What’s holding up the next Collective Bargaining Agreement?

Major League Baseball and the MLB Players Association are busily hammering together a new Collective Bargaining Agreement. Unlike with the NFL and the NBA, there is no risk of a work stoppage in baseball. However, one contentious issue remains on the table—a slotting system for the amateur draft.

Commissioner Bud Selig is quoted as saying that he considers a slotting system to be “really critical.” This article will explore the theoretical effects of “hard slotting,” which is the system Selig publicly prefers. Under a hard slotting scheme, the commissioner’s office would determine the signing bonus of every pick. Alternative plans like capped draft budgets or a luxury “draft tax” will not be discussed.

The current system

The commissioner’s office provides “slot recommendations” for each position in the draft. Theoretical problems with hard slotting

The current slot recommendation system aptly highlights the theoretical problems with a formal hard slotting system. First, the commissioner’s office has demonstrated little understanding of the prevailing price for draftees. The current recommendations appear to be a thinly veiled attempt to decrease the bargaining power of draftees rather than a legitimate recommendation. For hard slotting to truly work, the commissioner’s office must adopt a sensible and transparent means of determining slot value.

More ominously, hard slotting could reduce the talent available in the draft, especially if the commissioner’s office continues to recommend low bonuses. By limiting the number of large bonuses to the earliest picks, top draft prospects may slip through the system if they are not selected early enough. They will be left with the choice of signing below their desired bonus or holding out for next season. High school players will be most affected since college gives them a valuable alternative to a middling draft bonus. This is a shame. Studies have found that the youngest players in the draft provide the most average value to their parent clubs.

Theoretically, clubs will have incentives to play it safe in the early rounds by drafting college seniors. Imagine a club with a 20th-round pick. The top guy on its board is a toolsy 18-year-old scouts love. However, the player has said he might not break his college commitment unless he is selected in the first 10 picks. The club has a conundrum: Select a player its loves who might not sign, or take a guy it merely likes who absolutely will sign. Now imagine the decision of the 21st club and the 22nd and so on. In this hypothetical, everyone loses.

This might not seem like the worst thing in the world, since today’s high school players are tomorrow’s college graduates. However, a lot can happen—or not happen—over the course of a four-year degree.

Player development is generally assumed to be weaker in a college environment. There are enough distractions to keep an ADD child entertained for years. And every year, good prospects disappear into relationships, academics or employment. For the individual this can often be a good thing; perhaps he found fulfillment in love or discovered a knack for particle physics. But from the perspective of major league clubs, every player lost from the draft pool is detrimental to the major leagues. Exposing more players to college probably means more players lost from the pool.

In college, access to elite coaches, trainers and doctors is limited. College coaches are often accused of overworking their best pitchers and under-training high upside arms with command problems. Minor injuries are more likely to remain undetected in an environment where the player is a simple four-year investment. These minor issues can balloon into serious problems later in life.

Baseball could lose players to other sports, too. While most baseball players are one-sport athletes, players like Domonic Brown are peppered throughout the major leagues. Brown was the Philadelphia Phillies’ 20th-round selection in the 2006 amateur draft. He slipped that far due to a football scholarship with the University of Miami. It cost the Phillies $200,000 to buy Brown away from his commitment—a figure well above the slot recommendation.

Benefits of hard slotting

If a hard slotting system will negatively affect the quality of players available to major league clubs, why are Selig and the owners interested in implementing it?

Cost is one of the primary motivating factors. Costs have escalated in recent drafts, with top athletes like Stephen Strasburg, Bryce Harper and Cole signing huge bonuses. This might be partially ascribed to a shift in club preferences. Throughout the majors, teams are recognizing the value of prospects.

The Pirates provide a great example. In 2007 they held the fourth overall pick. Instead of selecting pricey catching phenom Matt Wieters, the club played it safe by picking Daniel Moskos. The Pirates seemingly learned from their mistake, shelling out big money for Jameson Taillon and Cole over the last two drafts.

By instituting a slotting system, the commissioner’s office can control the inflation of draft pick prices. Clubs benefit with greater cost certainty. Theoretically, this should help teams make the best use of their organizational budgets. Clubs could focus more resources on reliable, major league quality talent. Or put more cynically, clubs could continue to underpay prospects.

Another goal of a hard slotting system is to increase parity. The draft is meant to distribute the best prospects to the worst teams. The current system does not do this, effectively putting small market clubs at a disadvantage.

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If the Pirates pay $8 million to Cole, they essentially are using their entire draft budget. They can’t afford to go over slot to several mid-round picks. They could have passed on Cole and gone with a cheaper selection, but that risks alienating the fan base—especially after the Moskos disaster.

Conversely, a team like the New York Yankees, often picking near the end of the first round, can make up for a lack of early picks by signing a score of mid-round picks to over-slot deals.

Under a formal slotting system, small market clubs will find top prospects more affordable while large market clubs will find it harder to offset a poor draft position with financial might.

Slotting also adds an element of simplicity to the draft. Currently, the decision to make a pick can be specified as a function of talent, cost and signability. With slotting, cost is known. Signability becomes simpler, too, since negotiation is not involved. College seniors in particular will lack leverage. So long as the slot recommendation exceeds alternative employment, the player will probably sign.

In this sense, teams could focus more scouting resources on talent and worry less about other factors. The draft itself would be simpler with talent being the main motivator.

Take-away points

Hard slotting has a number of expected effects.
{exp:list_maker}Draft pick costs will be lower with the commissioner setting costs
Parity could improve since bad teams will get the best picks and large market teams will not be able to buy extra talent
Talent evaluation could become simpler, allowing front office personnel and scouts to focus on factors other than cost, like player development
Some draftees, especially high school players, may become more difficult to draft and sign{/exp:list_maker}
At the end of the day, major league baseball is unlikely to adopt such a rigid system. Alternative solutions like a draft luxury tax could capture most of the benefits of a hard slotting system without missing out on young talent. Further, any plan that explicitly mentions or implies a hard cap will never be agreed to by the MLB Players Association. The players would view such language as a “slippery slope” toward a future MLB salary cap.


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bucdaddy
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bucdaddy
A couple things wrong here, IIRC. The Pirates didn’t “learn from their mistakes” with the Moskos fiasco. They got a new owner and a new GM and those people changed tactics, aggressively sinking money into the draft. Also, they didn’t use “their entire draft budget” on Cole, they spent another $9 million in the draft and wound up wooing Bell too, after every other team passed on him at least once. The Pirates cannot compete for MLB talent, they cannot match the Yankees/Red Sox/Phillies et al in offering 7 year/$140 million deals to anybody. The only place they can spend… Read more »
bucdaddy
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bucdaddy

Correcting my correction: “The only place …”

They could also spend lots of money to sign international players, but I’m sure Bud is figuring out a way to shut off that tap too.

Josh
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Josh

Hard slotting also encourages two-sport athletes to drop baseball and pursue football or basketball. Why sign for a few hundred thousand and then toil away in the minors for four or five years when you can play three years of football and get a monster rookie contract?

obsessivegiantscompulsive
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obsessivegiantscompulsive
FYI, the BP study on youngest players drafted does not, as you put it, found “that the youngest players in the draft provide the most average value to their parent clubs.” It found that the youngest among the group of high school draftees who signed performed way better than the oldest among that group of high school draftees who signed.  It says nothing about whether the older high school draftees who signed are better than collage hitters who signed that same draft, which is a conclusion one could get from your blanket statement that youngest is best and some high… Read more »
obsessivegiantscompulsive
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obsessivegiantscompulsive
About hardslotting, you make very good points but are missing some key info that changes the picture. First, you make the point that HS will start choosing college just because they fell in the draft but ignored the major reason that many of them fell was because they were not up front about what they want from a team to sign.  That should stop with a slotting system, there is no incentive to hide what you really want in order to be signed in the draft.  Sure, some will fall in the first draft or two, but they should wise… Read more »
Brad Johnson
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Brad Johnson
Thank you for the comments. I only have a moment to respond, so please excuse any brevity. Bucdaddy, While you are right that Cole didn’t actually absorb the entire budget, it did force the Pirates to redistribute resources to the draft that they would otherwise have spent elsewhere or claimed as profits. I’m not sure it’s fair to consider that sustainable. A large market team can ALWAYS use this strategy if they want to, a small market team must decide if that money is going to prospects, prospect development (including scouts, coaches, docs, etc.), mlb talent, owners, stadium, etc. For… Read more »
Chris
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Chris

If player development costs are reduced, it is necessary that MLB players – especially 0-6 year guys – be paid closer to their actual skill level. MLB teams would simply be redistributing costs from uncertain prospect talent to more certain MLB talent. They shouldn’t actually save a dime on average.

If owners “shouldn’t actually save a dime on average” under hard slotting, Selig wouldn’t be proposing it.

Depressing draft costs doesn’t increase the marginal value of a win, so why would owners pay more under a hard slotting regime that reduces draft costs than they would under today’s system?

Brad Johnson
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Brad Johnson
It’s a matter of negotiation. The MLBPA cannot agree to allow MLB to artificially suppress contract values in one way without receiving a “gift” of equal value. In this case, I’m assuming hard slotting means a significant relaxation of club control rules. Let’s say clubs save $30 mil on the draft with hard slotting. Then they should be spending $30 mil more on 0-7 year guys. The actual conversion wouldn’t be one to one since each side has varying incentives. MLB would like that more since they’d be putting money into actual output rather than theoretical output while the MLBPA… Read more »
obsessivegiantscompulsive
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obsessivegiantscompulsive
Thanks for the reply, Brad.  Makes a lot of sense, what you say. Close – no “ia” at end, just “a” (I had to look it up too :^).  OK, he is a much better example than Brown.  $200K for a chance to make the majors or pretty sure thing for NFL, he would have made it known that a team could draft him sooner, he took a huge risk going to baseball then if he was really that good coming out of high school, though I would counter with how often do good high schoolers make it eventually into… Read more »
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