Tuesday, August 18, 2009

MLB Signing Bonuses

I haven't found much reason to write about major league baseball recently, but this piece by Jayson Stark about the MLB draft really irks me:

Draft in desperate need of repair

Stephen Strasburg just signed for $15 million - not $50 million - and yet Stark quotes an AL exec: "That's still a gigantic amount of money. Don't kid yourself."

Except it's not. Not in baseball. Carl Pavano pitched 26 games over four seasons and made $38 million. Carlos Silva's in the second year of a 5-year, $60 million contract. His ERAs since he signed: 6.46 and 8.48. That puts the price of a pitcher who has proven himself incapable of getting hitters out or staying healthy at the major-league level is $10-$12 million per season. The Washington Nationals will control Stephen Strasburg for three major-league seasons for barely $16 million, a vast discount over his real value. Top picks bring great value - Justin Upton has cost the Arizona Diamondbacks just over $7 million, but his production will be worth $20 million by season's end.

And Stark wants you to know that he's not just shilling for management: "It's because players want it...big league players want those $15 million deals going to them, not to kids who have never played a professional baseball game."

Of course veteran players want more money - they got robbed of their signing bonuses and were paid at a discount for their first 3-6 seasons. Now they want as big a piece of the pie as possible. But that's not a good reason for Stark to want to squeeze amateur players. Would Stark want anybody to take a 50% or 75% discount in any other career? I think not.

Well Pavano and Silva signed those deals in a much diffrent economic time and Pavano's injuries weren't that big a concern at the time.

However MLB rookie caps need to come or just plain change the slotting system to not allow the wiggle room.

I understand teams still piss money away on stupid FA's, but at least theres some certainty in those moves, when drafting the money paid is enormous for the uncertainty. Especially with the huge fail rate of baseball 1st round picks, from MLB's Jordan Bastian:

"I just had a look at the top 3 picks for the 20 years 1985 to 2004, far enough back that top picks should have made their mark in the majors. Six of the 20 first round picks have played less than 25 games in the majors, and the rate is higher for the second and third round, a failure rate of about 33% in the top 3 picks! The failure rate for the entire first round is 50-60%.
Given the millions paid out in signing bonuses to the top 3 picks, and the fact that about 1/3 of it goes down the drain, it's no wonder that baseball wants to reduce the slot money."
Let's put some numbers on that. Using 1989-2007, the #1 pick produced 4.8 WAR over his first three seasons. That's worth $19 million in today's dollars. Even if we discount it at 7% per year, it's still worth $14 million. On the other hand, the #1 picks were paid $5-$10 million over the same time - average discount rate is 50%. These are pretty approximate estimates, but there's no doubt amateurs are underpaid in the draft.
That sample though includes legendary talent like Griffey and Arod, use from 2000 on and tell me the WAR.

Also I'm not doubting the potential and their equivalent pay, I'm not doubting the certainty level they will reach that level which is very high throughout the first round.

I'd like to see a WAR analysis on the top 5 or first round in general.
Actually, that starts the year after Griffey. There are plenty of quantitative analyses of this issue. Teams get a substantial discount, particularly on #1 picks.
The #1 pick I can see, but is it a discount on the rest of the picks when you factor in the years they are in the minors?

I can see how this ia aided by the number of cheap years a MLB team has, for the top 5 picks this how I see it, if you hit you get a big bargain, if you miss its killer and I mean financial wise, not from an organazational standpoint.
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