MLB Draft: The Hitchhiker's Guide

Mike Trout is an example of how complicated it is determining who should be drafted where. - Jared Wickerham

Every year the same questions come up: Why can't teams trade picks? Why not draft based on need? What players should teams target? In this post, I'll take a look at the economics of the MLB draft and look into some of these questions.

It's the time of the year again: the MLB draft is upon us. You wouldn't know by watching ESPN, though. Unlike the NFL and NBA drafts--as discussed here by several SB Nation writers--the MLB draft goes largely unnoticed by the masses. With the exception of the occasional Stephen Strasburg or Bryce Harper, even the names at the top of the draft go relatively unknown. However, this is not the only thing that makes the MLB draft unique. In fact, there are a lot of interesting quirks that come with the draft.

General Draft Strategy

The first interesting quirk that comes with the MLB draft is that players rarely make any kind of immediate impact.--unless your name is Mike Leake or Xavier Nady. Due to this, it makes little sense to draft based on any kind of current need seeing as needs change year-to-year. This leads teams to draft the players they feel are the most talented or most valuable on their boards--also known as the best player available (BPA).

As far as structure, the draft is similar to the way the NHL operates. There is a mix of high school and college talent that gets pooled into the same draft. This creates an interesting dynamic where picks are sometimes made based on a concept called "signability." High school players can use the possibility of going to college as leverage in negotiations against teams--college non-seniors can also threaten to go back to school. In some cases--like with Dillon Maples in the 2011 draft--teams will gamble on players later in the draft and attempt to lure them away from their collegiate commitments.


This dynamic was made more interesting when the new Collective Bargaining Agreement (CBA) changed the draft system to a bonus pool system. In the first ten rounds, teams have a bonus pool that they can spend between picks. If they spend over the pool, they can be penalized via a loss of picks. In general, taking high risk-players early and college seniors later is a beneficial strategy, which I wrote about last year. Essentially, teams need to take players with low amounts of leverage--college seniors--and sign them at or under slot in order to create more flexibility in the earlier rounds of the draft.

On the flip side, high school players--like Byron Buxton or Carlos Correa--may be inclined to sign for less money at the top of the draft than their more refined collegiate counterparts. This is largely due to the sums of money that can be paid at the top of the draft. When presented with a multi-million dollar offer as compared to a college scholarship, it's easy to understand why high school players at the top of the draft may be more inclined to go pro. This frees up money towards the back end of the draft and allows teams to take more gambles.

Dealing With the #1 Overall Pick

Let's take the bonus allotments and apply them to the 2012 draft as an example. Let's assume for a second that Houston identified two players as the only players they would take with the first overall pick: Carlos Correa and Mark Appel.

Last year, the Astros had just over $11 million to spread across 11 different picks, with the first pick in the draft having a bonus cap of $7.2 million. With Scott Boras as his agent, it was well documented that Mark Appel would come at a premium cost. The Astros were faced with two options: pay a premium for the supposed top prospect in the draft or sign Carlos Correa at a cheaper price and try to spread around their bonus pool to land better players later in the draft.

The Astros elected to choose Correa, signed him well under his slotted $7.2 million, and then spent more heavily in the compensation round on young pitcher Lance McCullers--who had a commitment to the University of Florida. This strategy was widely praised last year, and the option exists for the Astros again in 2013. They could choose to spend big on a top college arm like Appel or Oklahoma's Jonathan Gray, or they could save money by drafting a prospect like UNC's Colin Moran and identifying players later on in the draft to spend more heavily on--perhaps Indiana State's Sean Manaea if he were to fall that far.

Deciding Which Players to Target

The simplest way to answer this is to take the BPA. Getting more specific, players can be dropped into four simple categories: college pitcher, college hitter, high school hitter, or high school pitcher. As each group is separate, they each have their own general benefits and risks. College hitters tend to be the safest bets as they are typically older, more refined in their skills, and closer to the majors. On the opposite end of the spectrum, high school pitchers come with the highest amount of risk as they are often far away from MLB playing time and are often unpolished relative to their collegiate counterparts, yet can boast higher "ceilings"--a term used for potential talent level-- than other college pitchers, because there is more room for them to grow and develop as they mature.

In 2009, Sky Andrecheck wrote this piece for Baseball Analysts regarding the risks and rewards of taking certain profiles at certain picks.

Warbypickplayertype

As noted by the above graph, hitters are generally safer than pitchers and college players are generally safer than high school players--safer meaning that they produce more MLB value on average.


It's well known that the odds of reaching the majors are small for any player, but it is important to keep the general trends in the back of your mind while making the pick. In most cases though, picks should be made primarily based on what scouts see and what medicals turn up.

International Players

One of the biggest quirks in MLB's draft system is the fact that international talent is separated into a completely different pool from players eligible for the Rule 4 draft. Unlike the NBA and NFL, where international players can be taken in amateur drafts, international talent is eligible to sign on with clubs at various points throughout the year (July 2nd is an important date this year).


What this creates is an environment where top talents like Yu Darvish, Yoenis Cespedes, Jorge Soler, Yasiel Puig, Jurickson Profar, and Miguel Sano never pass through the amateur draft system. This weakens the overall depth of each draft class and makes the hunt for international talent a different game from searching for amateur talent. In the international market, the top dollar wins--like in the sweepstakes for players like Jose Contreras, Daisuke Matsuzaka, and Yu Darvish.

What if Teams Could Trade Picks?

The biggest difference between the MLB draft and all other drafts in major North American sports is that draft picks cannot be traded. What would it be like if that rule wasn't true? The first step here is to determine exactly what each pick is worth. Depending on the characteristics of each upcoming draft class, draft pick value would be dynamic.

At this point, it's important to go back to Andrecheck's study.

Warbydraft

In the above graph, a clear picture is painted: after the top 50 picks, there is very little difference in the average return on value. However, the first 25 picks return massive amounts of value relative to the rest of the draft, and the top 10 serves as prime real estate for selection.

Trading for a pick outside of the top 50 would be like trading for a single win in value. Unfortunately, the average expected value of the pick is for a career instead of one year, and the odds of a bench/rental player producing value for a team are larger than the odds of a late draft pick producing value. This is where the concept of floor/ceiling is important to understand. The floor of a draft pick may be zero--or negative--wins, but the ceiling is an unknown quantity that could range from a bench player to Albert Pujols--a 13th round pick. Since the odds of getting Pujols are very small, remember this phrase: a bird in the hand is worth two in the bush--especially if that present win is going towards a pennant chase.

Valuing the First Round

The top ten picks are where the real value is to be had, and that value increases exponentially as you approach the #1 overall selection. Like the rest of the picks in the draft, the value of the rights to the #1 overall selection is dynamic. For example, the pick allowing the opportunity to draft Bryce Harper is theoretically more valuable than the pick granting the rights to Matt Bush. If averages are used, the first pick will return somewhere around 20 wins in value.

20 wins in value is really hard to gauge here, because it is unknown whether that value will be short and sweet--like Mark Prior--or whether it will come over the course of an entire career--like with Darin Erstad. There is also the potential for the pick to return zero MLB wins, but that is a threat presented when trading for any prospect whether he be a draft prospect or #1 overall on a prospect list.

There's more to valuing draft picks than talent alone. As mentioned before, the higher the selection in the draft, the larger the bonus pool. If the bonus cap follows the pick then if the Astros traded the rights to the first pick to someone in 2012, the $7.2 million in bonus allocations would go with it. This would have made it much harder for the Astros to draft Lance McCullers in 2012, which adds additional value to the pick.

Since the rights to the top ten picks come with so much value outside of the player drafted, the earliest picks in the draft are probably similar in value to blue chip prospects. Simply for reference: Byron Buxton appeared at #10 on Baseball America's top 100 list prior to the season, and he was signed well under his slot bonus last year.

Using Baseball America's Top 100 List to Value Picks

Winding up on Baseball America's top 100 list these days is a big deal. Just take this graphic produced by Chris St. John:

Percentrankedby20

As you can see, there's a pretty solid chance that a prospect listed in the top 100 is going to be among the better players in the majors. Going back to the earlier point, if the earliest picks in the draft get on this list, then they carry a lot of value. But what percent of drafted players appear on the next year's top 100 list?

Barank

This graph represents the relationship between draft pick in the first round and rank in Baseball America's top 100 the following year. As you can see, the relationship is incredibly strong, with an R of .85. This data included the last three drafts and BA Top 100 lists, and on a whole, 41.7% of first round picks between 2010 and 2012 wound up on the top 100 list the next year. When this is tied in with Chris' point about top 100 prospects often resulting in top 100 talent, first round picks in the draft this day in age should be valued very highly.

Conclusion

The MLB draft is complicated, crazy, and is as flawed as any amateur draft in professional sports. At the same time, it is beautiful and vital to the success of any organization. An amateur provides a great opportunity to maximize return on investment, and it should be a top priority for any well-run organization in any sport. Perhaps things would be better in MLB if trading picks and a mixed draft were the norm, but for now it's okay to love the draft for what it is.

With all of that being said, I hope you enjoy the draft and pay attention! I'll be following and tweeting about it throughout the night, and you can follow me on twitter @Wooly9109.

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Credit to Baseball America and MLB for information regarding top prospects and draft order.

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