Thought Experiment: When is a free agent more valuable than a draft pick? | Disciples of Uecker

Disciples of Uecker

We'd like to go to the Playoffs, that would be cool.

I’ve had this running debate in my mind for the last few weeks: why is it that Michael Bourn remains unsigned? Is it the fact that he costs a signing ballclub their first round selection? Is it the fact that he was arguably not the most valuable free agent centerfielder? Is it his age? While thinking about Bourn, I believe that we can also ask similar questions of Kyle Lohse.

The reason I find these two free agency cases interesting is that I believe they reveal shortcomings in the MLB / MLB Players Associations’s most recent Collective Bargaining Agreement. Specifically, although the new CBA heavily punishes MLB clubs for spending more money to sign draft picks than allocated by slot bonuses, it also punishes teams for signing free agents that turned down arbitration offers from their previous clubs — namely, those teams need to surrender their first round pick. Now, these two policies might not appear to be related, but they are connected due to the CBA’s draft bonus policy. A team’s basic draft budget is determined by the number and types of picks that team has available — if a team loses a first round pick, they don’t simply get to keep that money in their budget. Surrendering a first round pick means surrendering precious draft budget money, and surrendering draft budget money makes it more difficult for organizations to build aggressive drafting schemes (where they might come in under budget on higher picks, and spend more later). In this regard, the new MLB policies on free agency compensation and the draft budget are linked.

Perhaps this reality explains the length of time that Bourn and Lohse have had to wait for a new contract. The disappointing aspect of this reality is that Bourn and Lohse are precisely the type of players that mid-level teams on the verge of competing for a division championship or playoff spot can sign to enhance their roster. Of course, given that many newly competitive clubs in the MLB are also smaller markets, the free agency compensation system takes away some incentive for those clubs to sign players that can help their big league club. Since small market clubs especially rely on the draft to compete, those clubs can be less-inclined to surrender draft picks to land marquee free agents.

Therefore, we can ask one type of question to analyze this situation, perhaps placing a wager of a draft pick against a free agent: when is a free agent more valuable than a draft pick?

Milwaukee Brewers and Lohse
I know that our Milwaukee Nine are going with Yovani Gallardo, as well as their gang of young starters and converted swingmen, to compete in the 2012 NL Central. However, I think we can use the scenario of the Brewers’ perceived need to sign another proven starter, and Lohse’s free agency, to address the wager of draft-pick-value versus free-agent-value. In general, we might weigh the descending value of all picks from #11 to #30 to gauge the point at which it is more beneficial for clubs to forfeit a draft pick for a free agent. In particular, the Lohse/Brewers mix gives us a specific draft pick (probably #17, unless the Mets, Mariners, Padres, Pirates, Diamondbacks, or Phillies sign a free agent that requires them to surrender a pick); from this specific draft pick, we can gauge Lohse’s big-league value against that pick. (I thought about doing the same with Bourn, but given the improving power/speed dynamic of Carlos Gomez (not to mention, his defense), I found that route less convincing for a thought experiment.

Step #1: The 17th Pick
Pick #17 has a good track record of superstars, as well as some strong regular players (and some extremely interesting replacement players, too!). Atop the list of draftees are two of the MLB’s most recent aces, including Cole Hamels and Roy Halladay. Halladay, of course, is a candidate for “greatest-pitcher-of-his-generation” status, and I suppose if Hamels keeps up his recent surge, he will be in that camp, too.

The 17th pick also has a strong return on actual MLB talent — perhaps the most important measure of a draft pick (even landing a replacement player, in some cases, can be important for organizational depth). Through the 2009 draft, 32 of 45 players drafted 17th overall made the MLB, but seven of the players that failed to make the majors were drafted between 1965 and 1982 (from 1983-2009, 22 of 27 players drafted 17th made the MLB). The verdict is out on the 2010, 2011, and 2012 picks.

According to Baseball-Reference, the MLB players drafted 17th overall accumulated more than 227 WAR, but 117.8 of that WAR was produced by Halladay, Hamels, and 1968 pick Gary Matthews. Spreading the remaining 109.8 WAR among the remaining 29 players that cracked the MLB results in an average of 3.78 WAR per MLB player. To date, the 17th pick resulted in three 25+ WAR players, four 10-to-25 WAR players, four 5-to-10 WAR players, eleven 0-to-5 WAR players, and ten replacement players.

If the Brewers were to sign Lohse, they would surrender a strong chance at drafting an MLB player. Given the last 30 years (or so) of the 17th pick, the Brewers have an 80% chance at gaining an MLB player from their first 2013 pick. Judged against all 17th picks through 2010, the Brewers have better than a 15% chance at drafting a 10 WAR player; their chance at a replacement level player is better than 22%. Perhaps their best chance is for a 0-to-5 WAR player, at nearly 25%.

Given the cost control associated with developing players, the value of potentially gaining a 10 WAR player is rather high to a small market club like the Brewers. While their odds are not likely to return a player of that caliber, the odds of returning an MLB player in general are strong enough to make the pick valuable to the Brewers.

Step #2: Kyle Lohse and WAR
Are wins above replacement more valuable to a club like the 2013 Brewers? While we can judge league replacement level, and gauge players’ performances against that level for each and every team, I gather that the value of those performances differs depending on the goals of each team. If you’ve just sold off your stars and are starting over — like the Marlins — or rebuilding in general — like, say, the Cubs — I gather that whether you’re returning a strong value on your players is less important than for teams trying to compete. After all, if portions of a team’s roster are given spots on the field and chances to simply play and develop, the goals for those players are different than performance-oriented goals. For a mid-range club such as the Brewers, or an expected contender like the Dodgers, I gather that value against replacement level is quite important. In the Dodgers’ case, if one of their stars is sidetracked with an injury, the value of their bench players is going to matter a lot more than if one of the Cubs’ youngsters is sidelined. The same goes for the Brewers — if injuries or ineffectiveness changes the orientation of the roster, the quality of the club’s depth will impact their goal to compete.

In that regard, Lohse is a 5.7 WAR player during his 2008-2012 stretch with the Cardinals. The bulk of that value is tied to his 2008, 2011, and 2012 campaigns, and his 2009 and 2010 campaigns were below replacement value (according to Baseball-Reference). Since Lohse’s value is tied specifically to one perceived area of need for the Brewers’ ballgame, gaining an average-or-better starter could be especially valuable for the Brewers. Furthermore, since the club’s core was already close to the playoffs — even after injuries and the replacement madness in 2012 — a pitcher such as Lohse could be an arm to put the Brewers over the top. Obviously, the equation is quite different if you’re looking for an ace, a staff leader, or a franchise pitcher; if you’re building a rotation from scratch, Lohse might not be your #1 choice. However, in the case of the Brewers, with a gang of young, somewhat unproven arms, the chance at another 160 IP could fortify their rotation.

Cost
Given the increased value of right-handed starters, the cost of Lohse could pose a problem for the Brewers. Here’s the real issue; given the Brewers’ notably decreased payroll in 2013 — following their inflated payroll competition attempt in 2012 — the cost of acquiring Lohse would put them beyond their financial limit. In this regard, the value obtained by Lohse (in terms of performance and playoff revenue) would be offset by his cost.

Similarly, even if the Brewers’ 17th draft pick eventually returns a replacement player (or a 0-to-5 WAR player), that performance will occur at the cost controlled level of a league minimum salary (and, if their career advances, salary arbitration). Furthermore, a drafted prospect could serve as a more useful trading chip than a veteran such as Lohse. Among 17th picks, perhaps no player other than Halladay illustrates the value of developing and controlling talent — by my count, the Blue Jays hardly spent $80 million over their 12 years of contract control. Their arbitration buyout deals expanded their reserve rights for Halladay for a reasonable price, keeping his overall cost rather low (and certainly below market value). On the open market, I gather that a pitcher such as Lohse will cost at least $24 million over 2-3 years (and, given the recent market, probably much, much more).

Conclusion
As tempting as extra wins appear, as tempting as a veteran rotation presence appears, in the case of a team like the Brewers, even investing in a pitcher such as Lohse is not a valuable scenario. First, the cost of a pitcher like Lohse can stand out of the range of even a financially responsible organization such as Milwaukee, due to market constraints. This means that even potential playoff revenue might only offset the cost of such a pitcher, rather than earn extra revenue for the club.

Secondly, the value of controlling talent through the draft remains too important for an organization such as the Brewers. It is no stretch to say that the Brewers’ 2013 draft pick might be less valuable than Lohse within the next decade; when one combines the odds that a 17th pick produces 0-to-5 WAR, less-than-0 WAR, and, flat out missing the MLB, odds are that the Brewers will not earn a more valuable player than Lohse through the draft. However, the mere chance of controlling a valuable MLB player through league minimum contracts and salary arbitration is too much for an organization like the Brewers to pass.

Between these two concluding points, I think we can find a real competitive balance problem for the MLB. If the potential value of hanging onto a draft pick that probably will produce a replacement player is a better option for a ballclub than going after a free agent that could help fortify a potentially contending roster, that indicates a truly detrimental aspect of revenue distribution and the cost of players. It seems that if the MLB wants to create an environment where clubs are punished for investing too much money in the draft, they should not punish clubs for investing in free agents (or, they should enact more central funds or other resources to make signing free agents easier). In the case of Lohse and the Brewers, we can see that (a) the Brewers’ market range excludes even a pitcher like Lohse, (b) the Brewers’ market range places an undue premium on draft picks that might not return as strong value as some free agents, and (c) the desired relationship between the value of a player (say, contributing more wins to get a club to the playoffs), his benefit (more playoff revenue), and his cost is obscured.

It should be easy for MLB clubs to assess their position (competing or contending, or not), to assess their needs and available talent (does player X fit that need?), and acquire those players. The fact that compensation policies, revenue sharing policies, and draft budget policies obscure this simple formula reveals a problem that the MLB needs to address.

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Comments

Tell us what do you think.

  1. Gman says: January 17, 2013

    Good reading. I have to admit I’m ignorant on the subject…do the compensatory picks still exist?

    • Nicholas Zettel says: January 17, 2013

      Compensatory picks exist after the first round; now, the only way a team can receive draft compensation for a free agent is if they offer them a qualifying contract (this year it was something like $13 million and change).

      So, teams that sign those free agents forfeit their first pick (unless it is in the Top 10).

      Gone are the days when a team loses their first pick and sends it to the team that lost the free agent.

      • Gman says: January 17, 2013

        So the discussed CBA elements were designed to punish big spending teams but also end up punishing well managed and competitive mid/small market teams (who don’t pick in the top ten). Really is a shame. I wonder if creating a financial penalty rather than the draft pick would be preferable? Or maybe just moving to the back of the line of the first round draft order rather than pick forfeiture.

      • Nicholas Zettel says: January 17, 2013

        Indeed, those would be better policies, I think. I feel like the CBA just wasn’t well thought out between the various parts.

  2. Matt T says: January 17, 2013

    I found this article very interesting, but it begged a question in me: are we missing something in only looking at the single pick from each year? What I mean is, you used the 17th pick for this year, but what about the 18th player drafted? He could have been a Brewer too.

    Basically I ask: do we have to include the value of not just one player, but every other player who could have potentially been drafted after that pick is used, thus enlarging the talent pool, and enlarging the value?

    • Nicholas Zettel says: January 17, 2013

      Interesting suggestion! I would love to treat this further. Would that be a worthwhile part II?

  3. Benn says: January 17, 2013

    Nice little read on the changes from this latest CBA. I have to say, everything I’ve read about the changes makes me dislike it more and more.

    Just look at the fact that the Yankees of all teams are getting two picks from the system (Swisher, Soriano). That should help the competitive balance, right?……..

    • Nicholas Zettel says: January 17, 2013

      Bingo! They can afford those qualifying offers — what”s a $13M deal for them?

  4. Jeff says: January 18, 2013

    Another thought is the WAR difference between Lohse and a free agent pitcher without a draft pick assigned to him. Marcum’s WAR over the same time frame (08-12) was 10.7 considerably better then Lohse’s WAR even missing all of 2009. Marcum would cost less financially and the signing team would still keep their draft pick. Marcum does have the injury risk but his next contract price will already take that into account.

    If you want to look at a pitcher that’s no longer available on the market but didn’t have compensation attached look at Edwin Jackson. His WAR over that period was 12.1. He also doesn’t present the injury risk that Marcum will have over the life of his next contract.

    Also the ages of these three example pitchers are 29, 31, 34… Lohse is on the wrong end of those numbers.

    • Nicholas Zettel says: January 18, 2013

      Marcum was one of my favorite pitchers in Milwaukee, but I think the organization is smart to stay away from him. I am skeptical of his health, especially given that he played through injury last year (as well as his DL stint). Jaymes also posted great research on why the Brewers might not be interested in Marcum: http://disciplesofuecker.com/brewers-shunning-shaun-marcum/7449

      Edwin Jackson is an intriguing pitcher to me. He seems like he’s better than his record shows, and it’s interesting that he’s served as this trading chip for most of his career. It will be interesting to see what he can do in Chicago for four years.

  5. Bob says: January 18, 2013

    The only draft pick compensation system tied a player to a ranking (Type A, B, etc.). It seems the new system eliminates that step, in favor of whether the team offers a qualifying offer. Is that correct?

    Assuming I understand this correctly, it is no wonder why it is a bad system for players like Lohse. Coming off a carreer best season (by a significant margin) at age 34, he is going to want more than a 1 year contract. At the same time, there probably aren’t many teams willing to give up a first round draft pick plus sign him to a deal of any significant size.

    Of course, I’m happy that the draft pick compensation eliminates him from the Brewers plans. He is exactly the type of player I don’t want the Brewers to sign. You mentioned 5.7 WAR over the past 5 seasons. His 2012 season was 3.9! I don’t see him as anything more than a league average pitcher, and I would much rather the Brewers try to get that out of our inexpensive in-house options rather than spending what it would take to get a mediocre vetran.

    • Nicholas Zettel says: January 18, 2013

      Right on, Bob, indeed you understand the new system correctly.

      Overall, I tend to agree with your final paragraph; in fact, I believe I hold the same position about the Brewers’ inexpensive in-house options, too. But, given that many Brewers fans believe that the club needs more pitching, i wanted to investigate a specific league average option — like Lohse. I think that even where a ballclub has good inexpensive, in-house options, we can still say it’s a problem if clubs like Milwaukee cannot go out and sign average players to push them further to contention.

      I guess I’m playing both sides of the fence with this experiment.

  6. Chris K says: January 19, 2013

    Good Read again. My thoughts on the new QO and draft pick compensation are that 1. The teams that it is designed to hurt the most, Yankees,RedSox,Dodgers,Angels,Phillies and any other top tier teams who are capable of buying an All-Star team, are the ones that actually benefit the most. Gone are the days where the smaller market clubs can afford to offer QOs with compensation in mind, while those teams mentioned above will easily offer them a QO with no risk of the player accepting and affecting their payroll. I see it becoming where those teams sign and lose 1st rd picks only to regain picks in compensation for losing their own QO player. The majority of these teams should compete due to the quality of team put on the field. So they are going to end up losing a 20+ pick and gain a 30-40pick. Not much of a drop off.
    2. The problem is that the QO is made up of the average of the top 125players in salary. Just taking away the top 20 and replacing them with 126-145 the QO would drop around 3mil somewhere just above 10mil. The QO of 13.3mil this year would make the player the 74th in pay in all of MLB. Do the math with 30teams that means the offer puts that player on a #2-3 in pay for a team. When you add that Teams like Yankees,Phillies,Red Sox,Phillies,Dodgers and the like have 4+ players in top 74 in pay you make the smaller market clubs having to basically offer up what would be the equivalent of either the #1 paid player or #1A for that team. These teams cannot operate with 20-25% of their payrolls or higher put in to two players. So while a player may be worthy of a QO the small market clubs may avoid giving the offer due to the restraints an acceptance of the QO puts on their payroll.
    3. In the end the small markets not only end up with less picks through compensation, but are less likely to sign QO type players as the price is too much alone, much less at loss of a draft pick. Big markets will not only gain draft picks in years helping them build their farms that normally are baren due to less picks, but they will also be signing players that can help their team, where that player’s market of who’s interested in him has dwindled down to less than handful of teams with the small markets no longer even picking up the phone to talk to them when hitting Free Agency.

    The good of the QO is that less compensation in draft picks are being dished out meaning the 2nd round will actually begin around the 35-40th pick. Whereas in prior years it’s been 45 at earliest up to 64! Imagine a top 10 team in picks due to failure picking 6th then with no compensation picks picking 70th?! Meanwhile some teams have had 4 or 5 compensation picks whom finished better than you and gained picks by losing b/c arby players who declined the team’s offer.

    I feel like there should be a much easier way of doing the draft then what has been done. It amazes me how draft picks have been handled over the years.

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