The Missed Opportunity in the MLB Draft

There’s a missed opportunity in Major League Baseball that’s rarely talked about. No team has ever attempted to blow past the spending limits in the amateur draft.

Beginning in 2012, Major League Baseball changed the rules around spending in the draft. Every team is allotted a pool to sign their selections, and every dollar spent above that number results in a penalty.

• Spending up to 5% over the pool incurs a 75% tax on overage spending

• Spending beyond 5% triggers escalating penalties, maxing out at a 100% tax on the overage and the loss of two first round draft picks for spending more than 15% above the pool1

Since the rules were established, many teams have spent up to 5% over their pool, but no one has spent enough to lose a draft pick.2

The math — as we’ll get to — doesn’t necessarily support spending 6-15% to sign an extra player or two. It supports blowing past the limit and investing $50+ million dollars to add an influx of talent to a farm system in a single go.

And in a league constantly in search of competitive advantages, it’s somewhat inexplicable that no one has ever tried.

The math behind the strategy is straightforward. Compare value lost from the forfeited draft picks to value gained from signing players who wouldn’t be a part of the draft class and factor in the overall cost.

If you’re familiar with the draft, your inclination might be to hang on to the future firsts. As in other sports, value in the MLB draft is concentrated at the top where players have the best expected outcomes and the highest likelihood of becoming a star. Here is the WAR by slot for the first 30 selection between 1990 and 2017:3

The top of the draft is extremely valuable, but the curve flattens quickly. By the time we get to pick 30, the expected value levels off with each subsequent pick only marginally less valuable than the one before.

Conservatively assuming the forfeited picks would fall just outside the top-5, two first round draft picks are worth a little more than 12 WAR and $50 million in surplus value.4

If the exchange was merely those two future firsts for a handful of day two players, it would be hard to make the strategy work.

But we’re not talking about trading those picks for a few players. Every year there are 20-30 premium prospects who fall outside the top 10 rounds — either selected later or undrafted altogether — and don’t sign because the money isn’t enticing enough.

In 2017, there were 36 such players in the top 200 of Baseball America’s final draft rankings. And they weren’t all concentrated at the back — 21 of those players were in the top 150 and 10 in the top 100 (roughly top-3 round talents).5

A team willing to spend could have conceivably landed 15 (or more) of those players, effectively trading two future first rounders for 15 extra top-150 selections, and adding around 10 wins in the process.6

If we (conservatively) estimate $2 million per player, add those bonuses to our existing pool, and tack on the 100% tax for the overage, we’re looking at around $70 million to land the draft class. Even in a market that produces wins efficiently, that’s a good deal.

There isn’t a clear answer.

Normally the fears of moving first and failure, particularly with something visible and costly, are enough to deter owners and general managers from acting. But there’s recent precedent for overspending and incurring penalties that should make that less concerning.

Before the league moved to the hard cap in the international market, both the Dodgers and Padres had years where they spent well beyond their pools. In 2015, Los Angeles spent $92 million (including tax) internationally, and a year later San Diego shelled out $78 million in bonuses to sign their class.7 And it’s not like the spending worked out poorly and serves as some sort of cautionary tale. While the long-term outcomes were a bit of a mixed bag, the classes boosted their farm systems significantly in the years to come.8

On the domestic amateur side, teams forfeit draft picks for signing qualifying free agents every year and prior to the rule changes, there were teams that used money to “buy” better draft classes. The most effective example is the Boston Red Sox who ranked in the top six of draft spending every year between 2005 to 2011 regardless of where they picked or how many selections they had. That helped bring in later round talent like Mookie Betts, Anthony Rizzo, Josh Reddick, and Clay Buchholz. It’s wasn’t only large market clubs, either. The biggest draft spender the last year of the old rules was the Pittsburgh Pirates who gave out big bonuses to Josh Bell, Tyler Glasnow, and Clay Holmes among others.

Of course, the examples don’t fully address the challenge of executing an overspend in the draft. Pulling it off would require a great deal of coordination and planning. Only a small group could know what was going on until late in the process. Unlike the international market where players are free to sign with anyone, teams can only sign the players they draft. So if other teams got a whiff of the plan, they could take players simply to block them from going elsewhere. And the team executing the strategy would also have to rely lot on agents to not shop deals or renegotiate after the draft.

There’s also the fact that following the strategy would upset an established norm. Teams and owners compete with one another, but mostly in a cooperative way that maintains harmony. Owners may not want to make a large investment to exploit the rules at the risk of alienating their peers.

The answer is likely a combination of these factors — none of which are satisfactory. It would be hard, it would be expensive, and it might fail, but among ways to use capital to gain an advantage, few offer the upside that overspending the draft would have.

The actual outcomes of the players are almost irrelevant.9 An organization would benefit immediately from the injection of talent into their farm system. Amateur pedigree influences public prospect rankings, and while teams say they don’t care about those rankings, they matter. They matter to ownership and fans, they bias scouting reports and other evaluations, and they’re predictive. Teams could hold and develop the prospects or consolidate and trade them for more proven players. The value would be there regardless of how they chose to use it.

Unfortunately, it’s never going to happen. While the rules still permit a team to overspend their limits, the adoption of NIL in college athletics has rendered the strategy too costly to execute. Prior to 2021, players faced the choice between playing professional for money or continuing to compete at the amateur level. Now, many players are making six or seven figures as amateurs. Players that may have taken $1 million to sign in 2017 would now command far more, if there’s even a price.10

And it’s a shame we never got to see it. For all the talk about finding inefficiencies and competitive advantages, baseball teams — like many organizations — often fail to take advantage when opportunities are obvious but uncomfortable. For nearly a decade, the amateur draft offered a clear opportunity to buy prospects in bulk. Every team decided to pass.