In my previous Draft Blog post, I explained why the new Collective Bargaining Agreement's penalties for what is deemed to be excessive draft spending may not be as harsh as initially feared. Here's some analysis on various draft-related provisions of the new CBA:
Draft cap: Teams that exceed the "aggregate signing bonus pool" assigned to them for the first 10 rounds of the draft are subject to a tax on the overage and a loss of draft picks. A 0-5 percent overage would result in a 75 percent tax; a 5-10 percent overage would result in a 75 percent tax and the loss of a first-round pick; a 10-15 percent overage would result in a 100 percent tax and the loss of first- and second-rounders; and a 15 percent or higher overage would result in a 100 percent tax and the loss of two first-rounders.
If the overall bonus pool is approximately $200 million as has been reported, up from MLB's $133 million in slot recommendations in 2011, clubs still can be aggressive but not as much at the top end. I think the end result will be that the top picks in the draft still will sign, though the high-end bonuses will come down a little so teams don't blow most of their cap on one player. The top high school players still will sign, as seven-figure bonuses still will be alluring.
More second-tier prep players will wind up in college, however. Guys who previously would have gotten $250,000 to $750,000 will be harder to fit into a club's draft budget, especially those after the 10th round (if they sign for more than $100,000, the difference counts against the pool). Teams squeezed college juniors in 2011, figuring they didn't have much leverage unless they were willing to return for their senior years and have no leverage in the next draft, and they may tighten the clamps further in the future to free up more cap space.
This change is a blow to teams like the Pirates and Royals, who don't have the money to chase prime big league free agents but can afford to outspend anyone in the draft. Pittsburgh paid a draft-record $17 million in bonuses last year, and the new system means they'd incur a penalty unless they didn't give $5 million to second-rounder Josh Bell and find another $2 million to trim. Kansas City couldn't have given $1.5 million to third-rounder Bryan Brickhouse and $575,000 or more to seven other non-first-rounders without a hefty tax bill and the loss of two future first-round selections.
It’s also easier for wealthier, more successful teams to swallow a penalty by paying the bill and giving up lower first-round picks than it is for other clubs, who would surrender more valuable choices.
Any draft tax collected will be redistributed to teams under MLB's revenue-sharing plan, and any draft picks surrendered will be awarded in a lottery weighted by a club's winning percentage and revenues the previous year. The catch is that any team that goes over its draft cap is ineligible to receive draft-tax cash or a forfeited draft pick–another stick to discourage teams from going over the limit.
Signing deadline: The deadline will move from Aug. 15 to somewhere between July 12-18, depending on the timing of the All-Star Game. This move was a no-brainer that both sides wanted. So many players waited until the deadline to sign—101 came to terms on the final day in 2011—that several of the draft's top talents signed too late to play in the minors until the following season.
The timing of the deadline won't affect bonuses, though we'll still see the most expensive players go down to the wire. Here's hoping MLB will end its charade of sitting on lucrative deals and pretending they don't exist, instead letting teams and players announce agreements when they actually happen. That actually could spur a few extra high school players to sign, rather than getting cold feet when they're forced to wait 10 weeks after the draft.
Competitive-balance lottery: In a new twist, the teams with the 10 lowest revenues and in the 10 smallest markets (there will be some overlap) will enter a lottery (weighted by winning percentage) for six supplemental picks immediately after the first round. Clubs that lose that lottery will go into a second lottery for six supplemental picks immediately after the second round. Also included in the second-round lottery will be any clubs that received money as part of baseball's revenue-sharing plan.
This gives less-advantaged teams the ability to grab an extra player and have a higher draft cap, though it doesn't come close to making up for no longer being able to spend as much as they want. By far the most interesting provision of the lottery is . . .
Draft-pick trades: To quote the press release summarizing the CBA: "Picks awarded in the Competitive Balance Lottery may be assigned by a Club, subject to certain restrictions." That means those choices can be traded, a first in draft history, though apparently all other choices still cannot.
One club executive said the restriction would be that only half of the value of the pick would transfer in a trade. A choice worth $1,000,000 would add only $500,000 to another team's draft cap if it changed hands.
It's hard to envision a team that believes in spending on the draft would deal a competitive-balance choice, but a team that doesn't might relish the opportunity.
Reduced free-agent compensation: There were a number of flaws with old compensation rules, including an antiquated rating that overvalued many players (especially relievers) and allowed teams (particularly those with money) to game the system to get extra picks. Compensation was tweaked for this offseason and will totally change going forward.
First, only players who are with a team for an entire season are eligible for compensation. And rather than merely having to offer arbitration to a free agent ranked among the top 40 percent of players at his position, a club will get compensation only if it tenders a free agent a one-year guaranteed contract equal to the average of the 125 highest-paid players from the previous year (estimated at $10 million or more).
Instead of having a sandwich round of 27 picks as in 2011, we'll see six competitive-balance choices and maybe 6-10 compensation selections. That's more equitable for a team like the Pirates, which had the first selection in the 2011 draft and the top choice in the second round—but had to wait 60 picks for it.
Teams that sign a compensation free agent will forfeit their first-round choice, unless it's one of the first 10 picks (reduced from the first 15). The CBA summary didn't explicitly state that the surrendered selection would go to the free agent's former club, though I assume that remains the case. The former team also will receive a sandwich pick.
No major league contracts: Draftees no longer will be eligible to sign big league deals, as five of them did in 2011. The main effect of this change is that clubs won't be able to skirt the draft cap by reducing a player's bonus and making it up to him with guaranteed major league salaries.
Possible medical combine: The CBA summary also states: "Top 200 prospects will be subject to a predraft drug test and will participate in a predraft medical program." The top 200 prospects already are drug tested, but the medical program is new.
While it's unclear exactly what form it will take or if and how players will be compelled to attend, it's a step in the right direction that could avoid the snafus that led to 2010 first-round picks Barret Loux and Dylan Covey not signing. The Diamondbacks were alarmed by the results of Loux's physical after he agreed to a $2 million bonus, and the team backed out of the deal. Covey learned he had Type 1 diabetes shortly before the signing deadline and decided it would be easier to adjust to his condition in college than in pro ball.
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