The Cost of a Draft Pick is Probably Greater Than You Think

Dan Szymborski, the creator of ZiPS, took a look at the cost of the qualifying offer to free agents like Kendrys Morales and Stephen Drew. Szymborski looked at the values of draft picks based on his studies on the topic in the past, and came up with the numbers that losing a first round pick to sign a player would be the equivalent of losing about $23 M in future value.

What this means for guys like Morales and Drew is that declining the qualifying offers has basically killed their markets. Szymborski uses ZiPS projections to say what players would be worth on the open market, without compensation. He comes up with a two year, $20 M deal for Stephen Drew, and a two year, $24 M deal for Kendrys Morales. However, when you add in compensation, Drew would only be worth a two year, $3 M deal, and Morales would only be worth a two year, $1 M deal.

It’s unlikely that any player would take this kind of drastic pay cut, especially when these guys turned down a one year, $14.1 M offer. ┬áThe only player who projects to be worth anything close to the original qualifying offer is Ubaldo Jimenez. Szymborski says that Jimenez would have been worth four years and $75 M without compensation, and is worth four years and $52 M with compensation. Each player is worth a bigger contract for teams who give up a second round pick, since a second round pick comes with lower compensation value. However, the Pirates would be giving up a first round pick, which puts them at a disadvantage over other teams.

The problem with the team is that they are being penalized for signing the player, and the penalty comes with a real loss in value. Because they’re losing value, they won’t want to pay as much to the player. So you’ve got the team wanting a discount from the player, due to a cost that they’re having to pay for signing the player. Meanwhile, the player doesn’t want to give a discount, since the loss of a draft pick doesn’t compensate him in any way.

This all made a little more sense when the former team used to get the draft pick that was forfeited, along with a compensation pick between rounds. Now the first round pick is just forfeited, which makes no sense. The only benefit here is that it drives down the price of players who might be worth signing if they didn’t have any draft pick compensation attached.

Tim Williams

Author: Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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  • https://www.facebook.com/robert.a.bishop.39 Robert A Bishop

    It is a link to an Insider article which majority of readers don’t subcribe to.. Does Dan state that its an average value of a first round pick or specifically a late pick in the first round?

    • http://www.facebook.com/lee.young.161 leefoo

      You might just have to subscribe? Tim W is probably not allowed to mention anything more than what he has.

      I am an ESPN INsider, but I know EYE am not going to answer your question.

      Sorry

  • honusty

    It also seems to benefit large market/high revenues teams who can sign multiple FAs where the marginal cost of the draft pick declines (and such teams that have high picks which are protected). Additionally, these teams can extend qualifying offers without blinking.

  • Andrew

    A late first round draft pick is worth 4.0 current WAR on the free agent market? I am not an insider, but that price seems farcically high, did Szymborski, do any discounting or take into account the cost of signing the pick?

    There was a piece that covered draft slot value around the time of the new CBA and it found that the Pirates pick was valued at $6.5 million in 2011. Even if you assume teams are valuing picks 10% more by year (a highly questionable assumption) that comes to $8.7 million in 2014.

    http://www.fangraphs.com/blogs/an-early-look-at-the-price-of-a-win-this-off-season/

    • gregenstein

      I don’t think he meant a “4.0 WAR per year player”; he quite literally meant 4 WAR. That could mean Starling Marte’s rookie year, which you seem to have interpreted it to mean.

      More likely, it means something like 4 career WAR, which means giving up the opportunity to have Garrett Jones (or someone like him) for 5-ish years.

      • Andrew

        Yes but that 4 WAR comes in the future, teams value current war higher than future WAR. I do have access to his to the article but that valuation is out of line with anything else I have seen.

  • http://hiddenvigorish.com Hidden Vigorish

    These numbers don’t make sense to me. Everything I’ve read on this subject indicate late first round picks to have average surplus values of around $7 million. http://www.mlbdailydish.com/2013/2/3/3947224/draft-pick-values-and-unintended-consequences

    • http://www.facebook.com/lee.young.161 leefoo

      Hidden….is it possible that the “average surplus values” you are talking about (Silver’s article is from 2005, Wang’s from 2009) have gone up in value?

  • http://hiddenvigorish.com Hidden Vigorish

    Foo, the link I posted was from 2013 and inflation is added to the work done by the original authors. If you go back to Silver’s work in 2005 he came up with a valuation of $3.95M for picks 26 and later. Are we really to believe that the value has risen 500% for late 1st round picks?

  • tbart213

    So…we should have made the qualifying offer to AJ

    • Bridgevillebuc

      One of two things happen….

      a) AJ signs for 14.1 M (which is more the Pirates would want to pay)
      b) The Phillies wouldn’t have signed him if a draft pick is forfeited

      • Y2JGQ2

        Either way- do we really want AJ pitching against us? Probably not. Can we afford the 14million? After not getting a first baseman, yes. If AJ declines and nobody signs him, we still win because he’s not pitching for someone else and he has to just go ahead and retire- boohoo. F him.

        We chose the option with very little potential gain, and a lot of downside risk. We lost. The only plus we have now, is that knowing that with the Phillies, he will likely be the 4.50-5.00 ERA pitcher, and at that price, is going to sit on that team all year and not go to the playoffs or get traded to a team he has no interest in playing for where he will be sour and cancerous. Good for him. Cash your last paycheck and get a few dozen more tattoos AJ.