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February 23, 2009

Prospectus Today

First-Round Picks!

by Joe Sheehan

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In the discussion of Type-A free agents this winter, the term "first-round pick" is used about as often as "the" or "of." The perceived relative values of major league talent and first-round draft picks have been moving in opposite directions for a long time, and it appears that this winter, the two have crossed. Teams are less willing than ever to sign players and sacrifice that selection in the upcoming draft, and they're becoming more aware of how important good young baseball players who can be paid well below market value are to a baseball team.

We hear about the importance of these picks during the season as well, when teams are often faced with the decision of whether to trade an impending free agent, or keep him for a run at the postseason. The latter choice is often labeled as coming with "two first-round picks," short hand for compensation for a Type A free agent. In actuality, a Type-A free agent returns the signing team's first-round pick if and only if that team was one of the 15 best in baseball the previous season. In other cases, the team losing the free agent gets the signing team's second-round pick. This is designed to allow lesser teams to sign free agents without giving up such a high selection, one that would be a near-total disincentive to the signing of Type-A free agents.

As Rany Jazayerli's work has shown, the value of draft picks drops off linearly throughout the first round, so our shorthand of "two first-round picks," with its image of Evan Longoria or David Price sauntering to the compensated team, has always been in error. The correct compensation description for a Type A is "two picks in the first two rounds of the draft, one in the compensation round, and the other usually in the last half of the first round or first half of the second round." Not so sexy. The use of the term "first-round pick" to refer to compensation picks has always puzzled me as well, given that the list of those start at 31 (later now that teams get picks for not signing their previous year's draftees) and can run for nearly an entire round in itself, as it did in 2006. In 2009, there are 13 supplemental picks, with seven remaining free agents who would generate one if signed by a new team. There's no way that a pick in the forties should be deemed a "first-round pick," and if you care to use the term, you have to qualify it.

Let's see how this works in action. The Dodgers got four good years from Derek Lowe, and when they couldn't reach agreement on a contract for his services for 2009 and beyond, their fans no doubt consoled themselves with the idea that they would get "two first-round picks" when he left. In actuality, though, the Dodgers received the 36th and 53rd picks in the upcoming draft-neither in the first round-because Lowe signed with the Braves, whose poor 2008 season left them with the seventh overall selection, a pick that cannot be forfeited. Throw in some compensation picks for failing to sign 2008 first-rounders and teams who had worse records than the Dodgers, and the compensation for Lowe is not nearly that impressive.

Consider the plight of the Brewers, who saw CC Sabathia, their mid-season trade acquisition, signed by the Yankees... but because the Yankees signed Mark Teixeira as well, the Brewers will get just the 38th and 70th picks in the draft. Those numbers could go lower if Juan Cruz, Manny Ramirez, and Orlando Cabrera sign, creating even more compensation picks. The Blue Jays were the big losers of the winter; in addition to watching their second starter, A.J. Burnett, opt out of his contract and go to a division rival, they got just the 37th and 101st picks in the upcoming draft-their compensation reduced to a supplemental pick and a third-rounder because of the Yankees' shopping spree.

The Brewers and Blue Jays' situations were something of a fluke, but they do illustrate the risk in assuming that you'll get good compensation for the loss of a free agent. The best you'll ever do are the 16th and 31st picks (if you're the worst team in baseball and you sign a free-agent from the 16th-best team in baseball and there are no failure-to-sign compensation slots in the draft), which isn't all that impressive. The value of first-round picks drops off so substantially even after half a round that the compensation we've been so worked up about is actually not that great. We've overcorrected, as analysts and fans, caught up in the image of a "First-Round Pick!" that doesn't match the real compensation received. The reality is the Rockies getting the 32nd and 34th for Brian Fuentes, or the Diamondbacks getting the 17th and 35th for Orlando Hudson.

(All of the pick numbers in here are subject to change as more free agents, or the few remaining unsigned 2008 draft picks, sign. I'm working off of Baseball America's list and adjusting for the Joshua Fields and Orlando Hudson signings, I think correctly.)

If you're a team on the brink of losing a star player to free agency, it's not enough to think "two first-round picks." The reality is that you're getting two second-round picks in most cases, with some chance at a low first-rounder, and some chance that you won't even do that well. Those picks have value, but not so much that they can be relied upon to have more value than the prospects available at the trade deadline. Matt LaPorta in the summer of 2008 may not be worth more than a First-Round Pick!, but he is almost certainly worth more than what the compensation will realistically be for your free agent-to-be.

The other effect of this is that teams in the first half of the draft should not be thinking about the pick that they'll lose at all. The second round of the 2009 draft will begin with the 46th pick, and has begun as high as 65th in recent years. If you're the A's, with Bobby Crosby at shortstop, Orlando Cabrera on the market, the money from the Rafael Furcal offer lying around, and a chance to steal the AL West, you can sign Cabrera without worrying at all about the draft pick. It's not going to be high enough to be any kind of disincentive. If you're the Tigers or the Rangers, piecing together a bullpen in support of what should be a good offense and acceptable rotation, go out and sign Juan Cruz at a cost of money and around a 60th pick. These players are incredible bargains at this point, and they can be a minimum of a two-win upgrade in situations where two wins could be worth close to $10 million. There's no excuse for not picking them up.

For all of the hue and cry about the compensation system this winter, the scheme for Type-A free agents isn't all that restrictive. The clause that prevents picks in the top 15 from being forfeited dramatically reduces the value they can return, and separates the image of a First-Round Pick! from the reality. Furthermore, the supplemental picks serve to lower the real cost of signing Type-A free agents for teams in the top 15 of the draft, knocking their second-round selections deep into the player pool. If anything, it appears that the teams in that part of the draft are being far too conservative in a market where players are cheap; the associated costs are so small that compensation can be ignored, leaving just your team's needs, the projected value of the player, and his salary.

That's also why the recent talk of the MLBPA encouraging some players to waive their no-trade rights in advance of signing with their old team in order to facilitate a "sign-and-trade" scenario is silly. Half of the teams in baseball can sign Type-A free agents without sacrificing much in compensation, so the idea that designation as a Type A is crippling the market for these guys is mistaken.

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

18 comments have been left for this article. (Click to hide comments)

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sgturner65

The Dodgers just sacrificed the 17th pick in the draft for Orlando Hudson, coming off a dislocated wrist.
That seems like a pretty steep price to me, let alone the $3.4M he gets just for signing on the dotted line plus another $4,6M in incentives.

The incentives, by the way, can only be based on quantity of plate appearances or games, and not quality. They could end up paying $8M for a guy that is in the decline stage of his career defensively and may have greatly reduced offensive numbers.

Feb 23, 2009 10:58 AM
rating: 0
 
Shkspr

About a quarter of the time, the 17th pick becomes a good major leaguer...but about half the time, they aren't going to have an impact on the league. With the Dodgers picking, that 17th pick is probably as likely to be a high school pitcher as not, so you've got to figure the odds are even longer on the pick being worth anything.

Feb 23, 2009 13:17 PM
rating: -1
 
wonkothesane1

While this is true, this only works in a few scenarios (the Dodgers meet these):
1. The team is already a contending team and the added player gives them a better chance at either playoffs or a championship. This trumps rules 2 & 3 as long as the assessment of the team as a contender is correct.
2. You don't do this year after year with the resulting effect that you never get any first round talent into your farm system.
3. You don't get multiples of these players in a single year and sacrifice your first 2-3 rounds of picks.

Feb 23, 2009 15:15 PM
rating: 0
 
Drew

I'd say it's worth it to find out. The Dodgers are in the sweet spot, so if Hudson rebounds well from his injury he will be worth it. If he craters, then he's gone after this season.

Feb 23, 2009 11:53 AM
rating: 0
 
James Martin Cole

I'd like to see more work done along these lines. Rany's chart suggests that in the 50-100 pick range you've got about a 1/4 chance of getting a major league player, and that on average these players are worth about 4 WARP. How much, in dollars, is that chance worth? It seems like it's got to be worth something, at least a couple million.

I'd be interested in seeing an article or two that try to assign monetary value to draft picks. I don't really know how someone would go about doing something like that, but I assume major league teams all have their own formula.

Feb 23, 2009 13:32 PM
rating: 1
 
Richard Bergstrom

Note that Rany says that 1/4th of players picked would be worth about 4 WARP over their _entire_ career. Orlando Hudson was worth 2.7 WARP last year, 5.0 WARP in 2007 and 4.6 WARP in 2006.

So, when considering whether to sign a Type A Free Agent:

If you sign them, you know you are getting a major leaguer and losing a draft pick.

If you don't sign them, you _might_ get a major leaguer who _might_not_ be as productive over their career as that free agent is productive for that year.

So, the quality of the free agent does make a difference.


Now, let's say you had a type-A with easily replacable skills like a utility player or a middle reliever. In that case, it might make more sense to skip signing the free agent since there is the chance the pick produces a player of superior quality to the replacement-type free agent.

Feb 23, 2009 15:27 PM
rating: 1
 
James Martin Cole

Also, consider that 1/4 of players actually make it to the majors. If you don't make the majors, you can't accumulate WARP. Thus, if the average WARP is 4 (over a career), and only 1/4 of players drafted make it to the majors, then the average player to make it to the majors is a 16 WARP career player. Not great, but better than a 4 WARP player. So you've got a 3/4 chance of getting nothing, or a 1/4 chance of getting a decent, useful major leaguer.

Feb 23, 2009 17:28 PM
rating: 0
 
Dirty Tom Rackham

"I'd be interested in seeing an article or two that try to assign monetary value to draft picks."

Nate did this several years ago. http://www.baseballprospectus.com/article.php?articleid=4368

To not look at the value associated with giving up a draft pick in this article is a pretty big hole in this analysis. Sheehan implies that it's not much, but doesn't take the step to try and quantify it (and instead takes the majority of the article to explain that the knee jerk '2 first round picks' phrase isn't really 2 first round picks (which I suspect the vast majority of the readership of this site already knows).

Nate had the value of a player taken at pick 26 and later at $3.24 million in 2005, assuming a $2.14 million cost for a marginal win. Presumably that's increased significantly since then (as Sheehan implied a win was worth $5 million today) so the value of the pick would increase as well. The value of a 50s or 60s pick wouldn't be that great, but there's a way to get a value on that pretty easily.

Picks 16-25 were worth nearly $9 million 4 years ago so the Dodgers seemingly paid a pretty significant price to sign Hudson. If he produces 5 wins, maybe he's worth it, but I'd like to see a better attempt at looking at that than this article.

Feb 24, 2009 10:06 AM
rating: 0
 
jayman4

I love Rany's analysis. My guess about the availability of FA's is either a) collusion; or b) owners are genuinely scared of seeing the revenue base drop 20-40% over the next few years.

Regarding collusion, I am a small market team guy, so don't normally get all effusive about the ability of top guys going to play for top 10 DMA teams; but, if teams are colluding, it is illegal.

I think the latter has a lot to do with it. It is like the bankers, still cannot believe their massive bonuses are a thing of the past for awhile. The players and agents may have a hard time believing the revenues are going to slow down. I have no idea if baseball teams sandbag and can actually afford a lot more, but I doubt there is a lot of cushion in the lower 15 DMA teams, even with revenue sharing.

Feb 23, 2009 14:34 PM
rating: 0
 
Dr. Dave

So, who are the greatest players ever who were selected with compensation picks for FA signings? Enquiring minds want to know...

Feb 23, 2009 14:53 PM
rating: -1
 
ElAngelo
(942)

I know David Wright was taken by the Mets in the supplemental round when they lost Mike Hampton. I'll set the bar there.

Feb 23, 2009 15:28 PM
rating: 1
 
Bill N

Checking from 2001-2005 to get an idea of what guys are selected with the picks, it's hands down David Wright for that period. Decent shot He's just plain the best. Here are other noteworthy players I picked out, with the 2005 players mostly speculation based on their prospect or major-league ready status.

2001

Aaron Heilman
Mike Fontenot
Brad Hennessey
Bobby Crosby
Jeremy Bonderman
Jeff Mathis
David Wright
Todd Linden
Kelly Shoppach

2002 (aka MONEYBALL!!!)

Nick Swisher
Joe Blanton
Mark Teahen

2003

Conor Jackson
David Aardsma
Matt Murton
Omar Quintanilla
Jarrod Saltalamacchia
Adam Jones
Jo-Jo Reyes

2004

Glen Perkins
Phil Hughes
J.P. Howell (not to confused with 2001 supplemental pick J.P Howell, apparently)
Huston Street

2005

Jacoby Ellsbury
Craig Hansen
Travis Buck
Luke Hochevar
Clay Bucholz
Jed Lowrie
Garrett Olson
Ivan Dejesus Jr
Nick Hundley

Feb 23, 2009 15:29 PM
rating: 3
 
wonkothesane1

Assuming that you are talking about only true 1st round picks, then a quick browse through B-R finds (back to 1990):

1990.24 Rondell White Montreal Expos (Mark Langston)
1991.16 Shawn Green Blue Jays (Bud Black)
1992.19 Shannon Stewart Blue Jays (Tom Candiotti)
1993.15 Chris Carpenter Blue Jays (Tim Henke)
1993.20 Torii Hunter Twins (John Smiley)
1998.17 Brad Lidge Houston Astros (Daryl Kile)
2001.26 Jeremy Bonderman Oakland Athletics (Kevin Appier)
2002.16 Nick Swisher Oakland Athletics (Johnny Damon)
2002.24 Joe Blanton Oakland Athletics (Jason Giambi)
2003.19 Conor Jackson Arizona Diamondbacks (Greg Colbrunn)

Up-and-comers who are notable:
2004.22 Glenn Perkins Minnesota Twins (Eddie Guardado)
2004.23 Phillip Hughes New York Yankees (Andy Pettitte)
2004.28 Blake Dewitt Los Angeles Dodgers (Paul Quantrill)
2005.23 Jacoby Ellsbury Boston Red Sox (Orlando Cabrera)

If you go to the supplemental round you find a some more successes (and a lot more failures, go sample size!). David Wright, Adam Jones, Joba Chamberlain, Kelly Johnson, Dustin McGowan, Brian Roberts, Aaron Rowand, Mark Prior (when the Yankees drafted him), Johnny Damon, Bobby Jones, Scott Hatteberg,

Feb 23, 2009 15:45 PM
rating: 2
 
vtadave

David Wright as a supplemental first rounder and the Red Sox scored a coup with Clay Buchholz, Jed Lowrie, and Michael Bowden all going in the sandwich round a few years ago. More often than not though, I'd guess the talents to be more along the lines of Chaz Roe and Jay Rainville.

Feb 23, 2009 15:33 PM
rating: -1
 
jlefty

I'd also have to think that the cost of type a free agents is at least somewhat a function of your team's funds (and general success) in scouting. The A's aren't losing the same value as the Astro's were either of them to sign o-cab.

Feb 23, 2009 16:27 PM
rating: 0
 
HRFastness

"so the idea that designation as a Type A is crippling the market for these guys is mistaken."

Is it that, or is it teams overvaluing the draft picks and the resulting misconception fueling an actual fear?

Feb 23, 2009 16:28 PM
rating: 3
 
R.A.Wagman

I have been following the MLB draft very closely for a while and documenting as much data as I can and I must say that any view of draft picks as solely a function of draft position is wildly erroneous. To rate a draft pick's chances well, we need to take a more holistic approach - as some commenters have noted, the A's have had more success than the Astros - I won;t go into the why in that, but the reasons for that have been fairly well documented. The success of a draft pick is a combination of correctly scouting talent, correctly honing talent and developing it, and a well-paced pushing of the talent through to the top. Sometimes high bonuses help in the push, but not in the results given post-push.
Signability issues much further cloud the "value" of a draft prospect. A team that is willing to pay overslot has much more to gain by getting extra draft picks than a conservative team would.

Feb 23, 2009 20:58 PM
rating: 2
 
Richard Bergstrom

Part of the issue, as commented about regarding the Brewers compensation for Sabathia, is it is hard to predict the quality of draft pick that will be received.

Also, it is one thing to have compensation picks, but it is another to have a good enough scouting department to recognize who to use them on. Maybe the best usage of such picks is to overdraft pitching prospects on the idea that in order to get one decent starter, you need to draft three or four prospects to roll the dice with.

It looks like people are coming up with lists of 30-40 major leaguers (though not necessarily stars) as compensation over 5-6 years of free agent signings. It seems that, unless the quality of the free agent is very low, then the free agent signing is worth the lost compensation pick. Now, whether it also is worth the cost of the contract is something else too.

Feb 24, 2009 08:34 AM
rating: 0
 
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