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August 12, 2008

Prospectus Today

Busted

by Joe Sheehan

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With four days left until the August 15 deadline for teams to sign their draft picks, more than a third of the June draft’s first-round picks remain unsigned, including four of the first five players taken. As Kevin Goldstein noted last week, the implementation of that deadline pushed many players to wait until the deadline to reach an agreement, and those that waited did so successfully. So for many players—such as Buster Posey and Eric Hosmer—this may go down to Friday at midnight.

The draft is a broken system, one in which Major League Baseball openly and unashamedly restricts the career options of hundreds of young men in order to save itself millions of dollars each year, and everyone nods and smiles. We accept the concept of a draft in sports because it has largely been sold as a mechanism for increasing competitive balance—the worst teams get the highest picks. In fact, drafting high and drafting well are completely different things, as any fan of the Pirates—or, at the other end of the spectrum, the Braves—could tell you. That the draft may help competitive balance in a league is a tertiary factor in its existence. What a draft actually does is keep teams from competing for the services of the best talent on the market, and keeps that talent from having any options when it comes to choosing their employer for their prime earning years. It’s a beautiful system…as long as you’re not a supremely talented baseball player trying to have a career.

So when Pirates president Frank Coonelly says that his team will not "grossly overpay" for Pedro Alvarez, the second pick in the draft, it’s interesting to think about what that means. We’ve been conditioned to think of signing bonuses—the money we’re talking about here in most cases—on a scale unto themselves, disconnected from the rest of the baseball economy or, in fact, everything that those bonuses are paying for. In fact, owning the exclusive right to pay Pedro Alvarez millions of dollars is a huge positive for a baseball team, and a huge negative for Alvarez or any other player selected in the top couple of draft rounds.

What is it to "grossly overpay" the second-best amateur player in the nation? Kevin speculated last week that the end result here would be a $6-8 million major league contract, which would mean an immediate place on the club's 40-man roster. Is that overpaying? What if it were $9 million, or $10 million? What is the value of a 22-year-old third baseman who is expected to be one of the better power hitters in the game—if perhaps at a different position—in short order? What is the value of owning that player’s rights for the next seven, eight, or even 10 years, as he ascends through the minors? What is the value of being able to pay that player near the league minimum for three full seasons, and perhaps the better part of a fourth? What is the value of being able to keep that player off of the free market for talent by paying below-market salaries for three years beyond that? What is the value of never having to compete for the services of a player of that caliber?

Frank Coonelly wants you to believe that the value of that is something along the lines of $5 million or $6 million. Actually, that’s an overstatement; he wants you to forget all of the previous paragraph and just focus on the idea that Pedro Alvarez, unproven talent, wants millions of dollars before he ever plays a professional game. He doesn’t actually want you to think about the years of profit his team may make off of Alvarez’s talents, seasons in which the player may be worth five, six, or more wins to his team, wins that generate tens of millions in revenue, while Alvarez will be paid as little as $400,000, or maybe as much as $8 million or $9 million in an arbitration season.

Think of a signing bonus for an amateur player the same way we do a signing bonus for an MLB player, and prorate it across the length of a contract. Alvarez—or Buster Posey, or Eric Hosmer, or whoever—is signing at least a seven-year contract, and in many cases, an even longer one. When you look at it that way, even a $5 million bonus doesn’t seem that high given what it’s buying.

Consider the case of Justin Verlander. The second overall pick in the 2004 draft, Verlander signed a five-year major league contract with a $3.12 million bonus. He reached the majors in 2006, triggering contract bonuses, and made about $2 million total in his first two seasons. However, what would Verlander have made had he had the right to choose his own employer after the 2006 season? For that matter, what would Ryan Braun have made had he hit the market after last year, his Rookie of the Year campaign? What do you think Justin Upton could have gotten at the end of last year? The signing bonuses teams pay to their draftees are a bargain when compared to both the value they get for their money and the bonuses and salaries they would pay if the market for amateur talent wasn’t rigged in their favor.

Look, I’m no radical, but I’ve never understood why we allow in sports what we would never allow in other professions. Engineering firms don’t draft the top engineers and pay them below-market rates, and while the early careers of attorneys can be daunting, they get to choose a firm to give 100 hours a week to for a few years. In those industries, in fact, the top talent can have long, illustrious, profitable careers, so that even if we did hold a First-Year Lawyer Draft, we wouldn’t necessarily be cutting a chunk out the earning potential of the young barristers. We also wouldn’t tell them they had to work for a lousy firm, or in a city they might hate, far from their families. As a nation, we wouldn’t stand for that kind of thing, but we do in sports. In sports, we’re handing over the prime of players’ careers without ever giving them a chance to find out what they were worth. For many players, the step from amateur to professional is, in fact, the only time in their lives that they will have any leverage at all in their salary, if not their employer or place of work or management team. It is embarrassing to take so much away from them, then complain that they’re not being reasonable when it comes to the one thing that they can negotiate. If coming out of college I’d been told that I had no choice but to go copyedit for the Des Moines Register, you can be damn sure that I would have been a jerk about salary.

If you want to claim that this is necessary for competitive balance, that’s fine, but there’s little to no evidence that MLB wants competitive balance through means other than ones that lower labor costs. Competitive balance only ever comes up when needed as a bogeyman to restrict the free market for talent. Put another way, how come ideas for aiding competitive balance never make players more money? Even if competitive balance were the goal, I’m not at all convinced that the welfare of a sports league—already the beneficiary of billions in tax revenue and an absurd carve-out from antitrust law—outweighs the damage done to the individuals forced to give up their negotiating rights.

So perhaps Frank Coonelly, and everyone else involved on the MLB side of the negotiating table, should stop making it sound like they’re getting screwed. They’ve taken away the freedom of tens of thousands of players over the last 40 years, decreasing their leverage and the amount of money they could make. They recently found ways to make the process even more distorted in their favor, with compensation picks awarded to teams that don’t sign their first-round picks. Short of a kit that includes two pens, a shotgun, and some rope, they’re not going to get a better deal than the current one.

I don’t know what it means to "grossly overpay" Pedro Alvarez, other than it probably means the same as what "grossly overpaying" has meant for 120 years of baseball history: one dime more than what management wants to pay. In this case, however, management has the hammer that, at the major league level, was taken away 30 years ago by Marvin Miller, Peter Seitz, and some really bad decision-making on the owners’ part.

Maybe it’s time amateur players got their own Marvin Miller.

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

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