OFP and Minor League Pay

Throughout the offseason, I have worked on analysis techniques that place minor league players and MLB players on similar WARP-based monetized scales. This task is important because it helps to iron out some of the necessary wrinkles in assessing trades that involve minor league returns for MLB players, and it also helps to quantify the value of each organization’s assets (so that one might be able to compare the total value of a rebuilding club with the total value of a contending club on the same scales, in order to analyze efficiency).

Related Reading: Historical OFP [Includes historical OFP tables]

One added benefit of monetizing minor league Overall Future Potential value is that minor league players can use their OFP to justify significantly larger paychecks from their parent organizations. While fans might expect that minor league players deserve smaller pay checks because of their risk level and because they can “recoup” value once they reach the MLB, those arguments undersell the professional status of minor league players and overlook the reality of suppressed pay at the MLB level. Take Clayton Kershaw, who sat atop the Dodgers system in 2007 as a potential “true Number 1 starter” (so, an 80 OFP). Based on the historical value of 80 OFP players, Kershaw could be reasonably expected to produce at least $587 million in production value, and an average of $845 million in production value; his 80 OFP prospect grade gave the Dodgers organization a whopping $169.1 million in surplus value (ex., Kershaw was so valuable as a prospect that the club would not reasonably trade him for anyone, since the return would be absurd).

Yet, Kershaw himself has served as a criminally underpaid MLB player. The southpaw has produced $389.2 million in production value, amply returning that OFP surplus and then some. First, the Dodgers paid a measly $2.3 million draft bonus to Kershaw, who was the seventh overall pick of the 2006 draft. Minor league contracts are not typically publicized, but it is probably a safe estimate that Kershaw did not earn anywhere near even the MLB league minimum (now $0.5M) as a minor leaguer. Kershaw certainly was not compensated for his organizational surplus value. Prior to signing his $215 million contract extension in 2014, Kershaw earned just over $20 million for a 33.1 performance (worth $211.7 million in savings for the Dodgers). This is a perfect way to look at the seven year extension: Kershaw has been so criminally underpaid that the Dodgers merely offered him their organizational savings from his production value in lieu of his contract extension.

The Dodgers could cut Kershaw tomorrow, paying out the full value of his contract, and still emerge $157.2 million ahead. That’s 22 WARP, if one values WARP at the common free market assumption of $7 million per win above replacement.

One need not use elite players to make this point, however. Scooter Gennett, my recent favorite 50 OFP prospect, is a perfect example of the MLB’s terrible compensation system: selected in the 16th round of the 2009 draft, the Brewers paid Gennett a $260,000 bonus, and the prospect earned a top OFP of 50 as late as 2013. Once again, one must speculate that Gennett did not earn anywhere near league minimum salary in the minors, and the 4.0 WARP player has thus far been underpaid by as much as $26 million in his career despite returning strong historical value on that 50 OFP (Gennett resides within the 91st percentile of every single MLB player in history in terms of his replacement value).

The Brewers have criminally underpaid Gennett, which makes a much better point than Kershaw: it is easy to dream of Kershaw as underpaid because it is easy to dream about a team paying him $400 million on the free market (which is much closer to his actual value than $215 million). Gennett’s underpaid status is more difficult to discern, since it is difficult to imagine the all-hit second baseman earning $28 million over the last four years. Even if one considers that a team would not maximize a player’s total surplus via contract (so that they might sign a contract and retain some trade value), halving that figure to $14 million still readily makes the point that Gennett is criminally underpaid.

Enter OFP as a bargaining chip for minor league players: if a player’s OFP suggests that his historical worth is a certain monetary amount, that amount must also be diminished due to the risk of developing minor league players. In my previous analysis of historical OFP, I crudely sliced historical OFP values by 80 percent to reflect the basic fact that approximately 20 percent of minor leaguers might make the MLB. This produces a chart of values that works quite well in assessing transactional values in trades (for example, Khris Davis’s depreciated value was approximately $35 million surplus prior to his trade, and Jacob Nottingham and Bubba Derby (55 OFP and 45 OFP, respectively) combined to a historical value of $35.6 million — not bad, David Stearns!).

If a player offers that type of transactional value to their parent organization; that is, if a player like Jacob Nottingham or Bubba Derby can be used to net a player like Khris Davis in trade, those prospects should be paid according to their OFP value. Using a basic sliding scale percentage commission, this would return a 55 OFP prospect like Nottingham $342,000 in minor league salary, and Derby $140,000 in minor league salary. One could protest that paying a player like Derby $140,000 in minor league salary over the course of a few seasons would quickly deplete that $1.4 million OFP surplus value. I’d counter that risk slices both ways: why should minor league players bear the bulk of professional development risk through their below-living-wage salaries?

[Again, if this sounds ridiculous, look at it this way: Nottingham is among the very best catching prospects in a near-$10 billion industry. His skillset is such that he can potentially start at catcher and offer an above average power grade, both of which are strong professional feats. The idea of Nottingham earning, say, $1.5 million in salary over five minor league seasons prior to entering the majors should not be absurd, given the revenue scope of the game and the young prospect’s advanced status and OFP.]

The risk of professional development ought to be spread much more evenly, since it is risky for both minor league players and organizations to embark on professional baseball development; this, of course, has the added difficulty of forcing MLB teams to admit that minor league players are professionals (and they are professionals. Minor league baseball players are professional baseball players!).

There are several hidden issues here:
(1) There is no labor system in place for delivering such salaries to minor league players.
(2) There is a certain point where certain league minimum MLB players could indeed earn less than the very best prospects.

Regarding (1), first and foremost the MLBPA must step up and represent minor league ballplayers as a part of the baseball profession. The problematic salaries minor leaguers are paid are not solely the fault of greedy owners — they are also the fault of a certain class of players that are unduly profiting from a professional schism. Once the MLBPA represents all players in affiliated ball, quite an easy mechanism can be put in place to adjust salaries: annual arbitration or salary schedules for minor league and MLB players alike. Regarding (2), some replacement MLB players are not worth a prorated portion of a league minimum salary, 45 grade prospects (that might become replacement players) are worth $140,000.

A more crude system, absent the MLBPA representing minor leaguers, would offer minor league players free agency after two years of organizational development: if you protest, just remember that MLB teams used the argument that players are simply “seasonal apprentices,” so setting those apprentices free every other year should allow them to vastly increase their earnings by creating a free market for MILB talent among teams. If one is inclined to argue that a team should not have to lose a development asset after two years of minor league play, that should provide significant incentive for improving pay by allowing that player the option to work with the organization that will pay them the best (or perhaps, provide the best pay and development strategy combination). What do you think the Cubs would have paid to keep seasonal apprentice Kris Bryant after the 2014 minor league season, for example? Analysts should not shy away from supporting this method: the fact that, say, Trent Clark or Demi Orimoloye are far removed from the MLB and do not yet have clear roles does not mean that the Brewers do not have their value precisely priced; they are two of the 2015 draft prospects that would have immensely benefited from free agency after 2016.

Given the existence of industry sources such as BaseballAmerica and BaseballProspectus that evaluate prospects, there is certainly an independent scouting infrastructure available that could operate an arbitration system to compensate prospects based on their OFP. Such a system could also have the benefit of establishing a much higher salary floor for minor league players; even if a $20,000 salary more accurately reflects the value of an organizational depth player, that salary is not necessarily life changing but will offer more financial support than current minor league salaries (and would be slightly more in line with entry level professional salaries for other fields).

It is deeply problematic that such rich analytic tools exist in the field of baseball, and yet player compensation lags so far behind its justifiable salary levels. Of course, there is a certain extent to which analytical tools are meant specifically to drive down player costs and return revenue to owners. Given the ease of implementing improved compensation — again, there is already quite a strong administrative system in place for arbitration, and there is are representative bodies such as the MLBPA that can assist with matters of compensation — the real issue is political feasibility due to the lack of willpower from MLB ownership and MLBPA. This lack of willpower leaves members of the analytic community to place more pressure on that infrastructure to begin justly compensating baseball players.

Prospects need not only have OFP grades for show: if MLB clubs can trade players for MLB value based on a player’s OFP, they can also justly compensate that prospect by paying them a commission based on their ceiling. OFP need not merely be transactional, or rather, the extent to which OFP is transactional should be expanded to include compensation.