How Much Is a Draft Pick Worth in 2014?

Justin Verlander was the only league-average player drafted in 2004's top 10 picks (via Keith Allison).

Justin Verlander was the only league-average player drafted in 2004’s top 10 picks (via Keith Allison).

Much was made during the past offseason about the value of draft picks. Under the new Collective Bargaining Agreement,  a player who turns down a qualifying offer will cost the team that signs him a draft pick – its highest pick outside the top 10, which are protected. While a number of free agents seemed unaffected by this additional cost, three players ended up signing deals of equal or lesser value than the initial qualifying offer (and one of the three had to wait two months into the season to do so), and a fourth player remains unsigned.

This raises an important question – are major league teams and fans properly valuing draft picks? A number of factors make this a difficult question to answer.

What is the team’s financial situation? A small-market team that relies on homegrown talent might place a premium on draft picks, since it won’t be able to afford the high-priced free agents.

Is the team a contender or a rebuilder? A team that looks to be competitive in the present and immediate future may not worry as much about a value that won’t be felt for three or more years. Meanwhile, a rebuilding team might not mind having to wait a few years to get a return on their its investment, but may actually prefer it, as the cost-controlled player’s contributions will be more meaningful.

With these variables, it’s easy to see why such a wide range of values gets thrown around for draft picks. This past March on THT, Matt Swartz estimated that the 30th pick of the draft was worth about $6.7 million of present value. On the other hand, Dan Szymborski of ESPN wrote that the 26th pick that the Braves gave up to sign Ervin Santana was worth $19.6 million.

To better understand the true value of a draft pick and explain the differences between these projections, we need to do three things:

  1. Estimate the total value that each draft pick will produce, and how that value will be distributed
  2. Calculate the net value of each draft pick (which means estimating how players are compensated relative to their performance while they are under team control)
  3. Determine how value of the drafted players changes over time

Today, we’ll tackle the first question. We’ll tackle the second and third tomorrow, where we’ll fine-tune the model to project net value and tackle the issue of time, in addition to looking at how draft pick compensation affected free agents this past offseason. And on Friday, we’ll bring everything together.

How Much WAR Does Each Draft Pick Produce?

Luckily for us, this is a question that has been investigated by a number of baseball analysts. In 2009, Sky Andrecheck developed a model to estimate the average WAR that each draft pick produces, both in their career and their first six years of team control. If you’ve read anything about modeling player production by draft pick, you’ve probably seen this graph before:

Avg WAR by draft pick

(The graph above is for Career WAR; the model for WAR under team control can be found here.)

The first thing you might notice is how quickly production drops off. On average, only the top few picks will average at least one WAR per year while they are under team control. In the compensation round and second round, the average draftee isn’t even cracking two total wins before hitting free agency.

When accounting for the recent adjustment of the WAR baseline by FanGraphs and Baseball-Reference, this model gives us an average of 7.65 WAR for a top-five draft pick during his team-controlled years, while a late first-rounder (picks 21-30) produces an average of just 2.24 WAR. Over the years, Andrecheck’s work has become the gold standard for modeling production of draft picks, but many others have performed similar work.

Erik Manning at Beyond the Box Score performed similar research in 2009, using the 1990-1999 draft classes. In that span, draft pick value doesn’t appear to decline quite as rapidly after the first 10 picks as Sky’s model would predict. I compiled my own data set (using Baseball-Reference’s draft pick search tool), looking at 15 years of drafts starting with the most recent year in which the vast majority of early picks have reached free agency (2005).

Cumulative WAR, pre-Free Agency
Draft Pick Sky Model Manning, 1990-1999 1991-2005
1-5 7.7 8.3 8.5
6-10 4.1 5.9 6.1
11-15 3.2 4.6 5.6
16-20 2.7 5.0 4.3
21-30 2.2 1.7 2.6
31-40 1.9 1.8
41-50 1.6 1.9

It is important to remember that each year in the draft is extremely variable, even when looking at groups of picks. In 2002, the 21-30 draft picks matched their top-10 counterparts in production under team control. Meanwhile, only two players picked between 21st and 30th in 1999 produced any positive WAR for their team, and nobody surpassed four wins.

The same variation is seen in the upper end of the draft. The top 10 picks in the 2004 draft produced only one league-average player (Justin Verlander). By contrast, the 2005 draft was extremely deep, with seven of the first 12 picks producing at least 15 WAR while under team control.

The “R” in WAR
How a person can be a hero by being a zero.

This may not be news, but it’s something to keep in mind while evaluating draft picks and determining what the best model is to use moving forward. Sky’s model is based on decades of data, and given the extreme variability in the draft, it’s difficult to trust numbers from a five-, 10-, or even 15-year sample.

At the same time, baseball has changed dramatically in the past couple decades. Improved scouting, analytics, and player development may help teams get the most out of their draft picks. The fact that the data from the most recent drafts look very similar to the numbers from the 1990s hints at the possibility that this is in fact a trend, rather than being a blip on the radar.

Supporting this idea is the fact that evaluation of prospects is improving, as Chris Cwik investigated last week for Sports on Earth. While the article focuses primarily on the increased accuracy at ranking minor leaguers over the past 25 years, the same improvements in scouting and technology would likely apply to amateur players as well.

If we perform a nonlinear regression on the 1991-2005 sample, we see the same power relationship between WAR and draft pick (R2 = 0.57). Here’s how the more recent drafts compare to Sky’s model:

Avg-WAR-by-draft-pick,-pre-free-agency

(For reference, the adjusted equation for Sky’s model is y = 12.03x-.52)

As we saw with the raw numbers, it looks like teams may be getting better at finding quality players in the middle of the first round. Nearly every pick in the top 25 has exceeded expectations based on Sky’s model. However, right around the 25th pick, there appears to be a pretty steep drop-off, and the majority of the picks fall below both models.

This actually makes some sense. Since the number of quality players in every draft is limited, an increase in average value at one point in the draft needs to be offset by a decrease elsewhere. This decrease may be seen in the later rounds, or there’s a chance that players who used to fall through the cracks to the end of the first round or the second round are now getting scooped in the top 25.

While both equations have the same R2 value, the updated model is much closer to the actual average WAR of 3.71 for the first 50 picks over the past 15 years (3.76 for the updated model, 2.90 for Sky’s model). However, this improvement is based almost entirely on changes in the first 25 picks, and the old model actually does a better job of estimating WAR for players picked in the late first and early second rounds.

Distribution of WAR, by Model Type
Draft Pick Actual WAR Sky’s Model 1991-2005 Model
1-25 5.6 4.0 5.0
26-50 1.8 1.8 2.5
Average 3.7 2.9 3.8

You could make an argument for using the new model for the first 25 picks, then switch to Sky’s for the rest of the draft. While 15 years sounds like a lot of data, with the variability in the draft it’s always difficult to tell whether we’re seeing a true trend. For simplicity, I’ll use the new model (1991-2005) moving forward, but I will revisit this idea later.

References & Resources

  • WAR figures for draft picks from 1991-2005 are from Baseball-Reference’s draft tool.
  • WAR figures for recent arbitration-eligible players are from FanGraphs.
  • Arbitration salaries are from Baseball-Reference and Cot’s Baseball Contracts.


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Matt is a PhD student researching cancer and stem cell biology, and spends some of his free time writing about the analytics of beer at BeerGraphs and contributing to The Hardball Times. Follow him on twitter at @murphym45.
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Brian Henry
Guest

Matthew,

If you are going to present value them, is the approach going to be to show spreads of WAR production by year and then discount those values back? If that is the case I am very interested in seeing the end result and methodology. Also, I wonder if Jeff Zimmerman’s work showing possibly declining age curves for the entirety of a career might help show why value is being pushed up as well.

Shankbone
Guest
Everybody loves themselves some upside, that’s what the draft is all about, the next big thing. But somewhere you have to address the crazy failure rates and the fact that a draft pick can be worth absolutely nothing, and in fact be a big fat negative on the balance sheet once you factor in the bonus paid and development attention lavished on the pick. In a best case scenario of drafting the Braves lost out on 19.6MM in value. In the worst case they saved themselves a couple MM and paid a big league pitcher with it. Here’s a quote:… Read more »
Henry Willmore
Guest
Henry Willmore

One additional wrinkle in trying to evaluate what a team is giving up as a result of signing a free agent is to account for the possibility of recouping that lost pick or one similar to it at a later date. For example, with a one year contract such as the one signed by Santana there is a good chance that the Braves will regain a similar pick next year when Santana becomes a free agent again.

swarmofseals
Guest
swarmofseals
Very interesting article! I’m not sure how valid the argument I’m about to make is, but here goes. For the vast majority (if not all) teams, the goal is to make money. Winning is a means to that end. I’m not terribly familiar with whatever research exists linking on-field success to revenue, but I imagine that it varies quite a bit from team to team. Regardless, I’m confident that every ballclub has specific targets for on-field performance that are based on expected revenue generated by that level of success. I also suspect that the relationship between success and revenue is… Read more »
Jason Powers
Guest

I did a similar look at BA Prospect Rankings – Prospect WAR by BA Ranking piggybacking Sky’s model. It has some interesting parallels to Wang’s model of where the cutoffs are for value, when you look at the linear, power, or log portions of the curve. Not saying this is better, just different.

vivalajeter
Guest
vivalajeter
Another thing to consider is that regardless of the dollar amount you come up with, the pick is always worth more to the team. If you’re the GM with the #10 pick in the draft, you might see that it’s worth, on average, $10MM in surplus value (I made that number up, for argument’s sake). You’ll see a list of #10 draft picks that became stars, and a bigger list of #10 draft picks that never panned out. As the GM, you’ve most likely hired an assistant GM that you trust, scouts that you trust, etc, so you’re not going… Read more »
Shankbone
Guest
A different version of this was written on these pages almost 9 years ago: http://www.hardballtimes.com/eenie-meenie-miney-mo/ But the writer turned it on its head, the quote from the article: “Contrary to what some might say, I don’t think there’s anything wrong with saying that you’re just really bad at picking from the most sought-after prospects. ” Of course, it didn’t turn out to be the case. Sabean killed the draft for 4 straight years with his high probability picks. They paid off in spades. A lot of this pick value and draft study has been gone over a lot with Giants… Read more »
obsessivegiantscompulsive
Guest
I think that teams can have a good thumb in air judgement as to the talent that should be available to the team when they make their first round pick. It is not just us nerdy baseball guys who do mocks, I’m sure the pros do something similar as well. And so they should have a good feel for who might be available, just like us, and then take that into account when deciding whether to punt/lose/track the pick or keep it. I believe that some teams are capable of making a good enough call on the quality of any… Read more »
obsessivegiantscompulsive
Guest
I have great interest in draft studies, so first I have to say thanks for the great research and article. Very interesting. Unfortunately, you continued the flawed analysis that BP introduced into the methodology of draft analysis by using average WAR values for players. As I did in my study that predated the BP study, I set a standard for what a good player produces then did a count of prospects falling into that bucket (as well as other buckets, but that’s another story). I discussed this above in my longer comment, but basically it comes to two basic problems… Read more »
Dan Szymborski
Guest
Dan Szymborski
Matthew actually answered me some questions that I missed because for some reason, my email put it in the spam folder, so I figured I’d direct the answers here (since he’s already written the article). I generally use a 4% discount rate. I don’t think a high discount rate is appropriate, simply because I don’t think the opportunity cost of waiting for a minor leaguer is that high. Yeah, there’s nothing for the first year, but minor leaguers in themselves are assets in themselves that can be cashed in as well, if there’s an imbalance between future and current value.… Read more »
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