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June 7, 2013

Dissecting the Draft

Assessing Day 1, and Day 2 Options

by Nick J. Faleris

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Yesterday we completed Day 1 of the MLB First-Year Player Draft, which consisted of the first two rounds (including competitive balance picks) and the first two picks of our “Shadow Draft”—the seventh and 45th overall selections. As a quick recap, our last full entry in the series highlighted five “wants,” or goals, for us to accomplish with this draft. These “wants” represented a best-case scenario for us as far as taking advantage of the strengths of the draft class as we see them and the needs of our “Shadow Farm System” (a summary of the system can be found back in the introductory piece to this series):

(1) Two middle infielders;
(2) One corner infielder;
(3) One college pitcher;
(4) One catcher;
(5) One “best available” with at least two potential future plus tools (this “want” could be simultaneously satisfied by one of the above four selections, as well).

By setting these goals, we provided a roadmap for attacking the draft, keeping in mind our desire to have a diversified portfolio approach to amateur talent acquisition, which spreads the risk out across a draft class (and minor league system) while offering the opportunity to target high-end talent with as many picks as possible.

Below we’ll quickly step through the thought process for our first two selections this draft, followed by a run through the goals for our selections today. If you followed along with us last night during the draft, you saw our supplemental entry in the series, which touched on some of the concepts we’ll flesh out below.

First Round
When the time came to make our first selection yesterday evening, there were three players under consideration—we arrived at these players by paring down our targets through a process described in the earlier entries of the Dissecting the Draft series, and would encourage you to flip through those entries if you haven’t already and are interested in the process:

1. Braden Shipley, RHP, University of Nevada | Scouting Report
2. Trey Ball, LHP, New Castle HS (New Castle, IN) | Scouting Report
3. Dominic Smith, 1B/OF, Serra HS (Los Angeles, CA) | Scouting Report

All three graded out comparably, so we had to look further than the raw scouting grades in order to make our selection. The first question we asked is, “Which player fits best with our draft strategy?”

Looking to our “wants,” Shipley and Smith each would allow us to cross off two of our five stated goals, while Ball would satisfy just one. Additionally, Smith and Shipley would better address systemic needs in our “Shadow System”—pitching above the low minors and impact positional talent in the low minors—while Ball plays to a strength in the system—high-upside arms in the low minors.

Additionally, both Shipley and Smith offered a slight chance to saves some money with our first pick. Keep in mind that we are allotted approximately $3.2 million for our seventh overall pick, and if our draft pick signs for less than that amount, we get the difference to spread around elsewhere in the draft. While it’s possible Ball signs at or below allotment as well, like Smith he has a quality college scholarship to use as leverage in negotiations, and he was generally considered to be on more teams’ radars in the top 10 than was Smith, meaning he may have had slightly better options and less reason to cut a pre-draft deal.

Finally, looking ahead in the draft, there appears to be ample opportunity to grab a quality college arm and a quality high school arm, with the corner infielders offering a little less depth. The below table illustrates the number of preferred targets we anticipated to be available in each round, broken down by our “want” categories and a few other designations. The more players that fall into a particular grouping, the better the depth in that area/round, and the more likely it is that I’ll have at least one of my preferred options in that grouping/round when my selection comes. A bolded number indicates that at least one of the potential targets is expected to require over-allotment amounts to sign in that round.

RD and Money

Corner Power

College Pitchers

HS Pitchers

Catchers

Outfielders

Corner Infielders

Middle Infielders

1(7)

$3.2MM

Smith

Shipley

Ball

N/A

N/A

Smith

N/A

2(45)

$1.2MM

1

11

4

2

3

2

2

3(81)

$670K

2

8 (3)

6

5

2

2

2

4(113)

$450K

2

5 (2)

3

5

2

4

3

5(143)

$340K

2

4(1)

N/A

3

N/A

3

2

6(173)

$255K

2

4(1)

N/A

3

N/A

3

3

7(203)

$190K

2

4

N/A

1

N/A

2

1

8(233)

$157K

2

3

N/A

1

N/A

2

1

9(263)

$147K

2

3

N/A

1

N/A

2

N/A

10(293)

$137K

2

3

N/A

1

N/A

2

N/A

11(323)

$100K

2

2

3

1

N/A

2

N/A

Taking into considerations the opportunities we expected to have in the later rounds, this became a fairly easy decision. Dominic Smith was the best overall choice on almost all fronts, and that’s the player we tabbed with our seventh overall pick.

Second Round
Returning to the above table, the depth in college pitching looks to be strong enough that we can forgo focus in that area for one more round in order to check off another of our “wants”—provided there is a player there who fits from a talent perspective. As noted in our supplemental piece, Riley Unroe (SS, Desert Ridge HS (Mesa, AZ)) is someone we marked as a good fit in the second round. Two occurrences could complicate our plans to select Unroe: (1) he could be selected before we pick, or (2) someone we value very highly could unexpectedly slip to us. The former was not an issue; the latter was.

Jon Denney (C, Yukon HS (Yukon, OK)) was also available when our second-round pick (45th overall) came up. Now we were faced with a question as to whether we go upside with Denney, whom we considered a first-round talent, or stick with our game plan to grab a quality middle infielder.

As noted in Denney’s filed scouting report here at Baseball Prospectus, the Sooner-stater had an inconsistent spring, casting at least some doubts as to his ability to stick behind the plate. Additionally, as a player with early-first-round heat earlier this spring, there is a greater chance that his signing bonus demands will exceed those of Unroe (though both have excellent college scholarships to utilize as leverage, and Unroe is not considered to be an “easy” sign).

Remember, we believe we have a chance to come away from our first-round pick with a little extra money, so we have the option to use it to go after Denney here. However, that will limit some of the other over-allotment opportunities we think we might have later in the draft, particularly with regard to high school arms. Further, if Denney was dropping because of high bonus demands or uncertainty as to whether or not he would sign (that seems unlikely, considering he opted to attend the draft in person), teams may not risk losing their second round-allotment, instead turning to him early on Day 3 after they’ve had a chance to call him and discuss the matter.

Finally, consulting our draft depth table, the number of quality high school catchers really jumps out, as do the thinner middle-infield ranks. Opting to keep our financial flexibility in place for one more round at least, we went with Riley Unroe as our second-round selection.

Looking Ahead to Day 2
Entering Day 2 we have three “wants” left on our list:

(1) One middle infielder;
(2) One college pitcher; and
(3) One catcher;

The remainder of our selections we can focus on best available talent, and of course to the extent that someone unexpected falls to us and represents a good value for the pick, we can always opt to stray from our targeted goals.

Here is the updated draft depth table. We actually saw a number of our preferred targets come off the board a round or two earlier than expected, so the dynamics have changed slightly, and our decision to grab Unroe with the 45th overall pick—he was grabbed in the real draft by Tampa later in the second round—was reinforced.

RD and Money

Corner Power

College Pitchers

HS Pitchers

Catchers

Outfielders

Corner Infielders

Middle Infielders

1(7)

$3.2MM

Dominic Smith

N/A

N/A

N/A

N/A

Dominic Smith

N/A

2(45)

$1.2MM

N/A

N/A

N/A

N/A

N/A

N/A

Riley Unroe

3(81)

$670K

3

6 (2)

4

5

2

2

1

4(113)

$450K

2

5 (2)

3

5

2

1

2

5(143)

$340K

1

4(1)

N/A

3

N/A

1

2

6(173)

$255K

1

4(1)

N/A

3

N/A

1

3

7(203)

$190K

2

4

N/A

1

N/A

1

1

8(233)

$157K

2

3

N/A

1

N/A

2

1

9(263)

$147K

2

3

N/A

1

N/A

2

N/A

10(293)

$137K

2

3

N/A

1

N/A

2

N/A

11(323)

$100K

2

3

3

2

N/A

2

N/A

We appear to be pretty well set up to at least come close to ticking off each of our “wants” for the draft. My guess is that a number of the potential over-allotment picks will come off the board early today, as teams have had the evening and morning to reach out to players and gauge signability.

Our best bet will likely be to grab a catcher in the third or fourth round, our other middle infielder in the fourth, fifth, or sixth round, and our college arm at whichever point in the next four rounds there doesn’t appear to be a better option in one of the thinner groupings.

While it would be nice to add another high school arm, as noted above our “shadow system” is deep in pitching at the low-minor levels, and with that area having been a focus in past “shadow drafts,” I am not particularly concerned if we aren’t further adding to it this year.

A Note on Bonus Pool Allotment
As a reminder, our selections are at least in part governed by the allotment system, whereby each slot is awarded a certain allotment for purposes of signing the selected player. If the player signs for less than the full allotment, the surplus can be reallocated to another signing. If the player does not sign, the allotment for that slot is lost and the team may not utilize it elsewhere.

For this “shadow draft” we stepped into the shoes of the Red Sox, picking where they pick. The total pool allotment for the top 10 rounds (each pick thereafter gets up to $100,000 for use to sign a player, but surplus cannot be transferred) is approximately $6.8 million, with the specific breakdowns approximated in the tables listed above.

If we opt to try to sign an over-allotment player or two, we have to free up excess cash to do so. As noted, I believe Smith will be willing to sign for less than our first round allocated amount ($3.2 million), which will free up some cash—potentially up to $400,00. Additionally, we can opt to draft and sign low-leverage players at certain points in the top 10 in order to free up almost the entire allocation for those particular slots. These low-leverage players would be primarily college seniors or injured college juniors.

There is around $630,000 in signing bonuses between the seventh and 10th rounds, and another $250,000 or so in the sixth round. In total, we should be able to come up with between $500,000 and $1,000,000 in extra cash, depending on how aggressive we would like to be.

That means we can draft an over-allotment pick only if we are convinced he will be signable for his slot plus, at the most, around $1,000,000 (and that would be pushing us very close to our limit). There is additional wiggle-room whereby we can spend up to 5 percent in excess of our total bonus pool allotment without being penalized any future picks (we would pay a percentage on the overage as a penalty).

By my estimation, the most aggressive we would want to get would be to go after one significant over-allotment target in the third, fourth, fifth, or sixth round. Alternatively, we could target players expected to sign for high-six figures while drafting some back-up options after round 10—in other words, take an over-allotment guy in the 11th round to whom we could push excess money if an earlier over-allotment signing falls through.

We will go into greater detail, and explanation, of these intricacies when we wrap the whole draft next week, but I thought it important to at least touch on the issue here, since it will play into our Day 2 strategy (and you will certainly see teams with higher bonus pool allotments leverage their opportunities in this fashion).

Up Next
If the events of today prove particularly interesting, I’ll post another supplemental piece on BP Unfiltered. Otherwise, we will review the “shadow draft” in its entirety early next week, with a look back at where our preferred targets ultimately came off the board, and to what extent we could have better leveraged our opportunities. It was a strong Day 1 for this project, and I look forward to discussing it in future articles and in my chat at BP today, along with the rest of the selections we make today and tomorrow.

Nick J. Faleris is a practicing structured finance attorney and Sports Industry team member in the Milwaukee office of Foley & Lardner LLP. The views he expresses in Baseball Prospectus are his own, and not necessarily those of the law firm.

Nick J. Faleris is an author of Baseball Prospectus. 
Click here to see Nick's other articles. You can contact Nick by clicking here

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