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June 11, 2013

Baseball ProGUESTus

Does Declining to Sign Pay Off for Draftees?

by Dustin Palmateer

Most of our writers didn't enter the world sporting an @baseballprospectus.com address; with a few exceptions, they started out somewhere else. In an effort to up your reading pleasure while tipping our caps to some of the most illuminating work being done elsewhere on the internet, we'll be yielding the stage once a week to the best and brightest baseball writers, researchers and thinkers from outside of the BP umbrella. If you'd like to nominate a guest contributor (including yourself), please drop us a line.

Dustin Palmateer once played division III junior college baseball, finishing with a career batting average below the Mendoza Line. He now writes about the game. You can reach him via email.

Armed with a mid-90s fastball, a solid junior campaign at Stanford under his belt, and agent Scott Boras in his corner, right-handed pitcher Mark Appel was expected to be the first overall selection in the 2012 draft. As draft day neared, however, rumblings surrounding Appel’s signability grew. Scared off by high bonus demands, seven teams passed on taking Appel until the Pittsburgh Pirates brazenly selected the Stanford righty with the eighth overall pick. Neal Huntington and company then braced for the oncoming negotiations with Scott Boras.

The Pirates, frugal as they’ve been with major league spending, had doled out over $10 million a year on draft bonuses from 2007-2011, more than any other franchise. In 2011 the Pirates signed their first- and second-round picks, Gerrit Cole and Josh Bell, respectively, for a combined $13 million and spent $17 million overall that year on their entire draft class.

Were it not for the new CBA and its draft spending restrictions, the Pirates might have had a realistic shot to sign Appel to an over-slot deal. However, under the new agreement, they had only a total of $6.6 million to spend on their first 12 picks ($2.9 million was assigned for the eighth pick). The Pirates offered Appel $3.8 million, but that wasn’t nearly enough to get the young pitcher signed.

Appel would return to Stanford for his senior season and the Pirates would move on, having spent just $3.8 million on their 2012 draft class, more than only the Tigers and Angels. They would receive a top-10 pick in this year’s draft as a consolation prize for their trouble.

***

With the aforementioned spending restrictions placed on teams, the potential signability of draft picks has taken on even greater importance. Prior to the 2012 draft, teams had the ability to spend as much as they desired on signing bonuses, despite MLB-recommended slot values that were often ignored. Now, while teams can still technically go over-slot, the penalties—lost future draft picks and a tax on the overage—are simply too costly to absorb unless the player in question is a rare talent like Stephen Strasburg or Bryce Harper.

With this issue here to stay, at least until 2017 (when this CBA expires), I thought it would be of interest to take a look at recent early-round draftees who failed to sign and examine whether their decisions paid off. I looked at every draft since 2000 and found all unsigned players in the first three rounds (supplemental rounds included). I then found where the player was eventually redrafted and signed after going to college, returning to college for their senior season, or (in rare cases) playing professionally in an independent league.

Initially, I intended to compare the signing bonuses players turned down against the signing bonuses they eventually agreed to. However, it’s difficult to track down that information for most of the lower-profile players, leaving us only with the position in which they were drafted to analyze.

Since 2000, 14 players drafted in the (non-supplemental) first round have turned down multi-million-dollar signing bonuses in hopes of improving their draft stock the next time around. Only six of those players were top-10 picks like Appel. In those same years, 60 players selected in the first three rounds failed to sign with the major league organization that drafted them.

The following table shows the average and median of where all eligible players were originally drafted and redrafted, and the percentage that either improved or declined in draft position the second time around. Note that some players were drafted multiple times after their initial selection—I chose the final time they were selected and (usually) signed for the purposes of this article. Players who were drafted in recent years and have not reappeared in the draft and unusual cases like Barrett Loux were not considered eligible.

Total

Draft 1 Avg.

Draft 2 Avg.

Draft 1 Median

Draft 2 Median

% Improved

% Declined

ALL

48

68

235

72

87

44

54

1st Round

13

24

144

28

19

38

54

2nd Round

14

63

259

63

113

29

71

3rd Round

21

99

275

102

79

57

43

College

14

57

77

45

67

43

50

HS

33

73

276

79

83

45

55

The average isn’t all that significant. It’s naturally going to be lower the first time the player is drafted and doesn’t sign because we’re restricting this study to early round picks (say, picks one through 120). When the player is drafted again, the restriction is removed, and that player can go anywhere from first overall into the 1000s (and they do), pulling up the average.

Simply looking at the median shows that holding out doesn’t produce the ugly results that one might expect. First- and third-round selections actually improved their position when redrafted, when looking at the median. Perhaps surprisingly, the median for high schoolers is almost identical when initially drafted and then redrafted. While high schoolers have a greater risk than their college counterparts of flaming out completely and falling well into the later rounds, they also have a chance to dramatically improve their draft stock if they head to college and produce as expected.

Here’s a graph showing the number of positions that players either improved or declined after being redrafted.

Finally, here’s the breakdown of college/high school and pitcher/position player.

Total

Draft 1 Avg.

Draft 2 Avg.

Draft 1 Median

Draft 2 Median

%Improved

%Declined

HS Pitcher

21

68

219

68

96

38

62

HS Pos.

12

83

214

89

63

58

42

College Pitcher

11

56

73

48

22

45

45

College Pos.

3

61

92

42

91

33

67

High school pitchers are most likely to opt not to sign, and they’re also, as one would expect, the most volatile group. There’s a lot that can happen in three years for a once-promising, not-yet-developed pitching prospect. Sometimes everything goes as planned (Gerrit Cole, Matt Harvey), other times not so much (Matt Harrington). More on them later.

On the other hand, college pitchers who hold out are a much safer group. Almost half improved their position when they were drafted in the next season, and only one (Josh Spence) dropped past the fourth round, when he was drafted 274th overall by the Padres in 2010 after not signing with the Angels (110th) the pevious year. One, Wade Townsend, didn’t move at all, going eighth overall in both 2004 and 2005.

***

The following table shows the 10 players who most improved their draft stock after not signing initially. Some names may ring a bell.

Player

Pos

Type

Draft1

Team

Year

Draft2

Team

Year

Luke Hochevar

RHP

4YR

40

LAN

2005

1

KC

2006

Gerrit Cole

RHP

HS

28

NYA

2008

1

PIT

2011

Matt Harvey

RHP

HS

118

LAA

2007

7

NYN

2010

Drew Stubbs

OF

HS

89

HOU

2003

8

CIN

2006

Andrew Miller

LHP

HS

68

TB

2003

6

DET

2006

Jeremy Guthrie

RHP

4YR

84

PIT

2001

22

CLE

2002

Josh Fields

RHP

4YR

69

ATL

2007

20

SEA

2008

Jeremy Sowers

LHP

HS

20

CIN

2001

6

CLE

2004

Bryan Morris

RHP

HS

88

TB

2005

26

LAN

2006

Zach Cone

OF

HS

112

LAA

2008

37

TEX

2011

Drafted in the 39th round out of high school in 2002 by the Los Angeles Dodgers, Luke Hochevar elected to attend the University of Tennessee and hold off on starting his professional career. Despite an up-and-down career at Tennessee, by June of 2005 Hochevar had established himself as one of the top college pitching prospects in the draft, thanks largely to a breakout junior campaign for the Volunteers (15-3, 2.26 ERA, 9.9 K/9).

Hochevar was expected to go early in that draft, but like many high-profile Scott Boras clients, he ended up falling into the supplemental first round (40th overall) thanks to concerns about his hefty price tag. The Dodgers thought they had their man this time, when Hochevar switched agents and agreed to a $2.98 million signing bonus. Shortly thereafter, though, Hochevar returned to Scott Boras and reneged on the deal. The two sides never reached an agreement.

Hochevar didn’t return to Tennessee for his senior year, instead signing on with the independent league Fort Worth Cats in the spring of 2006. He was impressive in limited innings for Forth Worth, and that performance, combined with his reputation and some pre-draft workouts, helped make him the first overall pick of the 2006 draft.

The Kansas City Royals and Hochevar agreed to a four-year major league deal worth $5.3 million ($3.5 million signing bonus) in August of 2006. Though he hasn’t panned out as expected at the major league level, Hochevar’s decision to spurn the Dodgers for a second time in 2005, though not a popular move in baseball, worked out well for the right-hander’s bank account, ensuring him at least $2.3 million more in guaranteed money (not to mention the nearly unlimited opportunities to succeed that are afforded to first overall picks).

The New York Yankees drafted right-handed pitcher Gerrit Cole 28th out of Orange Lutheran High School (California) in 2008. Despite falling in the draft due to a strong commitment to UCLA (and, again, the Scott Boras factor), there was a widespread expectation that the Yankees, Cole’s favorite team growing up, had a reasonable shot to lure the hard-throwing righty out of SoCal.

The Yankees were prepared to offer Cole an over-slot bonus nearing $4 million. Cole, however, stated that he never planned on signing with a major league team and that the word was out prior to the draft. Serious negotiations never took place.

Cole took his 98 mile-per-hour fastball to UCLA and posted solid, if unspectacular numbers throughout his college career. He finished with a 21-20 record, a 3.38 ERA, and a 3.3 K/BB ratio. While performance is more important in college, projectability is still the name of the amateur game, and Cole’s dominant stuff, along with his solid power-pitching frame, had done enough to vault him to the top of most draft boards by the time the 2011 draft arrived.

The Pirates took Cole first overall and gave him an $8 million signing bonus to ensure that he wouldn’t head back to UCLA for his senior campaign. In 2012, Cole’s first year in the minors, he rocketed through the Pirates’ system, posting impressive numbers at both High-A and Double-A (126 IP, 129 Ks, 44 BBs, and 7 HRs) and advancing to Triple-A by the end of the season. Prior to this season, Jason Parks ranked Cole as the no. 1 prospect in a Pirates’ system full of impact talent. He’ll make his big league debut tonight.

Cole and company pushed all the right buttons. He went to college, pitched in the College World Series, and returned to the draft three years later as the top pick with a signing bonus $4 million-plus higher than he would have received in 2008.

Rounding out our trio of featured Boras clients, Matt Harvey was rated as one of the top prep pitchers in 2007, but like Hochevar and Cole, slipped in the draft over signability concerns. Harvey dropped all the way to the third round, where the Angels took him with the 118th overall pick, hoping to sign a potential impact talent other teams had shied away from.

The Angels made Harvey an underwhelming $1 million offer. Instead of accepting, he went to North Carolina, where he pitched three years for the Tar Heels, posting a career 3.73 ERA and 9.9 K/9. As a sophomore, Harvey struggled at UNC, finishing the year with a 5.40 ERA and 1.9 K/BB ratio. He regained his form as a junior, however, reestablishing himself as one of the top arms entering the 2010 draft.

The Mets took Harvey with the seventh overall pick and gave him a $2.525 million signing bonus, roughly $350,000 over slot value. Harvey reached the majors by 2012 and is currently leading the Mets’ rotation with a 2.10 ERA.

***

On the other end of the spectrum, the following table shows the 10 players whose draft position declined most after not signing.

Player

Pos

Type

Draft1

Team

Year

Draft2

Team

Year

Matt Harrington

RHP

HS

7

COL

2000

1089*

NYA

2004

Jake Eliopoulos

LHP

HS

68

TOR

2009

1309*

TOR

2011

Matt Harrington

RHP

PRO

58

SD

2001

1089*

NYA

2004

Mark Sauls

RHP

HS

92

MIN

2002

1503**

LAA

2006

Chase Davidson

1B

HS

88

HOU

2008

1240

HOU

2011

Alan Horne

RHP

HS

27

CLE

2001

349

NYA

2005

Nick Fuller

RHP

HS

79

TB

2006

760*

ATL

2008

Russ Moldenhauer

OF

HS

102

LAA

2006

716

WAS

2010

Matt Purke

LHP

HS

14

TEX

2006

96

WAS

2009

Sean Black

RHP

HS

59

WAS

2006

225

NYA

2009

*Player didn’t sign with team
**Player was signed as undrafted free agent; 1503 would make him the last pick in that year’s draft.

Playing for Palmdale High School in California, right hander Matt Harrington was widely considered the top pitching prospect heading into the 2000 draft. While the first six teams were scared off by Harrington’s asking price—nearly $5 million—the Colorado Rockies gambled on him with the seventh pick, having apparently already discussed numbers with Harrington’s agent Tommy Tanzer prior to the draft.

The apparent pre-draft arrangement quickly dissolved as soon as negotiations between the two sides began. Then-Rockies assistant GM Josh Byrnes denied ever agreeing to a certain number, while Tanzer insisted that the two sides had previously discussed a figure that would make Harrington $4.95 million richer.

A long war of words between the two parties ensued. The Rockies would end up offering a $3.7 million bonus or a $5.3 million major league deal with incentives (that also bought out Harrington’s arbitration years). Tanzer—and Harrington, to a lesser extent—would have no part of it.

Harrington and the Rockies never came close to a deal, and he went on to pitch for the St. Paul Saints of the Northern League prior to the 2001 draft. In 2001, the San Diego Padres took Harrington, this time in the second round (58th overall). The Padres offered a $1.2 million signing bonus, but Harrington—who eventually switched agents to Scott Boras—declined.

Harrington would continue pitching in independent leagues, finishing with the Fort Worth Cats of the American Association. He would also continue to be drafted—in 2002 by the Devil Rays (374th overall), in 2003 by the Reds (711th), and finally in 2004 by the Yankees (1,089th). He never signed. The Cubs signed Harrington to a minor league deal in October of 2006 but released him in March of ’07.

In the end, the Harrington camp turned town a number of more-than-fair offers. The major league, arbitration-included deals notwithstanding, the declined $3.7 million signing bonus was just under Josh Hamilton’s then-record $3.96 million bonus as the first pick in 1999 and $700,000 more than Adrian Gonzalez received as the top overall selection in 2000.

Harrington was able to recoup part of his missed fortune, as he settled on an insurance policy that was taken out in 2000 and filed a lawsuit against Tanzer for mishandling the negotiations. The amounts of both settlements are undisclosed.

Unlike success stories Cole and Harvey, Harrington didn’t go to a college baseball powerhouse to further develop his skills after not signing. Instead he toiled in independent leagues, losing sharpness, velocity, and command with each passing year. Once the jewel of the 2000 draft crop, Harrington looked less shiny as he failed to sign year after year, surpassed by the next big things of each subsequent draft.

The Harrington case displays not only the risks a teenager takes when passing up millions of dollars to play in the majors, but also provides a how-to course in the wrong way to go about the process. Hiring an agent seemingly unwilling to participate in reasonable negotiation, sitting idle for most of the year while said agent unreasonably negotiates, and not playing in college to further develop skills and also provide additional leverage in negotiations are all no-no’s for draft holdouts.

First baseman Chase Davidson was another notable non-signer. Drafted 88th overall by the Houston Astros in 2008, Davidson instead went to the University of Georgia. He struggled with the Bulldogs, hitting just 11 home runs in three seasons and putting up a .241/.309/.407 line. The Astros took a flyer on him again in 2011, this time in the 41st round.

Right-handed pitcher Nick Fuller was drafted 79th overall by Tampa Bay in 2006, but failed to sign and went to the University of South Carolina. Along with current major leaguer Lonnie Chisenhall, Fuller was dismissed from the team as a freshman after being arrested for breaking into a dorm room and stealing a flat-screen TV and video games. Fuller was also accused of stealing $3,100 from an assistant coach’s locker.

Fuller ended up at Walters State Community College in Tennessee and was drafted by Atlanta in the 25th round of the 2008 draft, where he again didn’t sign after it was revealed that he had shoulder issues. Fuller then went to NAIA Southern Polytechnic Institute in Georgia, but never again heard his name called in June.

Left hander Matt Purke was drafted 14th overall by the Texas Rangers in 2006. Initially Purke and the Rangers agreed to a $6 million signing bonus, but the Rangers’ finances were being controlled by MLB at the time (prior to their declaring bankruptcy in May of 2010), forcing them to reduce their offer to $4 million.

Purke opted to attend Texas Christian University and dominated as a freshman, going 16-0 with 11 strikeouts per nine. Prior to the 2010 season, Purke—a draft-eligible sophomore—was again expected to go early in the draft. However after losing velocity early in the ’10 season, Purke went to see Dr. James Andrews and was diagnosed with shoulder bursitis, seriously putting his draft status in question.

He ended up falling into the third round (96th overall) to the Washington Nationals, who still gave him a hefty $2.75 million dollar bonus (part of a four-year, $4.15 million major league deal), far more than any other third-rounder that year. Purke underwent shoulder surgery in 2012 and has yet to pitch this season, but still is a highly-regarded prospect in the Nationals system.

***

Back at Stanford this spring, Mark Appel completed his degree in management science and engineering and delivered his finest season on the mound to date. Scouts generally raved about him, noting improved late life on his fastball along with improvements to his already plus slider and work-in-progress change. Appel also pounded the zone and pitched ahead in the count more frequently.

The numbers matched the scouting reports. Appel went 10-4 with a 2.12 ERA in 106.3 innings, striking out 130 and walking 23 while allowing just two home runs. From his junior to senior seasons, he raised his strikeout rate from 26 percent to 30 percent and lowered his ERA from 2.56 to 2.12. In fact, Appel improved his numbers every season at Stanford, developing from a freshman reliever who posted a 5.92 ERA and 1.4 K:BB ratio into the pitcher who produced his standout senior campaign.

Appel again positioned himself as a consensus top-three pick heading into the 2013 draft, battling breakout Oklahoma righty Jonathan Gray and power-hitting San Diego third basemen Kris Bryant for top-of-the-class honors. Perfect Game had Gray ranked no. 1 overall, followed by Appel and Bryant.

That was the same story last year, however, when Appel ended up falling to the eighth spot due to money concerns. The Astros passed on Appel for Puerto Rican shortstop Carlos Correa, who signed for $4.8 million (well under slot). Houston then spread the extra money over other high picks, luring a couple of high schoolers into signing with over-slot deals. A number of other teams followed a similar pattern.

This year, however, the Astros took the hometown product in Appel, a mild early round surprise, as mock drafts had them taking anyone from Gray to Bryant to Colin Moran to Clint Frazier. Most believed that the Astros, having already passed on Appel once, would again take an easier sign and spread the surplus money around in later rounds.

The final chapter in the Appel draft saga remains to be written: Just how much will he end up getting as a signing bonus? There is some discussion that Appel may have additional leverage because he’s a senior and the July 12th signing deadline doesn’t apply to him. He can sign at any point up to the 2014 draft, thereby holding the Astros’ signing bonus pool hostage.

While a long, tenuous negotiation process is certainly possible, it doesn’t seem all that likely. Early indications, both from the Astros and Boras camps, seem to indicate that a deal sometime this summer is likely to be reached. While the July 12th signing deadline doesn’t apply to Appel, it would certainly be in his long-term best interest to sign with the Astros as soon as possible and begin his professional career. Heck, maybe they can sign him in June and call him up to the majors by July.

Further, Appel loses significant negotiating leverage as a college senior, as returning to Stanford for another season in no longer an option. He could again elect not to sign and play independent ball next spring. Despite the fact that the indie league strategy has worked out in the past for players like Luke Hochevar and J.D. Drew, it’s far from preferable. Appel isn’t going to get any younger, and he’s unlikely to be in as good form as he is now were he to sit out a year. Further, the signing bonus pools aren’t going away anytime soon, making holding out a less profitable strategy than it used to be.

The first pick in this year’s draft is assigned a slot value of $7.79 million, and the Astros have a total of $11.7 million to spend on the entire pool. An interesting side effect of the new draft system is that while it attempts to suppress spending overall, it sometimes overestimates the worth of the draft’s top picks. This year’s class is considered a relatively weak one, and Appel doesn’t seem to warrant a near-$8 million bonus. The rumors are that it’ll take somewhere between $6-7 million to get him signed, again giving the Astros a little money to use later on.

For Mark Appel, returning to school for his senior season is going to pay off. He got to complete his degree and graduate from Stanford—not a bad fallback if the baseball thing doesn’t work out. He also improved as a pitcher, stayed healthy, and is in line to make at least a couple of million more than he would have if he had signed with the Pirates last year.

Speaking of the Pirates, they made out okay for their part in this draft soap opera. They turned the ninth selection they received in this year’s draft for not signing Appel into Georgia high school outfield product Austin Meadows. Meadows was ranked ninth by Perfect Game prior to the draft.

The Astros end up with both Carlos Correia and Appel. Correia, who held his own as a 17-year-old in rookie ball last year, is hitting .285/.381/.420 so far at Single-A Quad Cities in 2013. He was ranked as the 26th-best prospect in the game by Jason Parks prior to this season. The Astros not only got Correia last year—because of the money they saved by taking the shortstop first overall—they were also able to add players like third baseman Rio Ruiz and RHP Lance McCullers Jr., both of whom have cracked the team’s top 10 list already.

Turning down $3.8 million and a chance to start a career in professional baseball is a risky decision. For Mark Appel, it worked out about as perfectly as it could have, as he adds his name to the likes of Gerrit Cole and Luke Hochevar as a player who didn’t sign as a high draft pick and returned to go first overall. The Appel case was an early glimpse into a new draft environment, where signability plays an even more important role than it had in the past and a little creativity is necessary to get high-profile prospects inked. Of course, by the time major league organizations figure out how to negotiate the new spending-capped draft, the current CBA will expire, and it’ll be time to revamp the draft again.

Draft data from Baseball America and Baseball Reference. Complete list of players included available here.

Related Content:  Gerrit Cole,  Amateur Draft

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