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MLB Transactions Part Seven: The Rule 5 Draft

In this penultimate article in my series on MLB Transactions for Purple Row Academy, I'll be tackling the intricacies and machinations of the Rule 5 Draft. It is called the Rule 5 (not V!) Draft because Rule 5 of the CBA details the procedures of this mechanism. It's actually not as complicated as many have made it out to be.

As I explained in the Rule 4 session of PR Academy, there was no amateur draft until the 1965 season. The draft was implemented in order to attempt to keep a relative talent parity in the farm systems of all MLB teams. The Rule 5 Draft has actually been in existence since 1959, originally as an extension of the Bonus Rule. Basically, the Rule 5 Draft is an extension of this talent parity aim by MLB, looking to bar teams from stashing too much MLB-ready talent on their minor league clubs while other MLB clubs would be playing them in the majors. This draft forces teams to prioritize their prospects and protect only a limited amount of them from Rule 5 draft consideration.

Rule 5 Draft Protection and Eligibility

It is held during the December Winter Meetings--teams have until November 20th to finalize their protected players lists (in other words, their 40 man rosters). Between November 20 and the Rule 5 draft, a club may add Major League free agents to its 40-man roster but may not add any player from its minor league reserve lists.
 For more on 40 man roster construction, see my previous PR Academy article on the subject. Here's what is relevant for the Rule 5 Draft.

Long story short: a club has 5 years to evaluate a player who signs his first pro contract at 18 years old or younger (from the June 5th preceding signing his contract), but only 4 years to decide on a player who signs at age 19 or above. Those prospects who are not placed on the 40 man roster that meet these requirements are eligible for the Rule 5 Draft. As a result, teams must place their most valuable prospects on the 40 man roster. 

This year, the Rockies protected prospects such as Dexter Fowler, Hector Gomez, EY2, Chris Nelson, Samuel Deduno, Shane Lindsay, Ryan Mattheus, and Esmil Rogers from the Rule 5 draft. 

 Rule 5 Draft Process

The Rule 5 Draft is split into three phases: Major League, AAA, and AA.

In the Major League phase, much like the Rule 4 Draft, teams draft in reverse W-L order irrespective of league affiliation--and it must be noted that only teams with open slots on their 40 man roster may take part in the Rule 5 Draft. Clubs draft eligible players off 38 man Triple-A reserve lists (those prospects that are valued as potential major leaguers but who are left unprotected off the 40 man roster).

Players selected in the major league phase of the draft cost $50,000 each and must remain on the selecting team's 25 man active roster for the entire season or else the selecting team must put him on waivers. If a third club claims the player on waivers, the third club also must keep him in the majors all season. This is what happened in the case of Johan Santana, who was drafted by the Marlins from the Astros then sent to the Twins. If the player clears waivers, he must be offered back to his original club for $25,000.

In addition, the player must be active (in other words, not on the DL) for at least 90 days in-season--and if he fails to meet this requirement in the first year, he will remain subject to Rule 5 rules until he has completed this 90 day requirement. A drafting club may work out a trade with the player’s original club so that the drafting club can keep him and send him to the minor leagues.

If a player does stay on the selecting team's roster the entire year, he will be able to be optioned to the minors or DFA'd as a normal player would.

The AAA and AA Minor League phases are far more simplified, as teams may draft any player not protected by either the 40 man roster or the 38 man AAA reserve list (AAA phase) and the 37 man AA reserve list (AA phase). These prospects can be purchased at the cost of $12,000 and $4,000 respectively, and are not subject to the restrictions of the Rule 5 Draft's major league phase. As Baseball America's Chris Kline writes:

Roughly 400 players are eligible to be drafted in the minor league phase, and clubs had targeted several players. And just like the major league portion, expect teams to focus on trying to beef up their systems on the mound and behind the plate.

"It's a cheap and easy way to improve the depth of your farm system," a scout from an American League club said. "It's rare to get a position player (in the minor league phase) who becomes an impact player, but you'll see clubs trying to buy arms in bulk and hoping to find more depth at catcher." 

In other words, Minor League phase draft picks usually are aimed towards filling in minor league depth and often have no major league connotations. AAA phase pick Scott Podsednik is an example of an exception to this rule, however.

Join me after the jump for this session's exciting conclusion... 

Rule 5 Draft Risks and Rewards

Beyond the obvious fact that the Rule 5 Draft redistributes the prospects of a prospect rich team to a prospect needy team (Everth Cabrera to the Padres certainly qualifies), there are many potential superstars to be found in MLB clubs' 38 man AAA reserve lists (such as previous Rule 5 picks Roberto Clemente, Johan Santana, Josh Hamilton, Joakim Soria, and Dan Uggla). This fact makes the Rule 5 draft one of the only ways to get a developed player on the cheap--a player that, if he sticks with the big club, can provide major dividends down the road.

However, a team is assuming a considerable amount of risk by selecting a player in the Rule 5 draft--those 25 man roster spots are valuable, the player's arbitration clock is starting, and he's going to cost teams at least $25,000 to acquire him (and that's if they send him back, as the Mets did last year with Steven Register)--and if they do keep him, it's an extra $400,000 major league salary commitment. Probably the biggest risk factor inherent to a Rule 5 player is the active roster commitment--typically that player is not going to create much positive contribution for the team, taking the roster spot of a more immediately productive player. As a result, those teams in playoff contention are often loath to use a roster spot on essentially a zero contributor. This reason is why most Rule 5 picks that remain on teams' all year are selected by teams (like the Padres with Cabrera) who are in a rebuilding year anyway and can afford to give such a player a roster spot. In addition, the majority of Rule 5 picks end up washing out and never contributing anything of value to either party, making the Rule 5 draft a very risky proposition indeed. 

And there you have it, the Rule 5 draft--and in record brevity too! For past results of Rule 5 Drafts, see the link provided below. I'd like to take this opportunity to welcome any and all suggestions for future Purple Row Academy sessions. The regular season is quickly approaching, and I'd like to know what aspects of baseball (literally any area of it) Rowbots want to learn about after I finish the MLB Transactions section next week. After all, I aim to please.

Sources and Additional Reading

These sources are highly recommended as sources of further information about the Rule 5 Draft:

40 Man Roster Construction, previous PR Academy session

Rule 5 Draft, Courtesy of Jeff Euston

Rule 5 Machinations, Courtesy of Chris Kline, Baseball America

Rule 5 History and Notable Players, Courtesy of Wikipedia

Rule 5 Draft Results, Wikipedia

History of Rule 4 and 5 Drafts, Courtesy of Allan Simpson, Baseball America. Not utilized in the article, but of great interest to baseball historians. I would highly recommend checking it out.