This week in “Last Week in BizBall, will “mandatory slotting” hurt small revenue franchises?, plus plenty of tidbits.
WILL MANDATORY SLOTTING HURT SMALL REVENUE FRANCHISES?
All the chatter in the baseball media LWIB over revenue sharing/socialism/contraction was a definite reminder that MLB’s CBA will expire this year. Just as “rookie compensation” is a key issue in the NFL labour negotiations (is negotiating a misnomer when applied to the NFL owners?, but I digress) it will be in this upcoming round of negotiations between MLB and the MLBPA. It is no secret that Commissioner Selig is unhappy with the present structure of the Rule 4 draft (aka amateur draft). Selig has, with mixed results, attempted to control spending in the Rule 4 via his office’s “slotting recommendations”. Selig is not alone in wanting to reform the Rule 4 draft. Critics of the currently structured Rule 4 argue that it does not always serve the purpose of a well functioning “reverse order draft”. That is, allowing the worst MLB franchises to acquire the best (North American) amateur talent. In other words, Selig and others want to see the end of “signability” as a factor in the Rule 4. Selig and his supporters argue that the introduction of “mandatory slotting” to the Rule 4 will remove “signability” from club’s draft decisions and contribute to greater competitive balance. More cynical observers argue that Selig’s desire to negotiate “mandatory slotting” into the next CBA is more about wanting to control the escalating dollars clubs are spending in the Rule 4. In September I brought attention to a Baseball America report on the dollars spent in last year’s Rule 4 draft:
Last month, Jim Callis of Baseball America reported on the spending in the 2010 Rule 4. Mr. Callis informed us that Commissioner Selig’s efforts to enforce “recommended slots” (primarily delaying the approval of “over slot” deals) met with mixed results. Clubs spent a record $194.8 million ($200.9 million if guaranteed major league salaries awarded three draftees is included) this draft, up from a then record $189.3 million last year. Four franchises, the Nationals, Pirates, Blue Jays and Red Sox, each spent in excess of $10 million, “matching the combined total from 45 previous drafts.” Only the Braves and Twins did not go “over slot” for at least one player (the Jays exceeded “slotting” in thirteen signings). Commissioner Selig’s efforts to enforce “slotting” might be responsible for a 9% decrease in 1st round bonuses, which were their lowest since 2007.
After nine seasons of “slotting recommendations” it is apparent that, for the most part, MLB front offices have concluded that they will not/should not adhere to Selig’s requests in this area. The escalating dollars being spent on amateur players has arisen from the conclusion amongst GMs (heeding the advice of their objective analysis advisers) that investing in young players yields better returns than investing in veteran players. In addition, if this is the “post steroid” era in MLB, many question if the performance of veteran players will decline earlier in their careers than in the recent past. LWIB saw the publication of Baseball America‘s annual Top 100 Prospects. The Executive Editor of Baseball America, Jim Callis, provided an analysis of where and how much money clubs have invested in those Top 100 minor leaguers. According to Callis, 78 of the top 100 were acquired via the Rule 4. The remaining 22 were acquired via the international free agent market. The average cost to sign the Top 100 was near $2 million. The average cost to sign the “international players” was approx $2.4 million. The average cost to sign the drafted players was approximately $1.86 million. Perhaps the most notable lesson to be learned from Callis’s report is that it doesn’t pay to be cheap in the Rule 4. “Of the 78 drafted prospects, 46 received bonuses in excess of MLB's recommendations, 22 received slot money and 10 signed for below-slot bonuses.”
SELECT READ MORE TO SEE THE REST OF THE ARTICLE ON HARD-SLOTTING IN MLB, PLUS A BEVY OF TIDBITS
When “mandatory slotting” becomes a reality in 12 (most agree it is a foregone conclusion), will it contribute to greater competitive balance? Some astute observers argue the opposite, that “mandatory slotting” will contribute to greater competitive imbalance. Their argument is that small revenue clubs have rightfully concluded that it is futile for them to compete with their large revenue peers in the free agent market. (ie KC and Gil Meche) In reaction, small revenue franchises are increasingly big spenders in the Rule 4. Last year, Jim Callis compiled a breakdown of individual club spending in the Rule 4 over the last 3 drafts. The trend is unmistakable. 4 of the top 5 franchises in combined spending over the last 3 drafts are the Pirates, Nationals, O‘s and Royals. 4 of the bottom 5 franchises in combined spending over the last 3 drafts are the White Sox, Braves, Phillies and Mets. Prior to last year’s Rule 4 draft, NYU Sports Management Professor Wayne McDonnell argued for changes. In particular, Wayne believes the end of “signability” would be a plus for MLB. Wayne presented an example from the 09 Rule 4:
One of the most disturbing issues that will be intensely scrutinized by many over the summer months is the slotting fees. For example, the Kansas City Royals signed a high school catcher (William Myers) drafted in the 3rd round (91st overall pick) to a $2,000,000 signing bonus. This signing bonus was greater than the signing bonuses given to 15 players who were drafted in the 1st round by 14 ball clubs. The Royals actually gave more money to their 3rd round pick than they did to their 1st round pick (12th overall) Aaron Crow. Crow’s signing bonus was $1,500,000. Their 4th round pick (Christopher Dwyer) received a $1,450,000 signing bonus. This signing bonus was greater than the signing bonuses given to 12 players who were drafted in the 1st round by 10 ball clubs.
Wil Myers is a great example of the benefit to small revenue franchises of spending “over slot”. BA evaluates Myers as the 10th best minor league prospect entering this season. Dwyer was rated the 83rd best. In fact, the Royals placed 9 players in the BA Top 100 including 3 in the Top 10 and 5 in the Top 20. JJ Cooper wrote in Baseball America that the Royals’ current collection of minor league prospects is easily the most impressive assembled by any club since the magazine began compiling the Top 100 22 years ago. The small revenue Rays used the Rule 4 to assemble a team that made the playoffs 2 of the last 3 seasons. And because of big spending and good decisions in the Rule 4, Royals fans finally have legitimate reasons to be optimistic. But should Royals, Rays and Pirates fans be concerned about “mandatory slotting”? In November, JJ Cooper wrote in Baseball America, “But just as their investments are starting to pay off, the Royals may have to plan a different approach. There has been much talk about a mandated slotting system for the draft beginning in 2012, which would cost Kansas City one of the few competitive advantages a small-revenue team can have—a willingness to sign over-slot players.”
I blogged recently about the theory of the “emerging middle class” in MLB. Evidence of such would be the awarding last year of the most $100 million contracts since 00, but none of those from the Mets, Yanks, Cubs or Dodgers. As well, there was a decline in the amount of revenue sharing dollars redistributed last season over 09, thought to be attributable to net local revenues increasing at a greater rate for payees than payors. But for those “lower class” franchises, spending on amateur players is the key to fielding competitive teams. And when commissioner Selig argues at the bargaining table this year that “mandatory slotting” is key to fostering greater competitive balance, he may actually be arguing for the opposite.
- Last week in the tidbits I brought attention to comments made by Mets’ executive VP for business operations Dave Howard to Newsday concerning Mets season-ticket renewals. Mr. Howard painted a relatively positive picture given…..well, you know. LWIB, a report in the NY Times painted a much bleaker picture. Evidently there has been a major personnel turnover in the Mets ticketing operations. “One person close to the team said that advance ticket sales for the 2011 season were going so poorly that a sense of panic had begun to take hold in the team’s front office.” I’m guessin the Times report is closer to the truth than Newsday’s.
- Oh those eggheads in the Red Sox front office, they’ve outwitted their competitors again! It appears that the Red Sox have found a way to circumvent MLB’s waiver rules. Red Sox P Andrew Miller is signed to a minor league deal. If Miller is placed on the big league roster this season he would have to clear waivers before he could be reassigned to a Red Sox minor league affiliate. But, if he is claimed on waivers, a $3 million option for 12 immediately vests! I’m sure Rob Manfred and Michael Weiner will get around to closing this loophole at the negotiating table later this year. Read Nathaniel Grow at the Sports Law Blog for more.
- Ed Sherman wonders what the election of Rahm Emanuel as mayor of Chicago means to the Cubs efforts to acquire public investment in a Wrigley Field renovation.
- Key to the Cubs decision to remain in Mesa AZ for spring training was that they be awarded property development rights for land adjacent to their new ballpark. The proposed development mixed use development is called “Wrigleyville West”. LWIB it was reported that the development is on hold, at least until the local economy improves. (HT Ballpark Digest)
- MiLB president Pat O’Conner must decide by May 31 if he wants to remain MiLB president. Read Josh Leventhal at Baseball America.
- Last week in the tidbits I blogged about how the battle between the Atlantic League and the Frederick Keys of the Carolina League is a prime example of the rivalry between the independent and affiliated minor leagues. LWIB it came to my attention that the Lake Erie Crushers of the independent Frontier League have been lobbying to get the same property tax break that affiliated minor league teams qualify for in OH. (HT Joel Hammond)
- It has been a tumultuous off season in independent baseball. LWIB Ballpark Digest that another independent league has sprouted up. The Southwestern States League plans to field teams in OK, TX and NM.
Pete Toms is senior writer 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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