Breaking Balls: 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."
—Bill James, The Bill James Baseball Abstract 1988

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.

• Anaheim Angels
  The Angels let Mike Magnante, a decent enough reliever, go and picked up a nice pick, No. 20 overall, and used it on a college pitcher, Chris Bootcheck, rated by Baseball America as their 10th-best prospect.

• Arizona Diamondbacks
  The Diamondbacks signed reliever Russ Springer and gave up their No. 29 overall pick to the Braves. It's not as if the Diamondbacks would have drafted, developed and eventually played whoever they drafted anyway–he'd almost have certainly have been traded for a reasonable facsimile of Russ Springer at some point in the future.

• Atlanta Braves
  The Braves let Russ Springer, bullpen filler, coming off an uncharacteristically good season at age 30, head off to greener pastures, and in return they took the Diamondbacks' first-round pick at No. 29 and drafted another one of their patented high school pitchers. And like all the others, Adam Wainwright today is one of the best pitching prospects (caveat: there is no such thing as a pitching prospect) in baseball. I don't know what the Braves feed these kids, but I know it must be tasty. Jose Hernandez left after a short time with Atlanta where he was unimpressive, and the Braves got a supplemental first rounder (No. 38 overall).

  Both were good moves: Springer more obviously, but the Braves had options at shortstop and took a gamble on high school shortstop Kelly Johnson that to date hasn't panned out. They used compensation picks to improve their team.

• Baltimore Orioles
  The Orioles got a supplemental first (No. 32) for letting Arthur Rhodes go, and then for no reason signed Mike Trombley, coming off a 4.33 ERA, 75-appearance season in relief in Minnesota at the age of 32, and gave up their second round pick, No. 54 overall. The Orioles used their gained pick on high school 3B Tripper Johnson, who's been, ah, erratic in his minor league career to date.

• Chicago Cubs
  Steve Trachsel had a decent 1998 and then an awful 1999, and the Cubs got a third-round pick out of him. No big deal.

• Cincinnati Reds
  Boy, did the Reds make out like bandits this year. They trade for Juan Guzman in the 1999 drive for a playoff spot, Guzman does well by them – 6-3, 3.03 ERA – and then when Guzman leaves, the Reds get a supplemental first (No. 34 overall) and a second-rounder from the Devil Rays (No. 46 overall). Nice.

• Cleveland Indians
  In the midst of their long run of contending seasons, the Indians let Mike Jackson go and pick up a supplemental first-rounder (No. 37) and a second-rounder (No. 55) from the Phillies. That second-round pick is Brian Tallet, who is tasty.

• Milwaukee Brewers
  The Brewers stunk and weren't getting any better, but they gave up their second-rounder (No. 51) to get a veteran infielder in Jose Hernandez who could cash their paychecks for a couple years. I don't get it.

• Minnesota Twins
  The Twins get No. 31 and No. 54 by letting a middle reliever go to the Orioles, who were weirdly hot for Mike Trombley. They pick two quality pitching prospects (TINSTAPP) in J.D. Durbin and Aaron Heilman.

• Montreal Expos
  Gave their second round pick, No. 45, to the Blue Jays for picking up reliever Graeme Lloyd. Loria: The early years. Those were the days, when Lloyd was supposed to bring hope to the hardy fans of Les Expos.

• New York Mets
  A mixed bag–John Olerud's move to the Pacific Northwest netted them a great pick at No. 16 (Billy Traber, now a top Indians prospect), and a No. 36. Todd Zeile cost them the No. 25. Win some, lose some.

• Oakland Athletics
  The A's made a big mistake. The draft pick rules are complicated and no one realized that signing Mike Magnante, if they didn't sign anyone else, would cost them their first-round pick. The A's lost the No. 20 overall pick in the draft.

• Philadelphia Phillies
  The Phillies lost a second-round pick (No. 55) for a setup man who never threw a pitch in a game for them.

• St. Louis Cardinals
  Darren Oliver returned to Texas whence he came, Cardinals pick up the No. 24 pick. No strategy here.

• Seattle Mariners
  They didn't draft until the fourth round, giving up their first to the Mets for Olerud, their second to the Rangers for Aaron Sele, and their third to the Orioles for Arthur Rhodes.

  The Mariners didn't have anyone to play second base and they got a quality FA who has served the team well (and just re-upped). Sele did well in his two years before leaving for Anaheim, and Rhodes has been outstanding in his time with the Mariners. Still, it's strange that the Mariners, who traditionally had done a good job drafting and developing, would put themselves in such a bad situation. They continued to do a good job internationally, which made the hurt less acute, but you looking at who was drafted around the picks they gave up–Billy Traber by the Mets with the Olerud pick, for instance–and wonder. The Mariners used free agency to fill gaps and ate the expense of losing picks.

• Tampa Bay Devil Rays
  The Devil Rays lose a second-round pick, Juan Guzman flames out, and they get nothing. They lose a third signing Steve Trachsel, and that didn't turn out so well for them either. Ah well, they wouldn't have gotten anything with those picks anyway.

• Texas Rangers
  The Rangers did a lot of pick-swapping: No. 24 went to the Cards when Texas brought Darren Oliver back, they gained No. 25 and No. 39 from the Mets for Todd Zeile, and No. 35 and No. 56 for Aaron Sele.

• Toronto Blue Jays
  Ah, another random reliever, this time Graeme Lloyd, turned into picks–No. 33 in a supplemental first-rounder, and No. 45 in the second round. They turned the No. 33 into Baseball America's No. 1 ranked pitching prospect (TINSTAPP) Dustin McGowan, and the second didn't turn out.

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.