At The Cardinal Nation’s free forum, I was asked about the financial implications to owners of the reduced 2020 First-Year Player Draft. I have decided to share my quick analysis here, as well.
Assumptions
MLB clubs spend an estimated $400 million annually on the draft, according to Ronald Blum of the AP.
Slot values for the first five rounds in 2019 totaled approximately $238 million. 167 players were taken, which included compensatory selections.
According to reports, the 2020 draft may be limited to five rounds (at the discretion of the commissioner) and slot values for both 2020 and 2021 will be held constant from 2019. Same as in 2019, there are 167 slots in rounds 1-5 in 2020.
2020 signing bonus payments will be distributed by this formula: No more than $100,000 per player in 2020 and 50 percent of the remainder in both 2021 and 2022.
Other reports suggest that signings of all undrafted amateur free agents this year will be capped at $20,000 each, making these relatively insignificant to the overall financial equation. The desired effect seems to be to encourage most amateurs to remain in school another year.
Though not crucial to this article, the draft may be moved to as late as the end of July.
The math
Out of pocket draft spend for the 30 MLB clubs in 2020 would be capped at $16.7 million (167 draftees times $100K maximum each) for the five rounds planned.
Just by shortening the draft to five rounds, savings to the 30 MLB clubs in 2020 could be approximately $162 million ($400-$238 MM).
However, added to that $162 million would be the further savings gained by the time deferrals of 2020 bonuses into 2021 and 2022. Each of those years would include at least $111 million of additional expense to cover the deferrals ($238-$16.7 MM divided by two).
However, because the 2021 draft (and future drafts to be governed by the next CBA), will be limited in rounds, as well, the extra $111 million needed in the each of the next two years to complete bonus payments for 2020 draftees may easily be offset by less spending in those upcoming to-be truncated drafts, anyway.
This new agreement allows the commissioner to reduce the 2021 draft to as few as 20 rounds. 2022 will be governed by the terms of the next CBA, with those rules to be determined. But one can reasonably assume that the 40-round draft is gone forever.
Conclusions
With revenues down in 2020, it only makes sense for MLB to prudently reduce expense, as well.
However, the players at the bottom of the experience totem pole appear to be taking a greater financial hit than the MLB veterans. This is not surprising, as the MLB Players Association likely focused on service time and 40-man roster compensation matters at the bargaining table, while minor leaguers and amateurs have no representation whatsoever.
Further, the reduction of 35 new recruits into each of the 30 farm systems this year plays well into MLB’s stated intent to eliminate affiliations with 42 minor league clubs starting next season. Simply put, fewer teams will require fewer players. Don’t add as many now and there will not be as many to release by 2021.
(Note that although not the focus of this article, another ramification of the expected changes is a delay to the start of the 2021-2022 international signing period from July 2nd to January 1. That could shift at least another $100-$150 million of expense out of 2020.)
Bonus for members of The Cardinal Nation
Now Available! – TCN’s New 2020 Prospect Guide
232 pages, 97,000 words, over 60 player capsules, history and much more – in both PDF and spiral-bound book versions. Foreword by Dan McLaughlin. Order your copy today!
Brian Walton can be reached via email at brian@thecardinalnation.com or for fastest turnaround, pose your questions on The Cardinal Nation’s members-only forum. Follow Brian on Twitter.
© 2020 The Cardinal Nation, thecardinalnation.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.