What’s holding up the next Collective Bargaining Agreement?

Major League Baseball and the MLB Players Association are busily hammering together a new Collective Bargaining Agreement. Unlike with the NFL and the NBA, there is no risk of a work stoppage in baseball. However, one contentious issue remains on the table—a slotting system for the amateur draft.

Commissioner Bud Selig is quoted as saying that he considers a slotting system to be “really critical.” This article will explore the theoretical effects of “hard slotting,” which is the system Selig publicly prefers. Under a hard slotting scheme, the commissioner’s office would determine the signing bonus of every pick. Alternative plans like capped draft budgets or a luxury “draft tax” will not be discussed.

The current system

The commissioner’s office provides “slot recommendations” for each position in the draft. Theoretical problems with hard slotting

The current slot recommendation system aptly highlights the theoretical problems with a formal hard slotting system. First, the commissioner’s office has demonstrated little understanding of the prevailing price for draftees. The current recommendations appear to be a thinly veiled attempt to decrease the bargaining power of draftees rather than a legitimate recommendation. For hard slotting to truly work, the commissioner’s office must adopt a sensible and transparent means of determining slot value.

More ominously, hard slotting could reduce the talent available in the draft, especially if the commissioner’s office continues to recommend low bonuses. By limiting the number of large bonuses to the earliest picks, top draft prospects may slip through the system if they are not selected early enough. They will be left with the choice of signing below their desired bonus or holding out for next season. High school players will be most affected since college gives them a valuable alternative to a middling draft bonus. This is a shame. Studies have found that the youngest players in the draft provide the most average value to their parent clubs.

Theoretically, clubs will have incentives to play it safe in the early rounds by drafting college seniors. Imagine a club with a 20th-round pick. The top guy on its board is a toolsy 18-year-old scouts love. However, the player has said he might not break his college commitment unless he is selected in the first 10 picks. The club has a conundrum: Select a player its loves who might not sign, or take a guy it merely likes who absolutely will sign. Now imagine the decision of the 21st club and the 22nd and so on. In this hypothetical, everyone loses.

This might not seem like the worst thing in the world, since today’s high school players are tomorrow’s college graduates. However, a lot can happen—or not happen—over the course of a four-year degree.

Player development is generally assumed to be weaker in a college environment. There are enough distractions to keep an ADD child entertained for years. And every year, good prospects disappear into relationships, academics or employment. For the individual this can often be a good thing; perhaps he found fulfillment in love or discovered a knack for particle physics. But from the perspective of major league clubs, every player lost from the draft pool is detrimental to the major leagues. Exposing more players to college probably means more players lost from the pool.

In college, access to elite coaches, trainers and doctors is limited. College coaches are often accused of overworking their best pitchers and under-training high upside arms with command problems. Minor injuries are more likely to remain undetected in an environment where the player is a simple four-year investment. These minor issues can balloon into serious problems later in life.

Baseball could lose players to other sports, too. While most baseball players are one-sport athletes, players like Domonic Brown are peppered throughout the major leagues. Brown was the Philadelphia Phillies’ 20th-round selection in the 2006 amateur draft. He slipped that far due to a football scholarship with the University of Miami. It cost the Phillies $200,000 to buy Brown away from his commitment—a figure well above the slot recommendation.

Benefits of hard slotting

If a hard slotting system will negatively affect the quality of players available to major league clubs, why are Selig and the owners interested in implementing it?

Cost is one of the primary motivating factors. Costs have escalated in recent drafts, with top athletes like Stephen Strasburg, Bryce Harper and Cole signing huge bonuses. This might be partially ascribed to a shift in club preferences. Throughout the majors, teams are recognizing the value of prospects.

The Pirates provide a great example. In 2007 they held the fourth overall pick. Instead of selecting pricey catching phenom Matt Wieters, the club played it safe by picking Daniel Moskos. The Pirates seemingly learned from their mistake, shelling out big money for Jameson Taillon and Cole over the last two drafts.

By instituting a slotting system, the commissioner’s office can control the inflation of draft pick prices. Clubs benefit with greater cost certainty. Theoretically, this should help teams make the best use of their organizational budgets. Clubs could focus more resources on reliable, major league quality talent. Or put more cynically, clubs could continue to underpay prospects.

Another goal of a hard slotting system is to increase parity. The draft is meant to distribute the best prospects to the worst teams. The current system does not do this, effectively putting small market clubs at a disadvantage.

If the Pirates pay $8 million to Cole, they essentially are using their entire draft budget. They can’t afford to go over slot to several mid-round picks. They could have passed on Cole and gone with a cheaper selection, but that risks alienating the fan base—especially after the Moskos disaster.

Conversely, a team like the New York Yankees, often picking near the end of the first round, can make up for a lack of early picks by signing a score of mid-round picks to over-slot deals.

Under a formal slotting system, small market clubs will find top prospects more affordable while large market clubs will find it harder to offset a poor draft position with financial might.

Slotting also adds an element of simplicity to the draft. Currently, the decision to make a pick can be specified as a function of talent, cost and signability. With slotting, cost is known. Signability becomes simpler, too, since negotiation is not involved. College seniors in particular will lack leverage. So long as the slot recommendation exceeds alternative employment, the player will probably sign.

In this sense, teams could focus more scouting resources on talent and worry less about other factors. The draft itself would be simpler with talent being the main motivator.

Take-away points

Hard slotting has a number of expected effects.
{exp:list_maker}Draft pick costs will be lower with the commissioner setting costs
Parity could improve since bad teams will get the best picks and large market teams will not be able to buy extra talent
Talent evaluation could become simpler, allowing front office personnel and scouts to focus on factors other than cost, like player development
Some draftees, especially high school players, may become more difficult to draft and sign{/exp:list_maker}
At the end of the day, major league baseball is unlikely to adopt such a rigid system. Alternative solutions like a draft luxury tax could capture most of the benefits of a hard slotting system without missing out on young talent. Further, any plan that explicitly mentions or implies a hard cap will never be agreed to by the MLB Players Association. The players would view such language as a “slippery slope” toward a future MLB salary cap.

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Comments

  1. bucdaddy said...

    A couple things wrong here, IIRC.

    The Pirates didn’t “learn from their mistakes” with the Moskos fiasco. They got a new owner and a new GM and those people changed tactics, aggressively sinking money into the draft.

    Also, they didn’t use “their entire draft budget” on Cole, they spent another $9 million in the draft and wound up wooing Bell too, after every other team passed on him at least once. The Pirates cannot compete for MLB talent, they cannot match the Yankees/Red Sox/Phillies et al in offering 7 year/$140 million deals to anybody. The only place they can spend money to be competitive with the big boys is in the draft, and why should Bud Selig give a fig how much the Pirates spend in the draft? Because it forces the Yankees and Sox and Phillies to pay more for THEIR picks? Boo hoo hoo. Cry me a river. Why should they have ALL the advantages? If you’re going to shut off one of the few avenues for teams like the Pirates to be players for talent, then why not just contract MLB to Bud’s six favorite teams and stop pretending there’s anything like a level playing field?

    Hard slotting is just one more way to force the little guys to bend over,

  2. bucdaddy said...

    Correcting my correction: “The only place …”

    They could also spend lots of money to sign international players, but I’m sure Bud is figuring out a way to shut off that tap too.

  3. Josh said...

    Hard slotting also encourages two-sport athletes to drop baseball and pursue football or basketball. Why sign for a few hundred thousand and then toil away in the minors for four or five years when you can play three years of football and get a monster rookie contract?

  4. obsessivegiantscompulsive said...

    FYI, the BP study on youngest players drafted does not, as you put it, found “that the youngest players in the draft provide the most average value to their parent clubs.”

    It found that the youngest among the group of high school draftees who signed performed way better than the oldest among that group of high school draftees who signed. 

    It says nothing about whether the older high school draftees who signed are better than collage hitters who signed that same draft, which is a conclusion one could get from your blanket statement that youngest is best and some high school students could end up going to college.  So it does nothing to support your contention here that the change would hurt high schoolers.

    Speaking of that BP study, I do have one big problem with the conclusion:  it assumes that all baseball teams have the same source of information in order to select the players in the draft.  That is clearly not true.  So it is not like one could go into a draft and figure out who the youngest high school prospects are and select those players.  I would post this comment there except I’m not a subscriber.

    While the conclusion is startling and, as he put it, “quite possibly the most impressive and significant finding of my career”, I don’t see any way to use this fact going into any future draft. 

    Everyone knows that there are always surprises in the draft, where one team zigs where everyone expects a zag.  There is no way to account for that pre-draft.

    To make this a useful strategy going forward, one would need to study, say, Baseball America’s Top 200 pre-draft ranking (I think Perfect Games has a big list as well, but don’t recall the number) for as far back as one can go, and do the same young, younger, youngest analysis. 

    I would be very surprised if his findings holds in this suggested analysis, but I wouldn’t count it out either.  Perhaps the scouts winnow down the prospects pretty well, but then there is another layer of winnowing by age that achieves the astonishing results that BP found.  Perhaps it really is just about finding the youngest among the group and selecting him.  I just can’t picture the latter, as that would be so easy then, just find the youngest guy and draft him.

    And I still hate how they use expected value for draft picks.  That’s fine when the distribution is close together, but really not useful for draft picks where the extremes are, say, Matt Bush and Ken Griffey Jr. 

    Still, this finding has huge implications for fantasy baseball, particularly any keeper league, so it is not like this finding is not very useful.

    It is just not as airtight as BP made it seem from their article on their finding.  I doubt very much that you can just go and pick the youngest available draft eligible prospect and expect to have much better expectation of return.  Teams have different information sources, making it impossible to do as BP did, and have a set of 100 prospects pre-selected before the draft.

    I just don’t see how a team could use this to their advantage going forward.  But great for fantasy leaguers in keeper leagues!

  5. obsessivegiantscompulsive said...

    About hardslotting, you make very good points but are missing some key info that changes the picture.

    First, you make the point that HS will start choosing college just because they fell in the draft but ignored the major reason that many of them fell was because they were not up front about what they want from a team to sign.  That should stop with a slotting system, there is no incentive to hide what you really want in order to be signed in the draft.  Sure, some will fall in the first draft or two, but they should wise up pretty fast.

    Thus, there should be less talented players falling down in the draft in the future.  Weiters would not have been passed over, for example, and would most probably have chose to sign for slot, because waiting a year would not do him any good financially. 

    Only if he didn’t really want to sign with the Pirates would be the only motivator for him not signing, as he could not possibly boost his chances of being drafted higher and risks injury or poor performance pushing him later into the draft. 

    Domonic fell because he used his leverage of football and thus teams did not want to risk selecting him with a higher pick, but would be willing to give it a try with a much later pick.  Also, maybe he didn’t want to end up with a bad team too, that is another motivation. 

    Athletes who really want to play baseball instead of football would no longer play this leverage game because they will just fall back late in the draft and get less money.  A college education is nice, but if he could be bought out for only $200K, he didn’t really care for football or college education, a team could have drafted him earlier and got him signed, as he should be much more open going forward about what it would take to buy him out because playing around with that number could cost him.

    For example, lets say Domonic could be signed for $200K but asked for $400K with most teams.  Once those slots are gone, he most probably won’t be drafted until the much lower slots, $50-100K maybe, probably lower.  Prospects who really want to play baseball won’t screw around, they will give their number and if that fits what his talent is, then he will get drafted, if not, then good luck with that other sport, if he really thinks he can make $100K at that other sport.

    I would also suspect that at some point in the slotted draft, there will no longer be a slot but a maximum that a team can pay, maybe $50-100K.  So some players who are really marginal prospects might slip, but the major talents should not longer fall that far back anymore. 

    Second, you ignore the fact that the world of $10M bonuses would not exist anymore, holding out for college won’t necessarily increase their bonus in any way, and could potentially risk their falling back in the draft.  They would have to judge whether going to college would improve their draft position much higher or not to make that decision.

    Third, what hard slotting does is it shifts money from draftees to professional baseball players.  Sure some of it will make it into the owner’s pockets, and hopefully some will use the money to invest more into their farm systems and actually developing the players, but I think the majority of that money will end up boosting a team’s players payroll budget.  They will spend more to keep their young players and to sign free agents.  That should be a strong motivation for players to vote for a hard slot.  The MLB may ask for a hard slot for players, but the MLBPA can always say “NO”, and I would expect that.

    Fourth, it is easy to point out the successes like Domonic Brown and say that the MLB would have missed out on him, but the fact is that if you took all the prospects signed to a bonus in the, say, $175-225K range, the vast majority of them would have never made the majors, and the vast majority of the ones who even make the majors are either just there for their cup of coffee or perhaps are mediocre players.  People don’t realize that the distribution of talent is very very skewed in the draft, the vast majority never turn out to be much in the majors. 

    That is a major flaw in BP’s study of the draft, it missed on the fact that very few of them ever make the majors, so calculating averages don’t really mean anything useful.

    Pointing out Brown is like pointing out someone who won $1M from their lottery scratcher, the Phillies really just lucked out with him.  Otherwise, you should know the name Tim Moss, who they paid $440K in the third round of the 2003 draft.  Or how about Greg Golson ($1.475M in first round 2004 draft)?  Matt Maloney ($400K in third round 2005). 

    And that is what the MLB is trying to get at, reducing the costs of the mistakes, not the costs of the hits, because there are a heck of a lot more mistakes than there are hits.  Why pay all those prospects a lot of money, instead pay them when they prove to be good players?  That is a selling point for the players union, if ever I heard one.

  6. Brad Johnson said...

    Thank you for the comments. I only have a moment to respond, so please excuse any brevity.

    Bucdaddy,

    While you are right that Cole didn’t actually absorb the entire budget, it did force the Pirates to redistribute resources to the draft that they would otherwise have spent elsewhere or claimed as profits. I’m not sure it’s fair to consider that sustainable.

    A large market team can ALWAYS use this strategy if they want to, a small market team must decide if that money is going to prospects, prospect development (including scouts, coaches, docs, etc.), mlb talent, owners, stadium, etc. For a small market club to always spend big on draft picks, they must opt to neglect another portion of the team. For example, the Rays tend to spend comparatively more on prospects and player development than they do on MLB talent. By comparatively, I mean Rays spending divided by average league spending.

    Josh,

    I’m not sure how many two sport athletes make their sport decision based on money. I think many choose the sport that they like the most and/or are the best/most projectable at. Clearly there are counter examples. However, I suspect (no data) that the two sport effect wouldn’t extend much beyond the opportunity cost of choosing college w/ athletic scholarship and future draft eligibility versus signing for mlb slot.

    OGC,

    I should have been clearer with that BPro comment. I was making a throw away point about young players being valuable while linking to fun research, but didn’t feel it was within the scope of the article to present that subject in detail.

    To your first point in post two – I considered that a part of the “simplicity” point I made but failed to express that. Apologies.

    I highlight Brown simply because there is a decent chance he would be in the NFL right now if the Phillies had not made their overslot offer. He seemed to be a perfect poster child and I didn’t feel like looking up how to spell Jeff Samardzijia (did I get it right?). Obviously, the right to make overslot offers does nothing to guarantee a return on those investments.

    Your second post dances around a major point I pulled from the article – for hard slotting to work, the MLBPA would require sweeping changes to MLB player compensation. Specifically, the reserve clause would almost have to be eliminated, replaced with arbitration, higher pay based on some other factor, etc.

    The whole excuse for the reserve clause and club controlled arbitration is that teams get to re-coup player development costs. If player development costs are reduced, it is necessary that MLB players – especially 0-6 year guys – be paid closer to their actual skill level. MLB teams would simply be redistributing costs from uncertain prospect talent to more certain MLB talent. They shouldn’t actually save a dime on average. There will always be leaders and laggards of course.

  7. Chris said...

    If player development costs are reduced, it is necessary that MLB players – especially 0-6 year guys – be paid closer to their actual skill level. MLB teams would simply be redistributing costs from uncertain prospect talent to more certain MLB talent. They shouldn’t actually save a dime on average.

    If owners “shouldn’t actually save a dime on average” under hard slotting, Selig wouldn’t be proposing it.

    Depressing draft costs doesn’t increase the marginal value of a win, so why would owners pay more under a hard slotting regime that reduces draft costs than they would under today’s system?

  8. Brad Johnson said...

    It’s a matter of negotiation. The MLBPA cannot agree to allow MLB to artificially suppress contract values in one way without receiving a “gift” of equal value. In this case, I’m assuming hard slotting means a significant relaxation of club control rules.

    Let’s say clubs save $30 mil on the draft with hard slotting. Then they should be spending $30 mil more on 0-7 year guys. The actual conversion wouldn’t be one to one since each side has varying incentives.

    MLB would like that more since they’d be putting money into actual output rather than theoretical output while the MLBPA would enjoy winning better pay for MLBers and more money in their coffers.

  9. obsessivegiantscompulsive said...

    Thanks for the reply, Brad.  Makes a lot of sense, what you say.

    Close – no “ia” at end, just “a” (I had to look it up too :^).  OK, he is a much better example than Brown.  $200K for a chance to make the majors or pretty sure thing for NFL, he would have made it known that a team could draft him sooner, he took a huge risk going to baseball then if he was really that good coming out of high school, though I would counter with how often do good high schoolers make it eventually into NFL?

    But Sam (yeah, not going to even try to type his name) is a great example for what you were trying to make a point on.  No way a team would risk whatever high pick which would pay however millions on Jeff Sam if he doesn’t openly say that he wants to be in baseball. 

    Frankly, I’m OK with that.  Talent, to me, only really goes so far.  If he’s coming into baseball just because of the money, maybe he shouldn’t be in baseball.  It is not like he has been that great so far.

    About slotting, another benefit to teams is that instead of paying that $30M today to prospects who may never pan out in 3-6 years, they can chose to spend that money now or can hold and wait to pay that money later to players who are actually productive in the majors.  They could theoretically save no money in terms of outlay, but gain a lot of production by not spending it on prospects who never pan out (and the vast majority of them don’t) and instead either spending on training prospects who actually need development to make it or major leaguers that they need and can produce.

    Of course, that could devolve into just spending more on the same free agents, as it could be a zero sum game in terms of major league talent.  I’m OK with that too, better than paying prospects who never amount to anything. 

    Or even, how about agree to slotting with an agreement to raise the minimum salary in the minors and spend more on development?  I wonder how many more of them can figure out how to become major leaguers if they had access to healthy proper eating?  Got more and better trainers?  Could worry only about training for baseball instead of having to find odd jobs to feed their family during the off-season?  What if it was their full-time job to be a minor leaguer?  Working year round?

    Or at least teams could start doing that, many organizational players, well, we know that most will never make it, but for the ones you have more hope for, why not hire them during off-season to do more for their development, whatever it may be that they need, whether mental or physical.

    I also think that forcing teams to the next tier of talent will give opportunities to guys who never got the chance to play before, but who would succeed had they been given the chance.  I’m thinking the Pete Rose-type of players who perform well not because of talent, but because of all the intangibles.

    Not that they would be HOF good, just that a few more Charlie Hustle-lites wouldn’t hurt the game’s popularity.  Of course, that would probably mean kissing a lot of frogs along the way too…

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