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.

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).

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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