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August 5, 2007

Future Shock

Going Over Slot

by Kevin Goldstein

“Broken.”

“Dysfunctional.”

“Goofy.”

“A Charade.”

The quotes from above are from a scout, scouting director, and an agent, and made in reference to what is going on with signings in this year’s draft class. If both sides are agreeing on this level, something very wrong is happening here. Let’s delve deeper into what's going on in the form of questions and answers.

Question: So where are we at right now in terms of the 2007 draft?

With 10 days to go before the newly-implemented signing deadline of August 15, 13 of the 30 first-round picks, including eight of the first 12 picks are still without a deal. In addition, there are 26 players between the supplemental first round and the fifth round who are also officially unsigned.

Question: Wait a second—what do you mean by “official?”

There appear to be plenty of deals where all the terms have been agreed upon, but they’re just not signed and announced yet. All of these deals include bonuses that are far greater than the slot recommended by MLB. For example, Detroit has signed fifth-round pick Casey Crosby for what is believed to be $750,000; rumors abound that Atlanta has agreed to terms with first-rounder Jason Heyward for approximately $1.7 million, and the Yankees have agreed on several above-slot deals, including around $1 million for fourth-round pick Brad Suttle, and somewhere between $750-900,000 for tenth-round pick Carmen Angelini.

Question: So why aren’t these deals announced yet?

On the surface, because MLB doesn’t want the over-slot deals being used in negotiations to raise the bonus demands of the legitimately unsigned picks. That said, it’s an exercise in futility. “Once a deal is done, everyone knows it’s out there,” said one scouting director; teams talk to each other, and agents quickly let their good deals be known. As another scouting director put it, “I really don’t know who they think they are fooling.”

Question: So what is this slotting system? Is it like the NBA?

No, not at all. MLB simply recommends a bonus for each selection. Teams do not have to adhere to the recommendation. In addition, the recommended bonuses this year are 10 percent lower than last year?

Question: Why are most teams adhering to the slotting recommendations?

For a multitude of reasons. The simple answer is because they can, but opinions vary as to whether or not they should. “There is a real belief, from both ownership and the union, that the draft is an area that could stand some cost control,” said one scouting director. “Ownership sees bonuses as getting out of hand when compared to the money spent on proven talents, while at the same time, there’s a finite amount of money being spent, and the union knows that money saved in the draft is going to be redistributed to a union member, so they’re fine with it as well.” Another scouting director saw the lower recommendations as bad for the development of the unsigned players. “Every other aspect of the game—revenue, free agency, arbitration—they’re all up, but the draft is now ten percent less?” he asked. “And now we miss a summer of development on guys, and for what?”

Needless to say, agents are far from thrilled with the system. “I have no idea why teams are going with this,” questioned one agent. “Why give MLB that kind of power? They can’t control arbitration, and free agency is an open market, but the draft is in limbo. MLB can tell you this is collectively bargained, but it’s not—the system for compensation picks is, but this slotting system is not.” A scouting director came back wondering why player representatives would be so upset. “The big agents—Boras, the Hendricks brothers, CAA, SFX—they don’t make their money on the draft, they make their money after the draft.”

In addition, there are some teams and/or individuals within teams that might feel like they have to adhere to the recommendations. “I’m not going to name names here, but you can figure it out just by looking,” said one scouting director. “There are some teams that MLB seems to have leverage with when related to other things that have nothing to do with this process, and they hold it over their head. So if they toe the line, my question is what MLB is going to do for those teams when they’re sitting in the bottom half of their division because they couldn’t take the player they really wanted.”

A second agent talked about how the process that is put in place for teams that want to pay over slot actually keeps bonus figures down. “This is producing a chilling effect on clubs because the process goes through ownership,” said the agent. “You can only ask ownership for so many favors, and you don’t want to burn your bridges with the money people.” The agent noted that signing players for over-slot bonuses also puts scouting directors in a spotlight they might otherwise want to avoid. “Anytime a scouting director asks for more money and that player doesn’t pan out, it produces more accountability,” he explained. “How many of these guys are going to spend their entire career with one organization? What happens when they want to go somewhere else? Those other clubs are going to look at how he spent his money.” He added that the end result does little for getting the best players to the best teams. “So now these teams say that they are passing on and losing the best players because they can’t afford them. In the bigger picture, what they really can’t afford is not to sign them.”

Question: You said the process for going over slot involves ownership, but what is the process exactly?

In many ways the process for exceeding the slot bonus seems solely designed to make it as inconvenient as possible, as MLB has no real recourse when a team decides to hand out the big dollars it feels it has to spend to land a particular pick.

“The only thing MLB can do is fine you if you don’t call them first,” said one scouting director, who then went into detail about the process, the annoyance in his voice coming through perfectly. “You call MLB and say you want to go over slot, and they tell you not to, and that they’ve worked so hard to put this system in place and that you are blowing everything up.” From there, things get uglier. “Now, the process can’t continue until MLB talks not to your GM, but to your ownership, where they will once again yell about your team messing everything up, but also often telling them that their own scouting director is doing the wrong thing here,” he added. “Unfortunately, there are owners who listen.”

The key to getting an over-slot deal done seems to then rely on having a supportive internal management structure. “In the end, you have to have a strong enough ownership where you can tell him that signing this player for big money is in the best interest of the organization,” he continued. “When that happens, the owner has to call MLB back and let them know that their message has been heard and considered, but we’re doing it anyway. Then after MLB yells at you one more time, you sign the guy. It’s a bad process.”

Question: Why is MLB so concerned about this? In the bigger scheme of things, how much is being saved?

This issue seems to baffle both teams and agents. “The way some teams are spending in the international amateur market is far more damaging to any kind of parity than the draft or free agent signings,” said one scouting director, and another agreed. “On July 2nd, the Yankees spent $3.9 million dollars on international players. That’s in one day. Did they have to call anyone to do that?” he questioned.

Even an agent agreed that there are other places where even if minimally successful, cost-cutting measures might be more successful. “They [MLB] have tried to do the same thing in the arbitration market and it’s met with less success,” he said. “But it’s kind of goofy that they are focusing on this so much—saving less than six figures here and there—especially when they are making so much money from television revenue and other sources.” The agent added that the recommended slotting system and (perhaps surprisingly) the teams that go against it, both currently serve MLB’s purposes. “Most clubs have been in lockstep with the slotting, and that’s good for MLB,” he stated. “But as always, there will be a few teams that step outside the box and pay more. That’s good for them too, because that way there’s no collusion, and MLB can say it’s not a fixed market.”

Question: So what teams are going over slot?

There seems to be two types of organizations that are consistently going over slot: Smart ones, and rich ones, not that the two are mutually exclusive. Four teams that immediately come to mind are the Tigers, the Angels, the Red Sox and the Yankees. Go look at the standings, and then go look and the amount of elite-level young talent in each system. It’s not a coincidence.

“Look MLB can yell and scream, and they can use their scare tactics and their peer pressure, but in the end, teams are going to go over slot anyway,” said one scouting director. “When MLB tells the Yankees that going over slot on all these guys is a bad idea, they’re going to look at their system and see Joba Chamberlain and Ian Kennedy from 2006, and other guys they’ve gone over slot for and say to themselves, ‘well gee, it’s working pretty good for us.’”

One scouting director said he can’t blame the Yankees for doing things this way, but he was worried that credit would go in the wrong direction. “I don’t blame or fault other teams for taking advantage of the system or begrudge them for what they’re doing under the current rules,” he stated. “However, if a team has five-million-dollar bullets to shoot, and you have one-million-dollar bullets, they’re going to get more credit for their ‘scouting’ when it’s the dollars doing the work.”

And then there are the Tigers, who have used their first-round picks to grab top talent as it has fallen to them because of real or perceived bonus demands. This philosophy has allowed them to add Justin Verlander, Cameron Maybin, Andrew Miller, and potentially Rick Porcello to their organization. The Tigers have selected them all at positions well below where their talent merited. Clearly, it’s working in Detroit, and one would think others would learn their lesson.

One amateur scout who admires the Tiger approach said the philosophy is obviously paying dividends. “It should be pretty clear that a bigger draft budget saves more money in the long run,” he said. One agent agreed completely: “Any team that passes on some guy over 200 grand is killing themselves,” he observed. “If you’re not taking the best player on the board because you ‘can’t’, you’re just hurting yourself.”

One scouting director insisted that money still isn’t everything. “You can still succeed as it is right now without spending $10 million every June to sign your picks,” he asserted. “Look at the Twins, for example. You just have to be good at it, and you can get talent.”

Beyond just the Tiger trio (perhaps eventually a quartet), there is empirical evidence supporting this philosophy as well. A recent study by Baseball America’s Jim Callis showed an overwhelming success rate for players who received well-above-slot bonuses.

Question: So the system is completely broken right now, right?

Yes and no. Yes, in the sense that unlike drafts in the other major sports that have a legitimate and enforceable slotting system, the talent in the baseball draft does not go off the board in order of talent. In fact, the gap between where guys should go based on talent and where they do go in actually seems to increase annually.

At the same time, it’s not like the above slot teams are doing anything unethical in any way. If anything, the teams getting the top talent in lower rounds should be appreciated by fans of the business side of things as well as believers in the Moneyball ethos of exploiting market inefficiencies.

There are no rules preventing other teams from going Detroit’s route. Consider the overall expense of doing so. It's high when compared to what other teams are spending on amateur talent, yet still well below the kind of cash that gets thrown around for even mediocre free agents. It’s surprising that more teams aren’t jumping on the talent bandwagon and gunning for players who drop in the draft.

That said, both team officials and agents had ideas on how to get the draft going in a better direction in order to have the best talent at the top. While everyone agrees that a real slot system would solve the problem of talent dropping, everyone also understands that even discussing the concept is moot, as the player’s union would never concede to it. “Look, everybody knows who the top players are, it’s not a big secret,” said one agent. “Let the teams trade picks. The best players should get more money—these guys are free agents, it’s a free agent draft, if you can’t take the best guy because of money, you should be able to trade the pick to get value back that way. It would be a much cleaner system, and the top players might go more in order.”

A scouting director insisted that trading picks is something he’s always been in support of, not just for better balance on draft day, but for some additional benefits as well. “Draft picks have value for teams at the trade deadline who might not have existing minor league talent to trade,” he said, while adding that such a system add a positive challenge to teams. “It takes away excuses. You always hear about Team A liking Player B so much, but he goes two picks ahead of them. [Now, if] (y)ou like him so much, now you can trade for him.”

Question: Why did it get this far? Why weren’t these problems addressed earlier?

This is the cause for most of the anger over the current system, although one scouting director remained optimistic that it will get better. “No, this is not a perfect system right now,” he said, “but the intent is good and the aim is true. The problem is at the CBA they take care of everything else and then at the 11th hour they say, ‘oh wait, what about the draft?’” Another scouting director was not so positive. “Look, MLB had their chance to fix it and they didn’t,” he insisted. “They missed a golden opportunity in the last CBA and they just blew it. They got this pick compensation piece in there, but who wants that? If you pick in the top 15, you have to take the right guy and sign him. The price doesn’t matter and the pick I get next year if I don’t sign him doesn’t do me any good.”

Question: OK, so lets get back to the here and now—what happens will all of these unsigned picks over the next 12 days?

Even though nearly half of the first-round picks are unsigned, when posed the question of how many will sign by the deadline, the overwhelming majority of industry people contacted for this article believed that all 30 will sign. However, the game of chicken with nobody going over slot continues, as seemingly no team wants to be the bad guy and be the first to do it, in what one scouting director characterized as, “pulling the finger out of the dike.” He goes on to add with frustration, “Again, there’s no true slotting system—it’s a de facto system, it's recommendations, and it’s yelling and it’s arm twisting. In the end, we’re heading for a collision, and there are plenty of teams that are going to pay over slot to get their guy and as soon as one guy goes, they’re all going to go.” Another scouting director agreed completely. “Once the dam breaks, people start feeling empowered on both sides, and the feeding frenzy begins.”

A third scouting director agreed that this is the likely scenario, but at the same time, he explained the potential nightmare. “What if it doesn’t blow up? Then what happens? Has anyone said they’ll be first? If everybody says I won’t be first, then logic says that you have no first.”

With exactly one player in the first ten rounds signing in the last 10 days, the finger remains in the dike, at least for now.

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

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The Week in Quotes: Au... (08/06)

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