Rule 4 Draft Overview: Past and Present

With the Rule 4 Draft (so called because the amateur draft is detailed in the CBA as Rule 4), or as it is also called, the MLB First-Year Player Draft, rapidly approaching (June 7-9), I thought that it would be topical to go over exactly where the draft has been, where it is now, and where it's going. For that last point, I'll need a separate column, but the first two will be covered here.

A lot of this has already been covered in my post on the draft last year, but I'll add in a few new wrinkles I promise.

Draft History

In baseball's early years, young amateur players were in essence free agents straight out of high school. They were able to sign with any team that offered them a contract (whereupon they were stuck in the equivalent of indentured servitude to that club). As a result, the big market, wealthy teams like the Yankees and Cardinals had an enormous advantage over their smaller payroll brethren in stockpiling free agents (sound familiar?), which in that era consisted almost wholly of young talent. This is largely how the Yankees won so many early World Series--they had the best young and old talent. Obviously, the system did not lend itself well to parity.

Amid accusations of communism, MLB attempted to increase league parity by instituting the Bonus Rule in 1947. The Bonus Rule was basically a restriction on teams sending their young talent to the minors. From Wikipedia:

The rule stipulated that when a Major league team signed a player to a contract in excess of $4,000, the Major League team was required to keep that player on the 40-man roster for two full-seasons. Any team that failed to comply with the rule lost the rights to that player's contract. The player was then exposed to the waiver wire. If the player did remain with the team for a full two-seasons, the team could then send that player down to the farm teams without repercussions.

This rule created some interesting situations for teams, who were forced to keep kids straight out of high school on their major league roster for two seasons. This worked out quite well for a few players (they were called 'Bonus Babies'), like Al Kaline and Sandy Koufax, who never went to the minors. On the whole, though, it was a rule that forced teams to carry raw players that weighed down the roster in order to develop stars later.

Teams like the Yankees already had the talent but didn't want to use roster slots on these players, so they often in essence paid other teams to stash the players on their roster, then after the two years were up, traded for them. Such was the case with the Kansas City A's and Clete Boyer. In addition, teams were rumored to be feeding their prospects big bonuses under the table--in general, they were circumventing the bonus rule any way they knew how.

As a result, MLB instituted the amateur draft in 1965. However, it was hardly in the form it is in now. In fact there were three separate drafts in 1965: the June draft (for graduating high school and college players), the January draft (for those players graduating in winter), and the August draft (for players participating in amateur summer leagues like Legion ball). Of course, this was an incredibly complicated and cumbersome system. The August draft was only held a few years, though the January draft continued until 1986. After that time, the Rule 4 Draft has existed solely as the June First Year Player Draft.

Join me after the jump to find out how the Rule 4 Draft works now...

Draft Format

 The major differentiator between MLB's Rule 4 Draft and those of the NBA and NFL is not only that its draftees won't produce value for their teams for years if at all, but also the sheer scope of the draft--with 50 rounds and 1453 selections in the 2007 draft for instance.

As has been well documented, the vast majority of these players never even sniff The Show--even those in the top few rounds are hit and miss for even appearing the big leagues. Unlike basketball or football, baseball's complex disciplines require more than raw athleticism to perfect. As a result, baseball draft picks often must develop for several years in the minor leagues, refining these disciplines until they are ready for The Show. Another major difference between these drafts is that MLB clubs are not permitted to trade a draft pick--they are stuck in that slot and can't trade it away.

The way I see it: the baseball draft involves a lot more strategic, long-term planning while drafting in sports like basketball and football use more tactical, short-term planning. With few exceptions, even the top prospects won't be ready for years, so teams have to project their big league roster 4-6 years in advance, plugging holes that don't even exist yet. To be fair, they have approximately 200 roster spots to work with (otherwise where would they put all the players that they drafted), but it certainly is a demanding job.

This is basically how the draft works (theoretically): all 30 MLB teams select players in reverse order of won-lost records from the previous season--much like waiver rules, but in this case without any regard toward league membership. If two or more clubs finished with identical records in the previous season, the earlier draft pick is awarded to the team that finished with the worst record two seasons ago.

However, this order can be altered by compensation picks in two ways: 1) for losing a free agent (Type A or B) to another club or 2) for failing to sign a player selected in the previous year’s draft's first three rounds. I'll discuss these situations below. 

Here is the order for next week's 2010 Rule 4 draft. As stated above, there are 50 rounds in the draft, plus an additional two "sandwich" rounds between the 1st and 2nd rounds and the 3rd and 4th rounds which consist of free agent compensatory picks. 

Draft Order Alterations

The gist of the free agency draft pick compensation rule, which I wrote about in considerable detail last year, is that if a club loses a top-performing player to free agency in a given year, during the next year's draft they will receive a compensatory pick and often the other club's first rounder (so long as the signing club was one of the top half of teams in W-L record in the previous year--otherwise the team receives the signing team's second rounder). There are exceptions to this (explained in the linked primer above) and it is a little complicated, but those are the basics. In terms of this year's draft, the Angels lost John Lackey, a Type A free agent, to the Red Sox and in return received their first round pick (29) as well as a compensatory "sandwich round" pick (37).

Why is the Angels' first round compensation pick 29 and not 28 (the Red Sox finished with the 3rd best record last year)? For that matter, why is the first round of the draft 32 picks instead of 30? This is where signability comes into play. The reason that there are 32 picks this year in the first round is due to the second form of draft order alteration--not signing players. Last year, the Rangers failed to sign pitcher Matt Purke, who they drafted with the 14th pick, and the Rays failed to sign outfielder LeVon Washington with the 30th pick. This means that there are two extra first round picks this year in the Rule 4 Draft. 

Basically, the rule is that if a team does not sign its pick in the first two rounds (including the supplemental round between the two), it receives a compensatory selection in the following year's Rule 4 Draft that is one pick after the slot of the player who did not sign. As a result, the Rangers have the 15th pick in the draft as their compensation for not signing Purke while the Rays have the 31st pick as compensation. In addition, if a team does not sign its third-round selection, it receives a compensatory selection in a supplemental round between the third and fourth rounds in the following year's draft.

Draft Eligibility

A player is eligible for the MLB Rule 4 Draft if he meets these criteria:

Signing Draft Picks

So you've picked a large number of eligible players in the Rule 4 Draft...time to get them signed! The regulations on this are pretty minimal--though MLB does suggest a dollar amount slot that a certain number pick should sign for. However, agents like Scott Boras advise their clients to hold out for much more than the recommended slot money--and since MLB doesn't strictly require this, teams (particularly the Yankees) are obliging these prospects' demands.

In fact, due to their increasing demands, teams are now often drafting as much for signability as they are for projectability. The end result is that large-market teams can get elite prospects to fall to them at lower picks due to their demands, which they meet--enabling a quick reload of their farm systems. Of course, in recent years teams seem to be coming around to the realization that by paying more to get an elite prospect they will ultimately save money as the elite prospect's higher probability of MLB success outweighs the expense of an extra million dollars. Hopefully Tyler Matzek is well on his well toward stardom for the Rockies, more than justifying his above-slot $4.3 million bonus. I'll write much more about this concept next week.

Sometimes to up the ante or to avoid paying top prospects obscene bonuses teams will sign their best draft picks (like Stephen Strasburg) to a major league contract, guaranteeing a higher salary and quick advancement through the minors. Does this policy always work? Of course not--the unpredictability of prospects is severe.

The team's obligation to their draftees is simply that they have to offer them a minor league contract within 15 days of the draft. Also, once a player is signed he may not be traded for a year. A team has until August 15th to negotiate exclusively with a drafted player and come to an agreement.

The notable exception to this requirement is college seniors, who may sign at any time during the year until the next draft, whereupon they become ineligible for the draft. The team holds a college senior's rights for five years, so they have little recourse but to accept the club's offer. This is why players will often opt to go pro after their junior year of college--they have a much stronger bargaining position and on average lose at least half their projected signing bonus if they wait until their senior year due to their lack of negotiating leverage.

For those players who are not college seniors, once August 15th rolls around their rights are no longer possessed by their drafting team and they usually go to college or to an independent league team like Hochevar did. They are then eligible for the next draft provided they still meet eligibility requirements--which is not the case for high school players that attend a four year college instead of signing with a team. For those eligible players, their rights are again up for grabs during the next year--though the same team can't draft them again without the player's written consent.

That's basically how the Rule 4 Draft works now (and I'd better end because I'm over 2000 words). Next week I'll explore the historical value of picks (HS vs. College, position player vs. pitcher, etc.) and the future of the draft.

Sources and Additional Reading

These articles are highly recommended for those interested in finding out more about the draft process.

Bonus Rule: courtesy of Wikipedia

Draft History: Wikipedia

First Year Player Draft: Jeff Euston