August 2nd, 2012
The amateur draft has been around since 1965, when the Oakland Athletics drafted Rick Monday as the first overall pick. The draft debuted before free agency, so its initial purpose was simple: funnel exclusive negotiating rights for the best amateur talent to the worst performing teams to prevent the Yankees and other teams that had significant resources, from grabbing all the talented young amateurs. Once free agency emerged and player salaries began to escalate, the draft served an additional purpose—it provided a source of low cost talent to teams during the six years of control. Teams could draft and develop talent and benefit from their services for 2 or 3 years at a price near the major league minimum salary, followed by the player’s arbitration years at some level of discount to their free agent market value. But as free agency grew and players’ salaries escalated the draft morphed. Instead of delivering the top talent to teams with the worst record, it favored teams that allowed players to leave via free agency, through compensation picks.
If we take a close look at the draft slots of teams at opposite ends of the MLB food chain—the Pirates and Royals (low revenue/poor performing teams) versus the Red Sox (high revenue/high performing team)—we may be surprised at what we learn. Over the last decade, the Pirates and Royals averaged about 68 and 67 wins per year, respectively, placing them among the worst performing teams in MLB. As one might expect, the Pirates and Royals 1st pick each year came early in the June amateur draft (averaging #6 and #5, respectively). But because of the glut of compensation picks that infiltrated the draft, the Pirates and Royals did not pick again until the 53rd overall pick in the draft, on average. The first 5 picks for the Pirates averaged #6, 53, 80, 112, and 142. The Royals top 5 choices averaged #5, 53, 78, 108, and 137. These teams shared two common characteristics over the last decade—they had consistently poor records and they did not engage in the free agent market for high-priced/high-quality players that would earn draft pick compensation, once they departed.
Conversely, the Boston Red Sox averaged 93 wins over the last decade and frequently shopped in the free agent and trade markets for Type A free agents, allowing many of them to walk after their contracts ended. Not surprisingly the Red Sox 1st pick in the annual draft averaged to be the 31st overall pick—resulting from a combination of the best/near-best win-loss record and forfeiting some first round picks due to signing free agents. However, after their first pick the patterns of draft selections gets interesting. The Red Sox second through fifth pick in the amateur draft was (on average) better than that of the Pirates or Royals. After choosing #31, the average Red Sox selections were #46, 64, 82, and 112. In each instance, picks two through five were better than those of the downtrodden Pirates and Royals. (See table below) In fact, over the last ten years, the Red Sox had a top 100 draft selection 41 times—meaning they averaged 4.1 per year from the top 100 overall picks. The Pirates had 31 (3.1 average) and the Royals had 33 (3.3), over the same 10-year period. Simply put, the draft pecking order had devolved into a reward mechanism for teams losing their free agents, rather than being driven by a team’s prior year performance.
Perhaps the best example of what the draft had become is the 2005 Red Sox. Fresh off a World Championship, Boston had selections #23, 26, 42, 45, 47, and 57. The Pirates, coming off a 72-win, 5th place finish had picks #11, 59 and 91. The Royals, whose 58-win season was 2nd worst in baseball, had picks, #2, 50, and 82. Before the second round of the 2005 draft, which began with the 49th overall pick, the Red Sox selected the following players:
- #23—Jacoby Ellsbury (pick was acquired from the Angels as compensation for Orlando Cabrera’s departure via free agency)
- #26—Craig Hansen (pick was acquired from the Dodgers as compensation for Derek Lowe’s departure via free agency)
- #42—Clay Buchholz (Supplemental pick for loss of Pedro Martinez)
- #45—Jed Lowrie (Supplemental pick for loss of Orlando Cabrera)
- #47—Michael Bowden (Supplemental pick for loss of Derek Lowe)
(They also received the Mets second round pick (#57) as compensation for Pedro Martinez. Ironically, the Red Sox lost their own 1st round pick that year, #28 overall, to the Cardinals for signing Edgar Renteria.)
The new CBA better aligns on-field performance with draft order and restores the draft to its original purpose—a tool to improve competitive balance across the league, and even goes one step further. First, it nearly eliminates compensation picks. These compensation picks served to delay the second round, pushing the picks of the lowest performing teams deeper into the draft. (On average, the second round of the draft began at pick #51, over the last ten years.) Secondly, the new CBA adds Competitive Balance Lottery picks—picks allocated to teams with either low revenues or a low winning percentage. There are 12 Competitive Balance picks in total—6 following the first round and 6 slotted in after the second round. The Royals currently have the 3rd worst record in baseball. Should they finish the season in that position, they are likely to have picks #3, 31, 39 and 75 in the 2013 draft, while the Red Sox current status will likely leave them with #14, 50 and 86.
Could the new CBA have gone further? Absolutely. It stopped short of reordering all draft picks based on a team’s revenues. Such a redesign might have allowed small market teams to sustain their competitiveness for a longer window of time by allowing them to infuse elite amateur talent into their organization, even while they are competitive. Another positive aspect of the new draft rules is allowing for trading of competitive balance picks, although only during certain time windows, not to include the winter meetings. Draft picks are the rights to acquire amateur talent—and are assets with a tangible value. Giving teams the right to assign these assets as part of player transactions is one more small step towards a more efficient trade market for players. Overall, the draft implications of the new CBA are clearly a big step in the right direction, perhaps paving the way for even greater reform in 2017.