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MLB Transactions Part Six: The Rule 4 Draft

This session of Purple Row Academy, as promised in last week's edition, will be focused on the Rule 4 Draft. However, I will postpone my Rule 5 Draft article until two weeks from now, as I'll be on vacation next week, far, far away from the internet. In other words, this is looking like an eight part MLB transactions series. But enough digression--let's take a look at 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.

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 to.

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...

Draft Format

 The major differentiator between MLB's Rule 4 Draft and those of the NBA and NHL 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 and similar numbers last year.

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.

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.

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

I'll talk more about free agency compensatory picks in my free agency column, but the gist of the rule 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. There are exceptions to this and it is a little complicated, but those are the basics. Brian Fuentes is an example of a free agent who the Rockies lost that netted the team both a compensatory "sandwich round" pick and the Angels' 32nd overall pick.

Why is the Rockies' compensation pick 32 and not 30? After all, the Angels had the best regular season record in MLB and were slotted to pick last in the first round, so by rule they should be 30, right? Not exactly. This is where signability comes into play. The reason that there are 32 picks next year in the first round is due to the second form of draft order alteration--not signing players. Last year, the Nationals failed to sign pitcher Aaron Crow, who they drafted with the ninth pick, and the Yankees failed to sign pitcher Gerrit Cole with the 27th 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 Nationals have the tenth pick in the draft as their compensation for not signing Crow while the Yankees have the 28th 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:

  • Residents of the U.S., Canada, Puerto Rico and any other U.S. territories who have not previously signed minor- or major-league contracts. Notice that players may have played professionally to be drafted, just with independent leagues. 2006 first overall pick Luke Hochevar is an example of such a player.
  • Non-residents attending high school or college in the United States.
  • Previous draftees who did not sign contracts, chose to enroll in four-year colleges and subsequently completed their junior year in college or turned 21 years old. An exception to this rule is that Division III players may be drafted before their junior year. In addition, Junior College (2 year) or Community College players may be drafted at any time.
  • All other foreign-born players are ineligible--they have a separate set of criteria. In a future session of PR Academy I will explore the signing and developmental process of foreign, non-draft eligible players.
  •  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. Sometimes to up the ante or to avoid paying top prospects obscene bonuses teams will sign their best draft picks (like Matt Wieters) 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. At the bottom of the article I've linked to articles from Baseball America and Baseball Prospectus that analyze draft bonuses and draft prospect success rates (high school and college) respectively if you want to know more about this.

    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--there is plenty of analysis that could be done (and perhaps will be done) on this topic, but until that happens, make sure to check out Russ's draft profiles and follow our draft picks' progress through in-season Pebble Reports.

    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

    Evolution of the Bonus Record: Baseball America (as of 2005)

    Doctoring the Numbers (HS vs. College): Baseball Prospectus (2005)

    2009 Draft Order, Russ