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Home Pete Toms LWIB: Updates on Reforming the Amatuer Draft, and Revenue Sharing

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Pete Toms Article Archive
Written by Pete Toms   
Monday, 19 October 2009 00:03

Last Week in Bizball by Pete Toms

This week in LWIB, as both the implementation of mandatory slotting and the introduction of a player draft to Latin America appear a foregone conclusion, the debate over reforming the draft shifts to the specifics.  Plus, the divergent opinions concerning the merits of revenue sharing in MLB were once again on display LWIB.

REFORMING THE AMATUER DRAFT UPDATE

According to Baseball America, during an interview earlier this month on ESPN Radio, Commissioner Selig responded to a question concerning the future of MLB’s amateur draft.

We need an international draft, and we need slotting. There is no question about it. I’ve had many clubs on all sides, small-market, big-market, medium-market—we’re going to have slotting, and we’re going to have an international draft. Those will be two of our great priorities in 2011. There’s no question about it.

Commissioner Selig’s support for mandatory slotting and an expansion of the geographic boundaries of MLB’s amateur draft has long been known. Recommended slots have failed to control escalating signing bonuses. At the same time, too often the draft fails to steer the most talented amateur players to the clubs with the poorest on-field performance. Signing bonuses have also risen drastically in the international free agent market (de facto the Dominican Republic). Along with their desire to curtail the inflating costs of signing players from the Dominican Republic, MLB wants to reform a player development culture that has been widely depicted in the baseball media (with the encouragement of MLB) as corrupt. (signing bonus kickback scandals, rampant misrepresentation of players ages and identities, growing numbers of positive steroid tests in the Dominican Summer League). The escalating dollars being awarded amateur players is a product of growing industry revenues and the increased use of “objective analysis” by clubs in determining how to best maximize their operating budgets. More and more clubs have concluded that an equitable draft structure (as opposed to spending in the free agent market) is key to achieving greater future “competitive balance”.

Mandatory slotting and an international draft (a slight misnomer, the current amateur draft includes Canada and Puerto Rico) are very likely to be introduced in the next CBA. (The current CBA expires in December 2011) While the MLBPA has always opposed any mandatory “capping” of compensation, many pundits believe that resentment amongst veteran players over “rookie compensation” along with diminished demand for veteran free agents, will lead to agreement on the aforementioned changes.

As the introduction of mandatory slotting and an “international” draft appear a foregone conclusion, the debate amongst pundits is moving away from the philosophical to the particulars of the proposal. Will trading of draft picks accompany mandatory slotting? Will mandatory slotting impact on the number of high school players drafted? Will the expansion of the draft to the Dominican Republic resolve the problems MLB has with the “buscone” player development system? At what age will players in the Dominican Republic be subject to the draft?  Will the “international” draft be separate from, or part of, the current Rule 4 draft? Should MLB attempt to force players to “declare” they are entering the draft? In a nutshell, MLB and the PA have much to decide before reformation of the draft becomes reality.  Jim Callis wrote recently for Baseball America;

Sentiment is growing for including international players in the draft, but there are many unresolved questions: Will international players go into the current draft, which will give many of them a better sense of how teams judge their worth? If the idea is to distribute talent more equitably, how would a combined draft help smaller-revenue clubs if they have to use picks to sign mid-level Latino players they previously could acquire as free agents? Or will there be a separate draft, creating a second set of first-round picks for which agents will be thankful?

Will 16-year-old Latin Americans continue to be eligible for pro ball, and if so, will that eventually lead to earlier entry for U.S. draftees? Or will Latinos now have to wait until they're high school seniors, like Puerto Ricans did after they were folded into the draft in 1990—a move that scouts blame for drying up that pipeline of talent?

Will unselected Latin Americans be allowed to sign as free agents after the draft, like other undrafted players currently can? If so, how is MLB going to possibly monitor the ensuing shenanigans with teams and agents conspiring to hide players? MLB already can't keep up with deals getting brokered before the signing period officially begins on July 2.

Kiley McDaniel of Baseball Prospectus is writing a series on reforming the draft. In the first instalment of his “Tweaking the Talent System” series, Mr. McDaniel examines the debate within MLB over the necessity of coupling the trading of draft picks with mandatory slotting.

Almost everyone surveyed agreed that trading picks in the current draft system would cause as many problems as solutions, but would be a slam dunk in a hard-slotting environment. "I've been a fan of trading picks for awhile and with a hard-slotting system it would be a necessity," said an AL executive. After a few conversations, it was evident that trading picks and hard-slotting are a package deal. If each pick has a mandated bonus attached to it, teams have to be able to control the amount and structure of their draft spending…..Some implications that come with this simple reform:

The commonly-referenced downside to trading picks is the ability for agents to demand trades. If the agents essentially can't negotiate contracts, all they can do is try to place their client at the best pick. This usually means the highest possible pick (thus, highest mandated bonus), but it could mean avoiding certain poorly-run organizations.

AND

One exec suggested protecting the top five or ten picks from being traded to eliminate clubs being forced to trade what could be a franchise player. The problem with that is clubs then couldn't trade down, even if it was their best strategic option. Either way, it doesn't make sense to have sweeping draft reform to evenly distribute talent, only to leave a big loophole for not achieving that goal.

An AL executive came to the rescue, noting "The problem is agents forcing top picks to big markets? If the player is good enough to demand a trade, then more than one team will want to trade up. If just two teams bid for the pick, the club will get fair value, or very close to it." There's a heavy incentive for non-elite players to avoid making demands with hard-slotting. If clubs listen, the player would slide down the board and lose cash with each pick—almost the exact opposite of what happens now. Only players who would cause trading-up bidding wars would make such demands, and clubs would get fair value if they chose to deal the pick. With such an emphasis in recent years toward collecting cost-controlled talent, clubs may overpay in major league-ready talent to acquire certain elite amateur talents.

LWIB, the second instalment of Mr. McDaniel’s series was published. Mr. McDaniel poses some important questions concerning the possibility of players having to declare draft eligibility and, if so, the consequences of the NCAA’s current restrictions on player agents (see the Andy Oliver case). Mr McDaniel also speculates about the value, and perhaps necessity, of an NFL like “scouting advisory board” if players are forced to declare themselves draft eligible. Mr. McDaniel speculates that the most drastic changes that could arise from declaring draft eligibility would occur in the low minors and college baseball.

Another widely discussed reform is making players declare themselves eligible for the draft. This looks like another straightforward nail-in-the-agent/amateur-player coffin but, in tandem with mandated slots, opens a big can of administrative worms. The makeup of baseball at every level below Double-A could look completely different just because a seemingly simple set of reforms designed to spread out talent and take some power back from the agents.

AND

A clear pro-club byproduct of the hard-slotting system is that many more high school players will be going to college. There were 42 millionaires in the 2009 draft, and 30 recommended slots calling for a seven-figure bonus. There were scores of well-over-slot six-figure deals that would not exist in a slotted draft. One agent characterized the ramifications: "The top 20-30 high school players will sign, and once you get out of the first few rounds, it will be all college kids [being drafted]." This would, in turn, change the face of college baseball and the low minors.

The talent influx would move college baseball toward a new golden age. Most players being drafted will be two or three years older than they are now. Combine that with a possible draft date change, and short-season minor leagues are probably dead. With less roster spots to fill, the draft can (finally) be shortened from 50 rounds.

Commissioner Selig, most clubs, most baseball pundits and many veteran players all agree that fundamental change to the amateur draft is a necessity. As the expiration of the CBA draws nearer, the details and domino effects of these changes will be subject to increasingly greater scrutiny and debate both in the baseball media and in labour negotiations.

Select Read More to see an update on the revenue sharing debate

 

 

REVENUE SHARING DEBATE UPDATE

It is now inevitable that a large payroll franchise will be 2009 World Series champion. Not surprisingly, this has led to renewed criticisms from some pundits and small payroll franchises that increased revenue sharing is needed in MLB. Only a year ago, the Milwaukee Brewers competing in the postseason combined with the Tampa Bay Rays playing in the World Series, had some pundits and large payroll franchises arguing that MLB had achieved “competitive balance”. The on-field results of one or two seasons is probably insufficient to make any definite conclusions about the contributions of revenue sharing to the state of “competitive balance”.  Nonetheless, LWIB provided two examples of the stark differences between the two sides in the revenue sharing / competitive balance debate.

Wayne G, McDonnell Jr., clinical assistant professor of sports management at NYU, wrote in The SportsBusiness Journal that it is time for Commissioner Selig to halt the practice of “revenue payees” using their revenue sharing proceeds to bolster their bottom lines. Instead, Mr. McDonnell argues that it is Commissioner Selig’s responsibility to ensure that the “revenue payees” use their revenue sharing proceeds to field more competitive baseball teams. As is typically the case in this debate, rightly or wrongly, the Pittsburgh Pirates are referenced as the prime example.

While the commissioner deserves a tremendous amount of credit for resuscitating baseball’s stagnant economic model, he also has to assume responsibility for the consistent reluctance of ballclubs such as the Pittsburgh Pirates and their inability to fully embrace revenue sharing. The Pirates are obviously content with the current state of affairs regarding the distribution of revenue and eagerly await their annual reward of $35 million to $40 million for producing an inferior product. As the Pirates’ aspirations for mediocrity are met with disdain by a dwindling fan base, they are handsomely compensated for blatant mismanagement. As cries for a salary cap can be heard from around the Allegheny River, the Pirates vociferously complain about economic imbalances and their inability to compete for the better part of two decades.

While the Pirates are an easy target when it comes to the misappropriation of revenue sharing, they are not the only culprit that consistently demonstrates miserly behaviors. Instead of investing revenue-sharing funds into player acquisitions and the development of farm systems, select ballclubs trade their most valuable assets and revise their profit-maximizing strategies by reducing payroll and adversely affecting the overall performance of their ballclubs. As a result, local revenue will greatly diminish and ballclubs are now eligible to receive even larger revenue-sharing transfers from Major League Baseball. While the collective-bargaining agreement makes allusions to accountability with regard to revenue sharing, Selig has yet to impose a penalty on a ballclub that has violated the basic premise of the revenue-sharing plan.

AND

Selig needs to revisit the policies regarding punishment for ballclubs that fail to use their revenue-sharing receipts in the manner in which the program was designed. Ballclubs such as the Yankees and Red Sox each contribute almost $60 million to $80 million a year to revenue sharing so that “payee clubs” have a legitimate opportunity at being competitive.

Selig cannot overlook the vast financial contributions that “payor clubs” make to revenue sharing, and it is his responsibility to act in the best interests of all 30 ball clubs.

(Not to discredit Mr. McDonnell, but in fairness to the Pirates, while they did slash their major league payroll this season they have in recent years increased investments in the amateur draft as well as player development in Latin America).

Joe Starkey from the Pittsburgh Tribune-Review also blames Commissioner Selig for not resolving the “competitive balance“ problem in MLB. But unlike Mr. McDonnell, he does not accuse “revenue payees” of misusing their revenue sharing proceeds. Instead, Mr. Starkey blames Commissioner Selig for reigning over MLB’s “idiotic economic system”.

Bud says the years 2004-08 were competitively balanced. The facts disagree. The facts tell us that of the 48 teams with a sub-$60 million payroll during that span, only 13 had a winning record and only four made the playoffs. That's a .083 batting average, which would be good for Brian Bixler but doesn't exactly spawn hope for the lower third of the league's spenders.

Meanwhile, of the 30 teams that spent at least $100 million, 26 had a winning record and 16 made the playoffs.

Let us review: More than half of the $100 million teams made the playoffs, compared to fewer than one in 10 of the sub-$60 million teams. Nearly 90 percent of the $100 million teams had a winning record, compared to 27 percent of the sub-$60 million teams.

So, tell me, are we talking parity or parody?

Short of a hard salary cap (the payroll “luxury tax“ in MLB serves as a cap for all franchises except the Yankees), the debate over the merits of revenue sharing amongst fans, media and small and large market franchises is likely without end. The introduction of a hard salary cap and salary floor to MLB is extremely unlikely given the MLBPA’s and large market franchises’ opposition. As well, MLB and the MLBPA are aware that the other “stick and ball” leagues have learned that hard salary caps and floors bring with them inherent difficulties. In the short term, Commissioner Selig is again faced with the challenge of balancing the needs of large and small market franchises. At the same time, Commissioner Selig requires the consent of the MLBPA to change the revenue sharing formulas. Increased revenue sharing is a difficult pill to swallow for the PA because it suppresses player compensation. However, tweaking revenue sharing formulas is only one of the options available to Commissioner Selig in satisfying the small payroll franchises need for increased on-field parity. Mandatory slotting and an expanded playoff format could also contribute to placating the small revenue owners demands for increased “competitive balance”.


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Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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