January 30, 2003
Free Agent Draft Pick Compensation
"The chance of getting a good player with a high draft pick is substantial enough that it is clearly a disastrous strategy to give up a first-round draft choice to sign a mediocre free agent."
I've been doing a lot of work on draft compensation lately. It was supposed to die in the last labor agreement, but it didn't, and it provides a great insight into a team's approach and overall intelligence. James' basic tenet remains true, but I've come to believe the issue is much more complicated.
For instance, say you've just inherited a team that drafts horribly, doesn't scout well, doesn't develop well, and can't resist drafting high school tools goofs... we'll call you the Tampa Bay Devil Rays. The draft looms.
The likelihood of your team getting a good player with a high draft pick is very small. You're likely going to waste a million dollars signing that first-round pick, and that player will amount to nothing. Your team would be better served on-field by signing a decent veteran free agent to fill in at one of your many gaping holes and drag your team a little closer to playing .500 ball. However, that pick will then go to a team that competes with you, directly or not, and since they make better use of that pick than you would, you're in fact best served by picking a Boras client and offering them a ham sandwich. The pick goes unsigned and you get a sandwich pick (presently) or another future first-round pick (with the proposed but not yet enacted draft changes), by which time you've hopefully revamped your organization enough that your picks are more like well-researched investments than blind rolls of the dice.
On the other end is the rich, contending franchise. If you're given the choice between signing a decent free agent to fill a gap (say, you've got no second baseman, and the only one available is a good-but-not-great guy... we'll call him "Todd Walker"), giving up a first-round choice may be worth it for the increased chance at the playoffs and making it to the World Series.
Then, it's important to know how good your drafting is. If your team does a great job of drafting, there are few free agents who will be worth losing the chance to pick up a good player for very little money. If your team has a great international scouting program, the loss of a draft pick isn't so bad, because you can funnel that money into signing players out of the Dominican, for instance.
With that being said, for this week's edition of Breaking Balls, I'm going to look at the 2000 draft, which is far enough back that we can make some conclusions about how the acquisitions turned out, and how the teams dealt with draft compensation.
There are some obvious lessons here.
Some teams look at free agency and are reluctant to make a signing for fear of losing a pick. Others figure as long as they're rebuilding, they might as well go hog wild and wipe out their first four rounds and look for depth later or international prospecting. And then there are teams like the Rangers and Mets, who let players go, acquire others and seem to figure that it'll all even out over time. The difference in the long-term in building strong farm systems will be explored in the future, as I look at the A's success in converting compensation picks in the last few years.
If you're a team that's good at assembling a bullpen out of scrap parts and willing to take a long-term view, you can take great advantage of the draft and draft compensation rules. You can trade relievers in mid-season to teams that need them in exchange for prospects, or hold onto them and let them leave as free agents, getting draft picks in return. Those draft picks turn into starters a couple years down the road if you've got the right combination of picking skill, strong player development and luck.
The way to acquire stop-gap solutions is by trading for them, rather than sacrificing first-round picks to sign them in free agency. The A's have made these types of deals repeatedly in the last few years, trading for players like Johnny Damon and Ray Durham before or during the season, then letting them leave through free agency. The pickups cost them prospects, but the resulting draft pick(s) fill that void and replenish the farm system. That last bullpen arm you can always pick up in Spring Training for a cash fee, if you watch the transaction wire. Buddy Hernandez and Mike Neu are Rule 5 examples of that tack that could pay off for Oakland this season.
Derek Zumsteg is an author of Baseball Prospectus. You can contact him by clicking here.