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October 5, 2009

Tweaking the Talent System

Setting The Stage & Trading Picks

by Kiley McDaniel

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When looking back at the economics of signing July 2nd talent, the amateur draft kept coming up. The draft indirectly ties to the Latin American market in a number of ways, and this relationship could be changing due to the other topic that kept coming up: the Collective Bargaining Agreement, which expires in December of 2011. The most talked-about reforms-mandated slots in the draft and a worldwide draft-have been kicked around in the past, but have gained more support in recent years. Covering amateur baseball is about looking forward, so I'll spend the next few articles breaking down the issues that both sides will be considering when they come to the table.

Selig's Stance

The draft and Latin America are normally afterthoughts in CBA negotiations. One reason for that is the fact that the player's union doesn't technically represent amateur players, and another is that amateur bonuses make up such a small part of MLB's huge financial pie. In a high year, Latin bonuses are around $60-70 million, and draft bonuses are around $170-190 million. while MLB revenues are at nearly $7 billion. That means all amateur bonuses are about 3-4 percent of revenues, so you can understand why they aren't normally key priorities during past CBA negotiations.

It could just be public posturing, but Bud Selig appears to be putting these two issues at the top of his agenda for the next CBA. From a recent Q&A with Fox Sports' Ken Rosenthal:

Q: The collective-bargaining agreement expires after the 2011 season. Looking forward, do you have to tweak it to further enhance competitive balance?

A:Yes. There's no question. In everything in life, you have to tweak. You know there's no question that I think we need a slotting system for the draft. We need a worldwide draft.

You asked about competitive balance. [The securing of amateur talent] is the major vehicle for clubs today to build for the future. My theory is that it shouldn't only be about money, it should be about management. We need to change the draft. I understand it won't be easy. But I also think it's imperative. It's imperative for the health of the game. I feel very strongly about that.

Two things from Selig's answer jump out at me. The first is that Rosenthal asks broadly about the 2011 CBA, and not only does Selig go straight to July 2nd and the draft, but that's all that he mentions. The second is the part of his answer I emphasized, about what he wants to change in amateur markets. The draft was originally created in 1964 simply to curtail exploding bonuses, which it did; spreading out the talent more evenly was a byproduct of the system. Over the years, agents have gotten more involved, and the talent hasn't been as evenly distributed, depending more on a team's draft budget than before. A recent conversation with an NL executive included this exchange:

Exec: What do you think MLB wants to achieve with draft reform?
Me: Fairer distribution of talent and controlled costs.
Exec: Exactly. Hard-slotting does that, right?

If Selig's aim is to make the draft about picking the best player and less about money, then hard-slotting would be the right approach. In an ironic turning of the tables, draft-slotting would aim to even out the talent distribution, and lowering overall bonuses would be the byproduct. The catch is that many observers, including BP's Kevin Goldstein, aren't even sure that the draft is broken in the first place. Many feel that agents have too much influence in dictating picks and demanding contract terms, but there aren't many tweaks that clearly are a net positive. There are a number of different directions that draft reform has been rumored to be headed, but by far the most talked-about is hard-slotting. I'll cover the domestic implications of hard-slotting first, and then later hit other draft solutions, the worldwide draft, and international ramifications.

The common belief is that the owners' vision of hard-slotting is to take the current suggested slot-bonus values for each selection and make that a mandated bonus for each pick. This was essentially what one source confirmed was presented to the player's union in the 2006 CBA negotiations. The MLBPA never seemed interested in discussing the idea, as a cap on any spending is seen as a slippery slope. The goal of a hard-slotting proposal is to require each team to spend no more or less than slot, and essentially limit the negotiation to a binary decision over one bonus. This presumably would enable each team to select and sign the true best player available. This would also eliminate out-of-the-box bonuses and over-slot demands by agents.

As you might guess, the hard-slotting rhetoric is largely limited to the previous paragraph, but there are a number of other measures and implications that come with it. I'll cover only one in this article, but it's a doozy.

Trading Picks

Almost everyone surveyed agreed that trading picks in the current draft system would cause as many problems as solutions, but would be a slam dunk in a hard-slotting environment. "I've been a fan of trading picks for awhile and with a hard-slotting system it would be a necessity," said an AL executive. After a few conversations, it was evident that trading picks and hard-slotting are a package deal. If each pick has a mandated bonus attached to it, teams have to be able to control the amount and structure of their draft spending. Almost all feel that only top picks have real tradeable value-as BP's Rany Jazayerli has suggested in the past, so only top-five-round picks would likely be tradable, and maybe even just top-three-round picks. Some implications that come with this simple reform:

  • The commonly-referenced downside to trading picks is the ability for agents to demand trades. If the agents essentially can't negotiate contracts, all they can do is try to place their client at the best pick. This usually means the highest possible pick (thus, highest mandated bonus), but it could mean avoiding certain poorly-run organizations.

    The Nationals' Stephen Strasburg is the example most used when talking about this issue. An NL exec noted, "I bet if they could trade picks, Strasburg would've been a Yankee. That's not necessarily bad, but I'm not sure the Nats would've been in control of the situation." An AL exec disagrees, however, stating, "People might think the Yankees would've ended up with [Strasburg], but why wouldn't the Nats take him and get a franchise face for $15 million? Boras can make noise about Japan or whatever, but he won't turn down the money. The Nats weren't low-balling him."

    As a tradeoff, most club personnel are okay with an Eli Manning-like situation happening from time to time in exchange for eliminating over-slot deals. An AL scout put it succinctly: "That's the club's problem-just don't suck." There's something to be said for simply not sucking, but most clubs will have lean years at some point. Agents strong-arming those clubs to push elite talents to big markets would be a worse draft situation than we have now.

    One exec suggested protecting the top five or ten picks from being traded to eliminate clubs being forced to trade what could be a franchise player. The problem with that is clubs then couldn't trade down, even if it was their best strategic option. Either way, it doesn't make sense to have sweeping draft reform to evenly distribute talent, only to leave a big loophole for not achieving that goal.

  • An AL executive came to the rescue, noting "The problem is agents forcing top picks to big markets? If the player is good enough to demand a trade, then more than one team will want to trade up. If just two teams bid for the pick, the club will get fair value, or very close to it." There's a heavy incentive for non-elite players to avoid making demands with hard-slotting. If clubs listen, the player would slide down the board and lose cash with each pick-almost the exact opposite of what happens now. Only players who would cause trading-up bidding wars would make such demands, and clubs would get fair value if they chose to deal the pick. With such an emphasis in recent years toward collecting cost-controlled talent, clubs may overpay in major league-ready talent to acquire certain elite amateur talents.

  • Taking that thought a step further, consider Pittsburgh's recent draft. They clearly liked Tony Sanchez more than most clubs. In a hard-slotting environment, they likely would have traded down to the mid-first round, still drafted Sanchez (for a smaller bonus), and picked up the picks to allow them to sign a number of other top talents. This strategy is effectively what Pittsburgh did this year without hard slots. In an alternate scenario, a club might not have enough picks to offer, so the Pirates would take a few picks and some players in the high minors. Would you rather rebuild a franchise by drafting players three to five years away from contributing or swapping picks for major league-ready youngsters? As a result, the trading of picks would allow clubs to rebuild even faster. Clubs tripping over themselves to get Jacob Turner or Tyler Matzek (for a fixed bonus) would pay a heavy bounty. The young talent that clubs won't trade for big-league veterans would likely be in play for other young talent. Pittsburgh also could have stayed put, and taken anyone for the same money they spent on Sanchez.

  • There would also be a new application for all the sabermetric research about valuing draft picks. I can only imagine the blogosphere's reaction to the first picks-for-picks trade, trying to figure out if their heavily-researched pick value chart jives with industry values, in a race to see who can yell "inefficiency!" first. Trading picks is one of many measures than multiple executives said "lets smart teams be smart." It creates opportunities to leverage your valuations of certain players, picks, and strategies to succeed, rather than just beefing up the draft budget. Trading picks is starting to sound like what Selig was talking about when he said that "it shouldn't only be about money, it should be about management."

  • The trading of picks would also loosen the rules governing the trading of amateurs and new professional players. The so-called "Pete Incaviglia Rule" could be repealed, thus allowing clubs to trade players in the first 12 months after signing. If you can trade picks (before a player is picked or signed) and that leads to trading signees (after picked and signed), it would also open the door to trade draftees before they are signed. The mandated slot of the pick where they are chosen would still be enforced; it would just be like trading for a draft pick, except the identity of the player is already decided.

  • The trading of picks also allows teams to further leverage their pre-draft rankings. If a team really likes a projected top 10 pick but is picking 30th, they would then have a fair shot at the player if they offer an enticing enough package of picks and/or players. Currently scouts can zero-in on players that will be available at their picks and now could push for a trade for the player they like most.

There are counterpoints to some of these arguments and I'll hit those next time around, along with more rule tweaks and an interesting philosophy that one executive has proposed.

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