them to over-slot contracts, accumulating as many players as they can in this draft.
With respect to qualifying offers and future drafts, this still sets up the Diamondbacks to sign multiple players who are QO candidates, both of the legit kind (hey Bryce Harper what’s up) as well as borderline (think non-Miller/Jensen relievers and #3 starters), assuming those borderline type players still receive qualifying offers in future years under the new system.
The downsides to this strategy are multiple, at least for the Diamondbacks:
- This would likely make Arizona ineligible for future picks in the competitive balance rounds because they’d become a tax-paying team. Perhaps that’s a reasonable price to pay if they see a window of contention opening and want that influx of talent right now. However, they would be looking at receiving a competitive balance pick in future years since teams (like Arizona) with a competitive balance round B pick in 2017, 2019, and 2021, will instead have a competitive balance round A pick in 2018 and 2020.
- Additionally, the Diamondbacks would have to be OK with allowing reductions to their international bonus pool, AND having that amount distributed among other teams — not only would they be taking themselves out of the international signing game (they will be among the teams with the largest signing pool in the 2017-18 signing period), but other teams will have higher bonus pools because of Arizona’s spending on this 2017 draft.
- Baseball America’s John Manuel says that scouts “do not expect to look back at the 2017 draft with fondness,” and FanGraphs’ Eric Longenhagen called the class “a tick below average” on this week’s Ringer MLB Show. It’s worth asking whether deploying this strategy is worth it when the talent pool especially in later rounds might not be up to snuff.
- It’s possible to find talent in the draft without overspending the draft pool regardless of where a team is selecting (hello Dodgers), and the volatility of MLB draft picks makes it unwise to completely punt out of future draft classes.
- Maybe the Diamondbacks aren’t actually this good. Perhaps they know they might be due for some regression either later in this season, or in the next two seasons, meaning they will have forfeited some high draft picks in the process by going this route in 2017.
- A team that receives revenue sharing would face lesser penalties, so perhaps they could find a way to make it work within this system, but other teams would likely object if this team ends up paying significant amounts in tax after accepting revenue sharing dollars, and this could prompt a change in precedent or change in rules.
So, perhaps the Diamondbacks shouldn’t exceed their bonus pool. Perhaps no team fits the perfect scenario where this strategy would “work” or, perhaps, there’s no longer even a perfect scenario at all. In that case, MLB has succeeded in its goal of reining in spending on amateur talent, with the intertwining of domestic and international bonus pools being perhaps the most significant change (and deterrent). Maybe one day a team will find another way to game the draft but until then, we’re looking at another year (or many years) of slot signing bonuses and playing within the limits of pool allotments.Next post: Stolen Bases, Experience, and the Surprising Success of Adam Dunn
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