Competitive Balance Lottery: Just Smoke and Mirrors


And SHAZAM! Now’s there’s parity in the MLB!

The MLB is a funny organization. One would think that in a sport producing most of the world’s largest guaranteed contracts, the production being paid for on the free agent market would guarantee on-field success. But that is not the case. Large payrolls have been large busts, such is life.

We know that a larger payroll leads to more wins, if not necessarily a playoff appearance, but also that teams need a strong input from their farm system, too. Teams have to strike a balance with these two inputs. For some teams — like the Tampa Bay Rays and Oakland Athletics — the vast majority of their talent input must come from the draft. They can afford only the January Free Agents — the unwanted scraps of the big market teams. Because of a matter of geography and history, newer teams in smaller markets like the Diamondbacks, Marlins and Rays will probably never again draw the kind of income the Mets and Yankees do.

So, an outsider might look at Wednesday’s Competitive Balance Lottery (CBL) and say, “Hey, well it’s good the MLB is trying to even things out a little bit, help out the little man.” But in truth, the CBL is a weak offering to a ever-crippled lower class. And if the MLB wants to keep small-market teams like the Rays capable of winning, they must undo their recent changes.

This is the gist of the lottery: The 10 smallest-market and 10 lowest-payroll teams will be eligible to receive additional draft picks in the 2013 Rule 4 Draft (or Amateur Draft). Teams with good records get penalized; teams with bad records get better odds.

Here are the results from Wednesday’s lottery:

Round A (after Round 1)
1. Royals
2. Pirates
3. Diamondbacks
4. Orioles
5. Reds
6. Marlins

Round B (after Round 2)
1. Padres
2. Indians
3. Rockies
4. Athletics
5. Brewers
6. Tigers

In November, SB Nation writer Grant Brisbee called the CBL a “fix to a problem that no one was complaining about.” While Brisbee’s take on the matter cuts into the sillyness of the draft, the actual situation is more complex than that. If anything, the CBL is a fix to a problem that didn’t used to exit. That is, until the new CBA.

Looking at the changes in the newest Collective Bargaining Agreement (CBA), it becomes obvious quickly that the biggest changes occur at the amateur levels, including these three major changes:

    1) The new CBA makes it more difficult to receive compensation for departing free agents (such as players have to be on teams for a full season in order to be eligible).

    2) The Rule 4 Draft has new, hefty penalties for going over slot on players, and no Rule 4 selections can sign major-league contracts.

    3) International signings now came from a budgeted pool of funds as well, with equally heavy penalties for spending too much on free agents.

So, if we go back to our original issue — which is: There are poor teams that simply will never make the same kind of income as other teams — these new limitations on spending (changes No. 2 and 3 above) must seem like another, great win for the little guy, right? This just reduces the arenas in which they can be outspent, right?

Actually, no. The small market teams are funding their wins with cost-controlled rookies and arbitration contracts, so curtailing their ability to lure or sign amateurs only further limits their talent inputs. The organizations that had historically been paying buckets of cash for amateurs were, yes, teams like the the Rays and Pirates and Royals. The money they funneled into amateur talent may have outstripped the big markets, but it was still vastly smaller than what big market teams were paying for MLB-level free agents.

The changes to the Rule 4 draft are a massive concession to the big market teams — they no longer have to pay the undesirable premiums for unproven talent that had crowded them out of the amateur market, while they can still comfortably crowd out the small market teams in the pro market for proven talent.

I am guilty of following the Rays (and the Cubs) with vested interest, and frankly, if I’m in the Rays front office, I would take these rule changes as a personal affront. Not only do they hurt the Rays, the changes appear oddly reactionary to their recent strategies.

Consider change No. 1 — the Rays famously gamed the (admittedly broken) Type A / Type B compensation system in 2010, getting draft picks for players like Brad Hawpe and Chad Qualls, guys who played about as much as I did for Tampa Bay that year. The Rays parlayed these odd acquisitions and slew of departing relievers into a crazy 12 picks in the first 2 rounds of the draft.

Sewing up the old compensation loophole was necessary, though. If nothing else, the Rays did the league a service for showing how ridiculous the Elias Rankings were, getting undue compensation for spent or marginal players.

And with changes No. 2 and 3, the Rays were again a major player in going over slot in the Rule 4 Draft, as well as acquiring international talent — these, we could say, have been important tools in their creating consistently strong farm systems. They have tested the waters for talent in east Asia and Latin America, as well as places such as Europe (see Stepan Havlicek) and Brazil, but the recent rule changes suddenly and drastically limit the gains from such endeavors.

So it is with no little irony that the Rays are not included in those above-listed CBL results. Not only has the new CBA eaten away at the Rays’ structure for success, the new CBA’s conciliatory concession, it’s lazy apology, the CBL, has ignored them too.

If the MLB wants to create a competitive balance, if it wants to truly make it inconsequential the fact that the Yankees are spending 3.6 Oakland Athletics rosters this season (the Rays are spending 1.2 Athletics this season — they’re pot-committed), then the MLB needs to stop and go the other way.

Rob Neyer says it is nice that the MLB has added the CBL, but that it is only a start — which means the CBL has worked perfectly. It has drawn attention away from the crippling changes to the Rule 4 Draft while giving extra draft picks to the Tigers (2.4 Athletics) and Brewers (1.8 Athletics) and the hope of a draft pick to the Cardinals (2.0 Athletics) — playoff-capable teams, with or without financial help. So fans look at the CBL and how it wants to give draft picks to defending world champs and say, “Well, just goes to show the MLB does not need parity.”

But it does. And the Competitive Balance Lottery is just the smoke and mirrors to make it seem the opposite.



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Bradley writes for FanGraphs and The Hardball Times. Follow him on Twitter @BradleyWoodrum.


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jsn4219
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jsn4219
4 years 1 month ago

great write up…please forward this to mr. selig

philly
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philly
4 years 1 month ago

That you listed 3 small market teams as examples of teams going overslot on amatuer players and omitted the Red Sox – one of the primary teams who employed that strategy -shows, to me, that you are more interested in writing a propaganda piece against the new CBA than doing a fair minded throrough analysis of the effects of these changes.

If you can’t tell the whole story, please dial down the the unearned self-righteous indignation.

Stephan
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Stephan
4 years 1 month ago

I guess the same can be said for the rebuttal, no?

asdfasdf
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asdfasdf
4 years 1 month ago

Definitely not. The author should be held to a much higher standard than a commenter.

Richie
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Richie
4 years 1 month ago

I’d ‘+’ Philly all day long if I could.

everdiso
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everdiso
4 years 1 month ago

Ditto. It’s clear the article wasn’t objective.

philly
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philly
4 years 1 month ago

Btw, did you read your own link to the Brazil academy shut down story? There’s very little information included, but what’s there claims that the Brazilian city who was the co-sponsor of the academy shut down the project on their end.

I don’t know the full story (and it looks like I’m not the only one!), but you imply that the decision is a ramification of the new CBA. It very well may be, but you’ve provided no justification for that either in your article or the link.

I got that you’re angry, but is that all you’ve got?

syracuse451
Member
syracuse451
4 years 1 month ago

I don’t think this outrage is limited to only fans of small-market teams. I’m a Yankees fan, and I can see just how stupid the new CBA is, and how it will negatively affect the procurement of cost-controlled amateur talent. What is bad for the small-market teams isn’t automatically good for the big market clubs.

Richie
Member
Richie
4 years 1 month ago

As Philly notes above, Boston was already copying the strategy, only with more $$$. No reason the other big $$$ teams couldn’t also do so, and of course would, once its wisdom was established.

chuckb
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chuckb
4 years 1 month ago

In the meantime, the small-market clubs had an advantage that the CBA extinguished, rather than allowing the large-market clubs to catch up on their own.

stan
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stan
4 years 1 month ago

This is just so wrong. Why would you assume that the big spending teams are just going to ignore the chance the acquire talent cheaply the same way that small market teams do? Why would you assume that they’re not going to flex their financial muscles to get even more of it? Do you think they don’t want to acquire cheap talent just because they can also acquire expensive talent? That’s absurd and its easily disproven.

PiratesHurdles
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PiratesHurdles
4 years 1 month ago

Stan, we don’t have to assume, several of the larger market teams had already chosen to forgoe spending big in the draft and in Latin America. Its fact, not an assumption. For a large revenue team it is quite easy to decide that money spent on amateur players is a wasted resource.

The Angels, Braves, Phillies, Dodgers, White Sox, and Mets were all spending less than $5 million a year on the draft between 2009-20011.

jevant
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jevant
4 years 1 month ago

The number one issue with competitive balance is the schedule. As long as that continues to be as ridiculous as it presently is, the CBA will rank 2nd on my list of “things that should be looked at to make it a level playing field”.

It’s one thing if you play 16 games. If you play 162 and award wild cards, the schedule should be a lot more balanced than it is today.

chuckb
Member
chuckb
4 years 1 month ago

This is true. With 2 Wild Cards in each league, the competition for playoff spots is as much between the Cardinals and Giants as it is between the Cardinals and Reds. The schedules, therefore, should be balanced to reflect that. Hopefully, that’s more doable now that there will be 15 teams in each league.

Richie
Member
Richie
4 years 1 month ago

The idea that any free market benefits low-$$$ actors over high-$$$ actors exhibits astounding economic illiteracy. A low-$$$ actor might figure out a good new strategy first (and probably will, given the economic principle that necessity mothers invention). But as soon as the strategy is proven, ofcourseofcourseofcourse the high-$$$ actors will elbow the low-$$$ ones aside.

And here were beginning to, as the Red Sox were showing.

Justin M.
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Justin M.
4 years 1 month ago

The Red Sox had been starting to spend money as well, but in the previous three years of the draft prior to the change, the Pirates were STILL spending in the upper echelon of teams spending in the draft, if not the top. Obviously most high income teams weren’t following said strategy and I would have liked it if they didn’t come through with this change UNTIL the big market teams started dominating draft spending. Baseball is a curious institution in which all economic rules are not always followed. See, Moneyball, exhibit A of many influential members of an industry purposefully ignoring a POTENTIAL source of knowledge, (even if a lot of the stuff in that book in terms of baseball knowledge might not be true, it at least explained a process that had led to success, and yet was ignored by many).

Toonces
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Toonces
4 years 1 month ago

Moneyball deserves to be ignored though.

Someanalyst
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Someanalyst
4 years 1 month ago

That is not strictly true if the markets are linked: the balance in one market impacts decisions made in the other. Even if big and small market teams use the same info, their differing opportunity costs may lead them to view investment opportunities differently. The Red Sox are an interesting case against the grain, but still, in the short term, limiting opportunities to spend on strategies popular with small market teams relative to those popular with large market teams cannot but improve the lot of the large market teams.

Sleight of Hand Pro
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Sleight of Hand Pro
4 years 1 month ago

gaming of the draft pick compensation system is not a rays-specific issue. other (including big market) teams were doing it.

love how you imply changing the compensation was targeting the rays structure for success head hunter style. the policy was outdated, so it was changed. the rays gaming the system was smart on their part, but its not their organization specifically was targeted.

bc
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bc
4 years 1 month ago

Maybe the most egregious case I can think of was the Jays trading for Olivio from the Rockies and then declining his option an hour after the trade so they could get an extra pick. I recall that move raising eyebrows at the time. It’s certainly not what the compensation system was designed for. The abuse was MLB-wide.

stan
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stan
4 years 1 month ago

I don’t understand this line of thinking at all. Its like certain writers never noticed that it was the big spenders who have also spent the most on the draft and international free agency.

The new CBA also put in a luxury tax hit that actually has the Yankees scared to ridiculously overspend like they have previously. The Steinbrenners have actually prevented their team from going over the new threshold. How does this never come up in these articles?

Someanalyst
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Someanalyst
4 years 1 month ago

Except it isn’t the big spenders who dominated draft and international FA signings… But, that said, the point you make about the luxury tax is important: from the owners’ perspective, the new CBA was probably a compromise where a range of things to “limit spending” were jumbled together, some targeted at larger budget teams and some targeted across the board.

stan
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stan
4 years 1 month ago

Really? The last time I saw no one had spent more than the Red Sox on draft picks in the last 10 years despite the fact that they never once picked in the first half of the first round. They even spent more than the Pirates, who had to pay $6 or $7M a year to their first round pick. The Dodgers overspent on Zach Lee a couple of years ago after he fell due to signability, same with the Tigers and Jacob Turner/ Rick Porcello. It happened every year. At least now if they choose to do that they have to cut corners elsewhere in the draft.
I’m a fan of a small market team and I’m thrilled with the new CBA. Outside of a pure salary cap its the best thing the poorer teams could hope for.

PiratesHurdles
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PiratesHurdles
4 years 1 month ago

Stan, I’d love some of what you’re smoking. Its fact that the new CBA makes it harder for a small revenue team to sustain success. When the Rays win games they now get a small draft pool and (next year) a smaller International pool. They have zero option to compensate by spending more on MLB free agents. The CBA has made talent acquisition harder for small market teams. There is just no way around that. In the past you could choose to spend as much as you like on amateurs, with that out of play it is far more difficult to stay on top. Add in the difficulty to get comp picks (its harder for a poor team to offer $12.5 million than for the Yankees to do so) and there is just so little reason to be optimistic.

You’re argument stems from the ability of rich teams to outspend on amatuers too, but that did not happen. There was an advantage to be had if willing and it was eliminated. Even if it did then all teams spend more and there is no disadvantage. If you want a player you can get him. Now a team’s hands are tied and you see Appel at Stanford. The new system is so ridiculous that it forces teams to punt early draft picks to sign guys. The intent was for players to be picked on talent, rounds 6-10 were a joke.

The new CBA attempte dto level the amateur playing field while doing nothing to level the free agency playing field. It was a complete success for rich teams that gained cost certainty and more revenue to exploit their advantage at the MLB level. The players went along because it meant more dollars on MLB contracts. Why any small market owner agreed is a mystery.

Richie
Member
Richie
4 years 1 month ago

You’re doing well, Stan. No need to answer insults, or restate your arguments to people who badly need to believe otherwise.

stan
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stan
4 years 1 month ago

@ Pirates. Not smoking anything, I can just apparently studied more economics than you. I love how you can say that its a “fact” that the Pirates are screwed. I think the new draft system worked perfectly for them. Not only did the not have to get held up by Appel, they got a chance to get him at a reasonable price and lose nothing since they could use that bonus money elsewhere and still get another pick next year in a stronger draft. As for “spend whatever they please”, that’s exactly what I was saying. The Pirates and other small market teams were and should be for anything that prevents “spending whatever they please” since they are absolutely going to end up on the short end of any competition in that area. If everyone is free to spend whatever they please the Yankees, Red Sox and other rich teams will continue to dominate. Now THAT is a fact.

someanalyst
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someanalyst
4 years 1 month ago

@Stan – they don’t get to spend the bonus money elsewhwere, it was deducted from their bonus pool when they failed to sign him.

Your main point is not in question: free spending favours the rich. But the details here also matter. There are different kinds of limits and their impacts are extremely unevenly distributed (the luxury tax has zero impact on the Royals at present). Some folks are upset, I think not unreasonably, by the fact that the limits on spending that impact only the rich clubs (luxury tax) are soft ones (fines only) whereas those which apply to everybody (amateurs) are much more severe.

John C
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John C
4 years 1 month ago

What’s most annoying about the rule against compensation picks for in-season acquisitions is that it fixes a problem that was already fixed by the change in the required amount of money for a qualifying offer. No one would be willing to give Brad Hawpe or Chad Qualls the $12+ million offer needed to even qualify for a compensation pick so there is no need to make sure teams don’t acquire these players in-season to get picks.

stan
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stan
4 years 1 month ago

What’s the downside of fixing the issue in two ways? You’re right that both changes were aimed at the same “problem”.

John C
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John C
4 years 1 month ago

Once the problem was fixed by increasing the amount needed to be offered there was no problem. The second solution, getting rid of compensation for in-season acquisitions, creates a tax on teams trading players in-season. Taxes are fine if you are trying to stop behavior (or raise revenue), but otherwise they just create further market inefficiencies. Since the behavior this tax is designed to stop was already remedied by fixing the underlying problem – that a team could get draft picks for Brad Hawpe, there is no reason for both teams giving up the pick.

Billion Memes
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Billion Memes
4 years 1 month ago

Is it any wonder that the large market teams won a concession? The large market teams are vital to the overall success of the league to a much larger degree than is usually mentioned. They drive ticket sales, tv contracts, merchandising, franchise value inflation, and stadium building sentiment amongst other revenue producers. It might not seem fair sometimes that large market teams would be given another advantage, but it’s a business. It’s not supposed to be fair, its supposed to drive revenue and profit for the whole lot. Large market teams overwhelmingly contribute to this.

ThePartyBird
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ThePartyBird
4 years 1 month ago

How did the Tigers get a pick? I mean, I’m not complaining, but I don’t think Detroit is a bottom ten market (11th largest in the US, so they’re probably about 17th or 18th after the markets with multiple teams and Toronto are taken care of) and they certainly aren’t bottom ten in payroll.

Sleight of Hand Pro
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Sleight of Hand Pro
4 years 1 month ago

its also about revenue, not just market.

Tom
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Tom
4 years 1 month ago

The Tigers got some revenue sharing last year (not sure how this was), so they became eligible for the 2nd lottery.

The first lottery is bottom 10 markets and bottom 10 revenue… the 2nd lottery adds in any teams that got revenue sharing and the teams from the first lottery that didn’t get picks.

MikeS
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MikeS
4 years 1 month ago

Agree. The tigers payroll is 5th in MLB, north of $130M. Clearly they don’t have a problem spending money.

Toonces
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Toonces
4 years 1 month ago

If you presume that the new draft system puts more talented players on smaller market teams you still have to admit that this does nothing to address the real problem: The ability for small-market teams to [i]retain developed players[/i]. If these new rules enabled the Pirates to acquire Superstars A, B and C early in the same draft it still does the Pirates no good when Superstars A, B and C play themselves into contract expectations the team simply can’t afford. The ultimate effect is simply that the Pirates’ annual firesale has them transferring a larger number of players with higher levels of skill to big-market teams than before. Because what was keeping Pittsburgh fans out of PNC Park was not enough speculation about which teams their star players would be with after the trade deadline.

This all seems like an awful lot of window-dressing to cover up baseball’s shameful secret: Some teams simply can’t afford to be competitive. It’s a matter of economics. Most everybody on this site understands you need to score about X runs and give up about Y runs in order to win Z games. They understand that run production/prevention correlates, obviously, with player production. They know that player production is tied intimately to player compensation by the open market for player services. And yet so many baseball fans on this site, who ought to know better, pretend that small-market teams can increase player productivity and improve run differential without the attendant rise in in player compensation. This really seems to paint only one path to the World Series for a small-market team: Assemble an immensely talented pool of players that develop at an otherworldly pace so that each is playing at World Series calibre before their final arbitration-eligible season. Yeah, I think I’ll watch the Steelers, thanks.

Tom
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Tom
4 years 1 month ago

If spending overslot is such a compelling advantage than a smart team should still do it, pay the tax and sacrifice a pick in one draft while going over on multiple picks in a previous one. If teams aren’t doing this then you kind of get the feel for the relative value of going overslot.

My suspicion is that it is not this great advantage people portray it to be (but will help a team get some advantage, regardless of market size) and people are confusing good scouting, talent evaluation and luck with simple spending (and I suspect the former components are more significant than the latter).

What is the hit rate on overslot deals vs at slot deals? Has there ever been a study done on this or do people just assume going overslot = more success? How much of an actual impact is it? 50%? 5%? 0.5% 0.05%?

This is supposed to be a statistical site which uses information to form objective analysis…. all I’m hearing is assumptions and speculation that this unfairly impacts small market teams and frankly a bunch of whining that people are out to get the small market teams. Do we know if small market teams were actually gaining more benefit than large market teams under the old rules?

Isn’t this how narratives, that are so often ridiculed on this site. occur…. the belief keeps getting stated over and over, written in article after article that noone actually stops to ask “is there any data to suggest how much of an advantage this actually was (for small market teams) or are we going off gut feel and casual observations that seem to fit the narrative and fit what we want to believe?”

gregteb
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gregteb
4 years 1 month ago

So if you ignore the opinions and simply put a dollar value on the “winning” teams haul in the CBL, how much did the teams receive in value with their additional draft picks?

phoenix2042
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phoenix2042
4 years 1 month ago

I’m a Yankees fan, and I hate this CBA for the much harder payroll taxes, and the inability to spend in the international markets where the Yankees dominated. I’m also a secret admirer of the Rays, and I hate this CBA for killing their ability (and really only possible advantage) of building through the draft. Basically, this CBA sucked for EVERY team, just in different ways.

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