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Saturday, July 14, 2012

Looking at the 2012 Draft: A Strategic Approach

If you pay close attention to baseball’s annual amateur draft, then you are probably aware of the dynamic changes that have occurred in draft strategy over the years.  Under the old system, teams would get plenty of compensation picks and had no restrictions on how much they could spend.  Eventually, a few teams (particularly the Toronto Blue Jays) figured out a way to expose this draft environment and get a leg up on other teams.  Rather than shell out cash in free agency on Type A and Type B free agents (resulting in a loss of picks), teams held their cash on the open market and saved if for the draft.  Now, before I get to the next point, there’s a key piece of information I need to introduce you to:

Amateur baseball players have been notorious in the past for holding out for the maximum amount of money.  This especially goes for any player that has not reached their senior year of college.  This creates what is referred to in the industry as “signability concerns.”  If a team doesn’t want to pay the player over the suggested slot value, then the team missed out on that player and could pick at the same spot again in the next season’s draft (under the old system). 

What teams like the Blue Jays eventually figured out was that they could actually target these players and spend big in the draft, which would ensure that they could receive maximum value for their picks in the draft.  This led to farm systems that were absolutely stacked within a period of a few years (teams like the Blue Jays and Rangers are consistently ranked among the best farm systems, and this draft strategy is why).

Well, here comes the bad news: the new MLB CBA that was agreed to this past winter completely killed this draft strategy.  Rather than just have suggested slot values, teams had to start dealing with *actual* slot values.  Going overslot results in a luxury tax, and going 5% or more over slot value results in the loss of a draft pick the following year.  This completely changed the game, because teams could no longer wait for players with signability concerns to fall to them.  Doing so would result in the loss of future picks, which makes the old strategy worthless because you can no longer spend in the draft to stack the farm.  This was rather unfortunate, because while MLB likely put the new system in place to protect small market teams, it can easily be argued that the new system really hurts small market teams.  With fewer players leading to comp picks, teams like Tampa Bay can no longer stockpile picks and then spend overslot to get them. 

Baseball has never been a game where individuals and teams just sit around and wait for things to happen.  A new strategy would have to be formed in order for teams to stay ahead of the curve.  With a new complex system, teams had roughly six months to figure it out before the draft.  On top of it all, a shorter signing period window gave them even less time to negotiate deals.  With the signing deadline now behind us, we can look at a few teams and see how they played the draft.  I have six teams with interesting strategies, although several of them feed into one overlying strategy that will become obvious as we go through them.  With that, let’s look at our first team, who had what some people could call a disappointing draft:

Team 1: Pittsburgh Pirates

Total Number of Picks in First 10 Rounds: 11
Number of picks signed to date: 7
Primary strategy: College Players

With the 8th overall pick in this June’s draft, the Pirates make what is going to be played as the ballsiest move in the draft.  Some people will label their selection of Stanford RHP Mark Appel as a mistake in philosophy and logic, but that is not how I view the case.  Prior to the draft, Appel was projected as a top 3 pick (for a long time he was the projected #1 overall pick).  This meant that he was projected to be slotted anywhere from 7.2 million dollars to 5.2 million dollars (72% of the #1 overall slot).  On draft day, he and his agent Scott Boras watched as Appel slipped all the way to #8.  This spot carried with it a 2.9 million dollar slot bonus, which was 40% of the #1 overall slot and 56% of the #3 overall slot.  Immediately after the draft in his first interview, Appel talked of his desire to finish his degree and how much he liked Stanford.  Both were not good signs for the Pirates, and sure enough Appel did not sign by the deadline and will head back to Stanford for his final year. 

Going back in time a little bit, the Pirates had to have known on draft day that the chances of signing Appel were small.  Therefore, they would likely take other players who would ask for overslot payments earlier in the draft to give themselves shots at obtaining solid talent.  Well, in the supplemental round, the Pirates took another college player.  In fact, the Pirates would wind up choosing eight college players in their first 11 picks.  After the signing period ended, the Pirates had signed their three high school selections in rounds two, three, and eight, but failed to sign four of the college players they selected (disclaimer: college senior did not need to sign by the initial draft signing deadline). The Pirates lost their first and fourth round selections.  How could this happen?  Well, they took players they had little leverage over, which was especially the case for Appel.  Under the new CBA, players with signability concerns who fall and still have years of collegiate eligibility left will have very, very little reason to sign with a pro team.  After losing out on his projected slot bonus, Mark Appel would have had no real reason to sign with Pittsburgh unless he felt that: 1) Next year’s draft class was better and he would fall again or 2) He would be injured in his senior season at Stanford.   After seeing what Pittsburgh failed to do with their draft, we move onto a team with a similar draft strategy that executed it much better.

Team 2: Minnesota Twins

Total Number of Picks in First 10 Rounds: 13
Number of picks signed to date: 11
Primary strategy: College Players

The Twins and Pirates had very similar draft strategies.  They took college players early and often.  The Twins, however, performed the strategy much better than Pittsburgh.  With the second overall pick, the Twins selected OF Byron Buxton who was a high school player from Georgia.  With 6.2 million dollars in slot bonus to play around with, the Twins were able to sign Buxton *under* is projected slot value.  Had they signed Mark Appel, they likely would have gotten a player with a lower ceiling who wanted more money (undoubtedly Appel would have asked for above the suggested slot value at the #2 spot).  By signing Buxton under the slot value, they were able to select three quality players with their three first round supplemental picks and agreed to contracts with them all.  Knowing this, the Twins took their second pair of high school players in rounds six and seven.  The way the system works, teams get a pool of money to spend on their picks in the top ten rounds.  This means they could give it all to one player or spend it evenly on all of their players.  With the extra money from Buxton’s agreement, the Twins were able to up their offers to their supplemental picks while creating the ability to take more risks towards the bottom of the round.  While they eventually could not agree with their sixth round pick, the Twins got their top eight picks with little worry about losing any of them.  If they eventually sign their 9th round pick (a college senior), then they will have had a great draft with how they distributed their bonus pool.

Team 3: San Diego Padres

Total Number of Picks in First 10 Rounds: 14
Number of picks signed to date: 14
Primary strategy: College Players

The Padres and their “sister team” (just a phrase I’m going to use for teams with similar strategies) the Astros played the draft extremely well.  The one trend you’ll find from the Padres and the three teams that follow is that everyone signs (except for one college senior with Houston, who will likely sign).  The Padres had three supplemental picks paired with their first round pick, and they spent three of those selections on high school players.  As you have probably already noticed, the Padres signed *every single one* of their draft picks between rounds one and ten.  By taking high ceiling players early and multiple college seniors between rounds two and ten, the Padres were able to distribute their money very evenly.  While I could explain it now, I’ll wait and explain the college senior strategy when we get to our final team (the team that played the draft system the best).  Since the Padres have a very similar strategy to their sister team, I’ll move on to that team now.

Team 4: Houston Astros

Total Number of Picks in First 10 Rounds: 11
Number of picks signed to date: 10
Primary strategy: College Players

There was much praise for the Astros following their draft.  They took several high ceiling players early and signed them all.  With the first overall pick, the Astros grabbed SS Carlos Correa, who some scouts think reminds them of a young Alex Rodriguez.  Hold on…a young A-Rod going first overall who has all of his college eligibility left certainly would demand a ton, right?  Wrong.  Correa, much like the #2 overall pick Byron Buxton, signed underslot.  The Astros then spent their only supplemental first round pick on HS right hander Lance McCullers, who was believed to be headed to college with little hope of signing.  The Astros went way over the slot value for McCullers (in fact, they doubled it with their agreement) and signed the right hander away from his commitment to the University of Florida.  The Astros would go on to take high schoolers in rounds four and six and were able to also use a similar strategy to lure them away from their college commitments.  They spent a value nearly exactly equal to their bonus pool and will walk away with a minimum of 10 of their first 11 picks while almost doubling up on their agreement with McCullers.  Next, we’re going to move onto two teams who played the draft very well by signing high ceiling HS players early and multiple college players late.

Team 5: Chicago Cubs

Total Number of Picks in First 10 Rounds: 12
Number of picks signed to date: 12
Primary strategy: High School Players

The new regime in Chicago made it known publicly that they were not big fans of the changed draft rules.  As one of the biggest exploiters of the old draft system, Theo Epstein had to quickly change gears to figure out how to best attack the draft.  After looking at what the Cubs did, it’s obvious that they picked up on it quickly.  The Cubs selected five high school players with their first seven picks, and not once did they really have apparent worries about being unable to sign a player.  While negotiating with first round pick Albert Almora and his agent Scott Boras took a while, the Cubs spent just under their bonus pool and agreed to all of their picks in the top ten rounds.  Their sister team, the Toronto Blue Jays, took things a step further and played the draft as perfectly as anyone can play it.  Rather than talk about my own team more, I want to talk about the Blue Jays and just how well they executed this draft.

Team 6: Toronto Blue Jays

Total Number of Picks in First 10 Rounds: 14
Number of picks signed to date: 14
Primary strategy: High School Players

If you want to see the beauty in the execution of the business theory surrounding baseball operations, look no further than Toronto.  They seemingly do everything well: they trade for low-risk, high-reward players like Jose Bautista, Edwin Encarnacion, and Colby Rasmus (and then extend them for well below market value).  Then they move poor contracts like Vernon Wells for whatever anyone is willing to give them.  Along with that, they limit themselves to contracts of a maximum five years as to not suffer long-term burns.  To put the icing on the cake, they go out and own the draft as they consistently have top ranked drafts and top ranked farm systems.  This year was absolutely no different.  With two first round picks and three first round supplemental picks, the Blue Jays found themselves with 14 picks in the top 10 rounds and five picks in the first 60 (so they were picking once every 12 players, essentially).  Six of their first seven picks were high school players and their final seven players were all college players (the majority of them seniors).  Now I will explain why this strategy is so genius:

When a college senior decides to enter the draft, he is committing to the next part of his life.  There is no college eligibility left, and the only alternative to signing with a team is playing in an independent or international league.  Therefore, he lacks the one thing that players with signability concerns have a ton of: leverage.  By picking college seniors with the lower picks in the draft, the team can propose a value at or under slot.  When the player is approached with this offer, he has very little incentive to decline the offer.  Therefore he is likely to accept and more money from the bonus pool is left over to dish out to players with signability concerns.

The Blue Jays took the above strategy and ran with it.  With their six months to figure everything out, they scouted the necessary players (they have a monstrous scouting department and more regional scouts than any other team) and signed every single player they made an offer to.  They agreed with all of their college seniors and all of their super high-ceiling high school players.  If there is a team that had a best draft, it is very likely Toronto (especially if you are focusing on team strategy).

With all of these teams analyzed, it should be pretty clear what mistakes were made by teams like Pittsburgh.  When you don’t create enough leverage for yourself lower in the draft, you lose the ability to sign your top players.  Now, in the case of Pittsburgh, they would have had to take college seniors with almost all of their picks in order to sign Appel, and it’s simply not worth the loss in high-ceiling players to meet his demands.  In the future, expect a lot of teams to follow the precedent set by Alex Anthopolous and Theo Epstein.  You should also expect even fewer high school players to sign if they get picked much below the 3rd round.  There are not going to be any more Dillon Maples 14th round signings that go for multiple millions in signing bonuses.  As unfortunate as it is, this is going to have to be how teams play the draft for now.  It’s the easiest way to beat a system that just shouldn’t exist in the first place.

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