The Changing MLB Draft Picture – 2020 and Beyond

I have been asked multiple times in recent days about my reaction to the decision by Major League Baseball to reduce the 2020 First-Year Player Draft (also called Rule 4 Draft) to five rounds.

Like many others, including a number of baseball operations personnel across the game, I was disappointed by the decision. The final call of five rounds rather than 10 was reportedly made by the owners, with the motivation to save an estimated $1 million per team in signing bonuses not paid for rounds 6-10.

That decision seems shortsighted, as much of that $1 million was already set to be deferred to future years via the terms of the late March agreement between MLB and the MLB Players Association. At that time, it was agreed that only the first $100,000 of any bonus would be paid this season, with the rest to come in 2021 and 2022.

(As an aside, it remains a very unfortunate reality that the union for the Major Leaguers is the recognized bargaining agent for the amateurs soon to become professionals and the minor leaguers, very few of whom are members of their constituency. As such, minor league needs over time have been traded off in favor of better terms for the MLB players.)

Even so, after some thought, I begrudgingly understand what the owners are doing. It feels to me that the greatest impact of the 2020 draft changes will be felt in the amateur ranks – impacts that MLB seems to be encouraging.

In the following, I will look at the draft-related matters from multiple angles.

High school and college players forced to adjust

The March agreement also stipulated that no non-drafted free agent could receive more than $20,000 in signing bonus. Combined with the shortened draft, this sends a clear signal to high schoolers not in the very top tier of talent as well as college juniors and seniors to remain in school.

With an extra year of eligibility, college upperclassmen may choose to ride out the 2020 storm and see what the MLB draft landscape looks like in 2021. Those questions have yet to be answered, but some think a 20-round draft (down from 40 in 2019, but up from five in 2020) is possible.

Another potential for next year is lower slot values, however. Remember that MLB revenue may not totally rebound in 2021 and teams will be carrying the 2021 and 2022 liability for deferred draft bonuses from 2020.

These factors make waiting less of a sure thing for players than if the draft rules were known and consistent from year to year.

But it is not going to be as easy to find and/or hold a spot on a collegiate roster, either.

With high schoolers coming in to join all the collegians remaining in 2021, the pressure for the pieces of the very limited college scholarship pie will increase. Some may get pushed out.

An expected major beneficiary of MLB’s 2020 decision is junior colleges. The reason is that Juco players do not have to wait until their junior season to become draft eligible, as is the case with those at four-year schools. This makes the Juco route more appealing for high schoolers, who like the college juniors and seniors can keep their options open for 2021.

How big is the impact to Minor League Baseball?

The five-round draft in 2020 will include 160 selections, down from the 1,217 taken last June. Obviously, this is a major reduction in MLB’s player development pipeline, and that hurts.

However, stepping back, it just brings the apparently inevitable pain sooner. The reality of minor league contraction, with 40 teams slated to lose their affiliation next season, is that anywhere from 1,000 to 1,400 minor league jobs will be lost starting in 2021. That train seems to be rolling down the tracks with little to stop it.

Couple that with the fact that it appears highly unlikely that there will be a 2020 minor league season in which the newly-drafted players can compete, and a shorter 2020 draft may be a bit easier to swallow.

Why sign 1,200 new players now, when about that many already in the systems will have to be released within the next 12 months, anyway? In the interim, there will be limited additional opportunity to evaluate the players already under contract.

It is also important to not lose sight of the fact that with the exception of high schoolers who attend a four-year college, every individual eligible for the 2020 draft who does not sign will again be in the 2021 draft pool. May there be more competition next year? Sure, but there also may be four times as many players drafted in 2021 than in 2020 (20 rounds vs. five).

We don’t have to like it, but looking at it from a pure numbers perspective in the context of multiple factors occurring concurrently, it can be better understood.

Modified proposal rejected

As mentioned above, the draft changes agreed to in March are governing the 2020 proceedings. But just as the case for the Major Leaguers, MLB came back and tried to negotiate even more favorable financial terms later.

In their defense, back in March, it was still not totally clear if games could be played in front of fans in 2021. Since then, MLB teams have a better feel for the depth of revenue to be lost this season.

To that end, MLB approached the union with a proposal that would save the owners additional money. There could be a 10-round draft, but with new limitations. The slot amounts for rounds 6-10 would be halved and the $20,000 per free agent maximum would be restricted to just five players per organization. All others signed would receive just $5,000 or less.

The MLBPA shot down this proposal, which left MLB’s only path to save further money on the 2020 draft to cut it to five rounds. So, that is what they did.

In-draft flexibility limited

Looking at the 2020 draft as we now know it, teams will feel great pressure to ensure they players they draft will be signable at whatever pre-determined amount it will take.

There seems little doubt that player and advisor/agent behavior will remain the same in at least one key area. The best players will ask for more than the designated money allocated for their slot. However, it will be more difficult than ever for teams to comply.

Organizations have lost significant prior flexibility to overspend. In the past, they could exceed the total budget by five percent and not be penalized significantly. However, they cannot overspend by one dime in 2020.

That means the fourth and fifth rounders could end up being value picks, meaning they may not be the most talented players remaining on the board. Instead, they would be the most talented ones willing to take less than their slot values. That frees up money for the top picks.

Remember that the gap between fifth-round money and free agent money has never been so huge. The Cardinals’ fifth-round slot is worth $350,300 versus the maximum $20,000 the player could be offered if not drafted. Previously, there was no ceiling on bonuses for free agents.

Finding an edge

I suspect this shift in behavior – pushing more players either to school or to stay in school longer – is exactly what MLB would like to see – more of the investment in player development shifted from themselves to the colleges.

The fewer rounds and lower signing bonuses represent a continuation of MLB behavior we have seen in the past – enacting self-imposed rules to protect themselves from themselves by forcing more restrictive actions by all 30 teams.

However, the enacting of tightened restrictions does not mean that astute organizations will still not be looking for a competitive edge.

With every non-drafted player limited to the same $20,000 maximum, how does an organization differentiate itself from the other 29?

As we saw in 2019, the Toronto Blue Jays broke ranks with the others and increased minor league salaries voluntarily. For 2020, the Chicago Cubs and San Francisco Giants decided not to wait for the others to increase salaries in 2021. Instead, these two organizations had decided to implement next year’s pay increases this season.

Further, the Giants broke new ground by offering housing allowances to minor leaguers at Class A and below. In today’s world, these players make such low wages that many stay for the summer with local families in what amounts to organized charity.

All else equal, why wouldn’t a free agent join an organization that offers better pay and benefits?

In summary

Everyone would have preferred a normal baseball season and a normal draft in 2020. That is obviously not going to happen. While this year’s draft has received a haircut that is unbecoming, the long-term impact may not be as substantial as it first appeared. That assumes that a new normal is established for 2021 and beyond, and the 2020 changes are in fact one-time only.

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