Starting 9: Draft pick compensation and draft bonus pools

In this week’s Starting 9, we’re going to dive into an area that’s getting more attention right now as we bear down on the MLB draft, which begins exactly 2 weeks from today.

The subject for today is draft pick compensation and draft pools and how they influence the way teams draft and also how they make decisions outside of the draft as well. Let’s dig in!

Uno – The basics: what is a draft pool and what is draft pick compensation?

Before the 2012 draft, the draft was truly a free-for-all. That is why it is truly hard to compare drafting tendencies for a team from before that time to present. Teams had no draft pool to compete with. They could spend as much or as little as they wanted. However, the Collective Bargaining Agreement that was signed between the league and MLB players’ association before the 2012 draft changed the draft and those changes made impacts on how teams build their major league product all the way on down the minor league development system.

The basics of the draft pool are that each draft pick in the first 10 rounds has a dollar amount assigned to it. The team who has that pick is assigned that dollar amount as part of their pool. That pool is then used to sign the players drafted in the first 10 rounds, with any leftover funds being available to use toward signing players drafted between the 11th and 40th rounds.

Typically, a team with early selections will have the highest bonus pool, but compensatory picks could propel a team picking later to have a higher bonus pool, like Arizona this year, but we will explore that later.

Those compensatory picks are gained one of two ways – through what is called “competitive balance picks” and as compensation for the loss of a top free agent. We’ll get deeper into both.

Dos – Why do we have draft pools in the first place?

With the passing of George Steinbrenner in 2010, one of the strongest voices in the room when owners gathered was no longer pushing his Yankees. The Dodgers were no longer under the ownership of one man as Frank McCourt sold to a group headed by Magic Johnson. With the Red Sox already being under a group ownership system for nearly a decade, suddenly the biggest markets in the game were no longer spearheaded by one person, and the overall health and profitability of the entire game began to take priority for owners.

This aided in many moves that have occurred in the last two CBA agreements to encourage balance throughout the league financially and a more even playing field for all teams. Draft slotting forced all teams to play in the same financial playing field with players they were drafting, forcing even the richest teams into some level of spending equality.

Previously, you would often have a situation where a player wanted so much money that you knew the team that would draft him. Now, it’s not a matter of the team, it’s a matter of which teams have the slot money available to pay a player who is making fairly high demands.

Tres – What has draft pick compensation become?

Compensation for a lost free agent has been something in baseball for many years, but since 2012, some significant changes have happened.

The qualifying offer has been a major change for the game. Rather than players graded by an arbitrary system regardless of whether or not their team wanted them back, with teams able to acquire impending free agents late in the season just to get a draft pick, the new system forces a player to be on the team offering a qualifying offer for the entire season before he becomes a free agent, and the team must offer him a contract equivalent to the average of the top 125 highest-paid players in the game for one season. In the most recent offseason, that was $17.9 million.

That high figure narrows down the number of players who receive the offer, as just seven received the offer last fall in a big free agent class. Previous to this offseason, 73 qualifying offers had been extended in six seasons that it had been in use.

The other thing that came with the 2012 draft was a new addition from the most recent CBA, one that brought an attempt to level the playing field even further. The competitive balance picks come in after the first and second rounds, bringing in the teams who fall at the bottom of revenue and market size each year. The teams are selected for the entirety for the current CBA, only losing their perspective pick if they exceed the luxury tax.

The teams who get competitive balance picks rotate during the current CBA, with a group getting picks between the first and second round in one season and the next season between the second and third round, and so on and so forth. The one major thing about these picks is that they can be traded.

Cuatro – So how are these affecting the international signing pool?

One of the big changes in the 2017 CBA was that draft compensation picks and even the competitive balance picks now affected international spending.

The quick and easy one to explain is the competitive balance picks. For all those who receive a competitive balance selection, they get more than the standard $4.75 million signing bonus pool in the international market that same year. Those who are lucky enough to get a pick between the first and second round get a bump to $5.25 million and those who select between the second and third round are bumped up to $5.75 million.

In free agency, the international market comes into play, depending on where the team making the signing sits in regard to the luxury tax. Teams that exceed the luxury tax (the Red Sox and Nationals this past offseason) lose $1 million of international signing bonus pool funds for every player they sign who received a qualifying offer. For those teams who do not qualify for competitive balance picks but also don’t exceed the luxury tax, they would give up $500K if they signed a qualifying offer player. Those in the revenue-sharing group that are eligible for competitive balance picks do not give up any international funds if they sign such a player.

Cinco – Who has the biggest and smallest draft pools in 2019?

Here are the draft pools for the 2019 MLB draft, from largest to smallest, with the number of selections within the first 10 rounds in parenthesis:

Arizona $16.09M (15)
Baltimore $13.82M (11)
Kansas City $13.11M (11)
Miami $13.05M (11)
Chicago (A) $11.57M (10)
Atlanta $11.53M (11)
Texas $11.02M (11)
San Diego $10.76M (11)
Detroit $10.40M (10)
Tampa Bay $10.33M (12)
Pittsburgh $9.94M (12)
Minnesota $9.91M (11)
Cincinnati $9.53M (10)
San Francisco $8.71M (10)
Toronto $8.46M (10)
New York (N) $8.22M (10)
Los Angeles (N) $8.07M (11)
Los Angeles (A) $7.61M (10)
Seattle $7.56M (11)
New York (A) $7.46M (11)
Colorado $7.09M (11)
St. Louis $6.90M (10)
Philadelphia $6.48M (9)
Cleveland $6.15M (10)
Washington $5.98M (9)
Chicago (N) $5.83M (10)
Oakland $5.61M (10)
Houston $5.36M (10)
Milwaukee $5.15M (9)
Boston $4.79M (10)

Seis – What does this mean for Kimbrel and Keuchel?

Because any team that would sign Craig Kimbrel or Dallas Keuchel would give up draft picks, it is very unlikely this close to the draft that any team is going to take that plunge. Most teams have been scouting and talking with players to determine their signing requirements. Many teams with two weeks left before the draft have already essentially locked themselves into a room until draft day. Many others will do such next week. They have a specific number that they are working to use, and typically part of the strategy of that draft room is putting together a list of names for each selection that would maximize every dollar of the bonus pool.

It will be very intriguing to see how the markets develop for both players in the early part of June once draft pick compensation is removed from both players.

Siete – What does a signing team give up in draft compensation?

Those teams that sign a player who rejected a qualifying offer will lose at least one draft pick (if they sign before the next season’s draft, which Kimbrel and Keuchel likely will not). The number of picks that are lost is determined by a team’s placement in the luxury tax groupings.

Those who exceed the luxury tax lose their second-highest pick and fifth-highest pick, along with $1 million from their international bonus pool. For each additional qualifying offer player signed, the team would give up the next two picks relative (3rd and 6th, then 4th and 7th, etc.).

Teams that received revenue sharing money and are eligible for the competitive balance selections give up their third-highest draft pick. Any additional players that accepted qualifying offers would cost the next pick in line (4th-highest, then 5th highest, etc.).

Finally, those teams who neither qualify for revenue sharing nor exceed the luxury tax give up the second-highest selection in the draft along with $500K in international money for their first qualifying offer player signed. The second such player would cost an additional $500K in signing bonus money and the third-highest pick.

Ocho – What does a team losing a free agent gain in compensation?

If a team receiving revenue sharing offers a qualifying offer to a player and that player rejects it, the compensation for that team depends on the size of the contract. If the player signs a contract with a total value of over $50 million, the team will receive a pick just after the first round of the draft. If the player signs a contract for less than $50 million, the team receives a compensation pick after the second competitive balance round, just before the third round of draft picks.

Those teams who are above the luxury tax threshold receive a compensation pick after the 4th round, regardless of what size contract the player signs.

The teams in the middle (don’t receive revenue sharing, don’t exceed luxury tax) receive a pick after the second round of competitive balance picks, before the third round.

Clear as mud?

Nueve – Are these pools and compensation picks going to be changed again in the 2021 CBA?

While major changes to the qualifying offer did make it significantly less appealing to teams to offer the qualifying offer with the last CBA, allowing more players to hit unencumbered free agency, to get those changes, the MLBPA had to give concessions with the qualifying offer that have proved to detract teams from signing a player who rejects the qualifying offer.

The significant international money losses have proven to be one big piece that has driven teams from jumping in with both feet after qualifying offer players. Seeing how this year’s big free agents with qualifying offers fared, many top free agents are now choosing to pursue extensions with their teams.

In just perusing the list of 2019-2020 free agents, few look to be obvious qualifying offer candidates. Here are some current potential QO players for next offseason (provided these players don’t get traded during the season):

Jose Abreu
Madison Bumgarner
Nicholas Castellanos
Gerrit Cole
Scooter Gennett (if he can really produce from July-end of the season)
Marcell Ozuna
Yasiel Puig
Anthony Rendon
Zack Wheeler

There are a few others that would be borderline candidates, but that’s a pretty small list, and a handful of that group will likely be traded in-season, making them also ineligible. Essentially, though this does hurt the players who receive the qualifying offer, it’s likely not a hill the MLBPA is going to die on going into the 2021 negotiations.

I hope you enjoyed this! Feel free to comment below with any questions you may have!!

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