First Round Compensation (Part One)

After reading Buster Olney’s column yesterday morning, I had a brief conversation with Jonah Keri about draft slotting and compensation. I half-heartedly threw out the suggestion that perhaps compensation should be altered so that players have to spend a certain amount of time with their last team to qualify for compensation; the thought being that those compensatory matters only exist to help teams replace exiting homegrown talent. I think I threw out a number along the lines of 60% of their plate appearances or innings should come with the team benefiting.

The ramifications of such a move would alter the trade value of those players while also raising the value of the draft picks as the supply dwindled. Curious, I decided to look into just how much time most of the players are spending with the teams being rewarded with draft picks. Beginning with the 2000 draft and ending with the 2010 draft, I went through and noted each player who returned a first round draft pick and/or first round supplemental draft pick. I did not – and this is important to note – include players who returned picks later than that; meaning I focused on Type-A free agents.

From there, I took each of the teams that these players returned draft picks for and figured out the percentage of the player’s career plate appearances or innings pitched (to that point in the player’s career) came with the compensated team. That explanation might be a bit confusing, so let me write through a real life example.

Take the 2007 draft. Carlos Lee brought in two first round picks for the Texas Rangers. Lee had racked up a total of 260 plate appearances with the Rangers the season before out of 5,029 plate appearances for his career. Two sixty divided by 5,029 is roughly 5% of Lee’s total plate appearances through 2006, and yet, the Rangers are the ones who landed those picks.

Now, obviously, it’s not that simple. The Rangers did give up talent in order to secure Lee’s rights and significant talent at that, but the point is: if the compensation rules are designed to replenish teams losing homegrown talent, then examples like this one prove that it doesn’t work. At least, if these examples are in the vast majority, which is what we’ll examine later today.

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20 Responses to “First Round Compensation (Part One)”

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  1. neuter_your_dogma says:

    Brewers could have kept Lee.

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  2. Mike K says:

    RJ, you say you are focusing on Type A FA, but wouldn’t “and/or first round supplemental” include Type B FA? At least, after the last change to the compensation system, which I don’t recall which year that was.

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  3. Jason says:

    Your premise is at least partially wrong. Type A draft pick compensation exists to suppress free agent market prices. Or at least we must acknowledge that whatever its original intent that is the function it is serving today and why ownership would be reluctant to alter it.

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    • Rich says:

      ” Type A draft pick compensation exists to suppress free agent market prices.”

      The only time Type A status suppresses free agent prices is on borderline players like Jason Varitek.

      Nobody gave a shit that they were losing a pick for Mark Teixera.

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      • Jason says:

        It would be more accurate to say the Yankees didn’t care about the draft pick comp for Texiera. We can’t know the motivation of the competitors for his services, but either way you can’t refute a point by refering to a single outlier alone…if memory serves there were still half a dozen type a’s looking for jobs at the start of spring training last year. Even for those that do sign, a teams determination of the players value would have to consider the opportunity cost of the lost picks.

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  4. theperfectgame says:

    “Beginning with the 2000 draft and ending with the 2010 draft, I went through and noted each player who returned a first round draft pick and/or first round supplemental draft pick. I did not – and this is important to note – include players who returned picks later than that; meaning I focused on Type-A free agents.”

    Type-B free agents return first round supplemental draft picks, too. The only difference is that don’t also return the signing team’s first or second rounder. So if you’re looking at those players that returned first round supplemental draft picks, you should be looking at Type-A and Type-B free agents.

    Also, I’m not convinced of your conclusion. At the ’06 deadline, the Brewers knew they were going to lose Lee to free agency, and had a choice regarding how they would be compensated. They chose the Rangers’ package of prospects over the 2 draft picks they would have gotten if they’d held onto Lee. The only reason they were able to secure that package was because the Rangers knew that in addition to 2 months of Lee, they would also receive those draft picks. So essentially, it allowed the Brewers to trade the draft picks, along with Lee, for a better overall prospect haul. Eliminating that ability would ultimately hurt the teams that are unable to afford their stars. As such, I think the rules are in fact working.

    That said, I think it’s a worthwhile topic to look further into and I’m interested to see what you present in Part 2.

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  5. JBrew says:

    I think your last paragraph shows that the system works fine as is. The Rangers traded 4 homegrown players for ~5% of Lee’s PA and then lost him via FA (plus they got Cruz). So they lost more talent in the end due to the system, and thus should be compensated via draft picks.

    It is the original teams (Brewers in this instance) onus to extract as much value as they can from the other team. They felt that those 5% of PA from Lee, Cruz, and two supplemental draft picks were less valuable than the 4 players they received. We can speculate all we want on the value of draft picks vs. minor league players vs. established talent, but I think the system rewards the proper teams losing talent in the current system.

    Now slotting and draft pick compensation is a completely different matter.

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  6. Hizouse says:

    Umm, your proposal would reduce the ability of teams to replenish their homegrown talent (by reducing the value of their tradeable assets).

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    • Greg says:

      Just what I was thinking. In a large number of cases, teams looking to trade away an impending free agent would be giving up the opportunity to receive compensation picks, but the acquiring team wouldn’t gain the same opportunity. This would greatly reduce the value of that player to acquiring teams, while keeping it the same for his original team. It seems like this kind of asymmetry would really stifle the trade market, because it makes it very unlikely that an acquiring team could value a player as much as his original team does.

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      • Someanalyst says:

        It would be superficially neutral in its impact on compensating for the loss of homegrown talent. But, it would reduce the liquidity of that compensation and, as such, partly reduce its value. In practice, under the current system, the GM of a team on the verge of losing homegrown talent can exploit the fact that output per roster spot is worth more to a contender than to others by trading the soon-to-be-lost player. That option would disappear if the rules discussed above were implemented.

        The GM in question would also lose the opportunity to adjust the maturity and the riskiness of the assets he holds: currently he can choose between receiving draft picks and trading those picks for more mature prospects.

        All told, these opportunity costs mean that the total compensation for losing homegrown talent would go down.

        Another consequence would be more parity in end-of-season standings as the incentive for weak teams to keep players until the ends of their contracts would become much larger.

        Lastly, fan interest would suffer because the fans in general love the activity surrounding the trade deadline and that activity would decrease (as Greg points out).

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  7. rfs1962 says:

    I’d like to see the draft replaced by an auction in which teams received varying amounts of money, or points, to spend. The worse your team, the more points you’d get. The points would buy you the right to negotiate with the player. Wouldn’t that be way more fun than a draft?

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  8. B says:

    But compensation status raises the trade value of a player (mostly referring to a guy in his last year of his contract, since the team acquiring him won’t be left with nothing in return), so the team trading him is still benefitting from it to some degree. That said, compensation in general is stupid.

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  9. mowill says:

    So because Cliff Lee has been moved around a lot no one should get compensation for him. I think you completely discount players that are traded earlier in their career for reasons other than impending free agency and compensation.

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  10. Jon S. says:

    Yeah, I don’t understand what’s wrong with the current system. If you changed the system so that the team a player came up with and spent the most time with got the draft pick compensation, the trade value of these players would take a serious hit. In the end, I think that teams that trade a homegrown star will end up with about the same amount of talent, but a good portion of that talent would be further away from helping the trading team.

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  11. Jon S. says:

    Oh, another couple thoughts:

    If you are proposing that the team who the player spent the most time with should get compensated, then drafting would be the single most important thing for a team’s long term success. Not that drafting isn’t important now, but a team that drafts really well for a long time would see their compensation picks compound over the course of a couple decades and suddenly the Tampa Bay Rays have 10 of the top 50 picks in the 2040 draft. Teams that don’t draft well or have an extended run of bad luck would become increasingly dependent on big name free agents to compete (which further feeds back into the dominant teams). Instead of the draft being a means to level the playing field, it becomes a way for good teams to further distance themselves from the rest of the teams. This is how you might kill organizations like the Astros and Pirates.

    If you’re suggesting that the compensation picks should disappear when a homegrown player is traded, the trade market would basically die. I don’t see any team being super happy about simply eating $6 million worth of assets (for a type A) in order to make a trade. There would be no return on those draft picks at all. The idea of each side getting fair value for a trade would go out the window. I don’t see any way a trade could happen where both teams feel like they got a fair deal when $6 million dollars just flies out the window in every big name trade. Either someone gets fleeced, or both organizations are worse off after the trade. I really feel like trading becomes completely unviable in that environment

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    • Someanalyst says:

      Very interesting point about compensation rewarding long-term draft performance overwhelmingly if everybody holds players until free agency. I’m just not so sure that is a bad thing.

      I think what would be very detrimental to the game would be killing the player rental market. It allows arbitrage of the maturity of a team’s assets i.e. it lets you take a big bet on one year whereas drafted players develop as they will. I think it would be more winner takes all and there would be less variation from year-to-year in the end-of-season standings.

      Not to mention the impact of killing the rental market on fan interest. The mid-season trade activity offers affirmation and excitement to the contenders’ fans and hope for the future to the non-contenders.

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  12. YankeeFan says:

    Was the original proposal really for career or that year? Because if it really is career what happens if a Type “A” free agent plays the first 10 years of his career with his team and then continually signs one year contracts, does the original team get a draft pick every time he signs a new contract? What if he resigns with the team he was traded to does that result in compensation for the original team? Finally how does offering arbitration work out in this new scheme?

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  13. I’m a little drunk and also bored. Sorry for writing stupid comments but this page really kicks ass.

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