MLB Draft and OFP Surplus

The MLB Draft is a questionable institution at best, and an awful one in its worst aspects. From a labor standpoint, the Draft filters professional baseball talent through a non-competitive process, suppressing a player’s potential earning power from Day One. Even the (roughly) 300 players lucky enough to be written into one of the MLB’s slotted bonuses are underpaid several times over; for example, the Brewers’ Ninth Spot is historically worth more than $20 million to the organization, as (entering 2017) 32 of 52 Ninth picks have reached the MLB, producing 260.8 Wins Above Replacement (WAR) as a group. In basic terms, this means Milwaukee receives a First Round pick that has talent with great odds of reaching the MLB and producing good value once they reach the MLB, and for this they will hardly need to pay twenty percent of that player’s value. [Improve minor league pay!]

Updated Cashing Out OFP
Market Trading Strategies
Redesigning Compensation

From an organizational standpoint, the Draft is frightfully inefficient, forcing clubs through 40 picks to potentially return two or three MLB players (which would be a moderately successful draft in most cases). In this regard, the Draft poses a paradox of sorts, for MLB teams have the advantage of underpaying talent in the draft while also being forced to sink significant resources in terms of research, humanpower, and organizational structure to see Draft Day surplus materialize on the field. Of course, any alternative solution (such as pure amateur free agency) is untenable without full revenue sharing across MLB clubs, so here we stand with an imperfect institution for filtering talent into the professional baseball ranks.

Last week, I analyzed the Brewers’ organizational surplus returned and developed from the major “Rebuilding Era” trades (roughly July 2015 onward). What is stunning about those trades is that the organizational surplus has appreciated significantly over a relatively brief period of time. While the MLB players (from Jonathan Lucroy and Carlos Gomez to Khris Davis and Francisco Rodriguez) and prospects (like Cy Sneed and Trevor Seidenberger) traded away from Milwaukee have depreciated in surplus value (overall), the Brewers have largely returned a group of talent that has appreciated (via trade). Here, one might think about Josh Hader (who marched from “just interesting” straight to the top ranks of the Baseball Prospectus Top Ten lists between 2016 and 2017) in terms of elite talent, to Ryan Cordell (who is perhaps solidifying a very clear floor for an MLB role, regardless of whether he delivers on a starting role ceiling) in terms of depth talent; and that’s before one even attempts to quantify the value of Freddy Peralta, Carlos Herrera, Josh Pennington, or Yeison Coca (who are probably a year away from clear valuation in public prospect analysis).

Naturally, the trade return surplus does not define the organization’s full surplus, as the team can also use the Draft and International signings to build a well-rounded club. So, how does the Brewers draft-and-develop surplus compare to the trade surplus?

This problem proved difficult to solve. There are at least two ways to assess draft talent once players are within the organization: (1) players can be judged against the historical value of their slot (this comparison would place a player’s Overall Future Potential (OFP) surplus against the depreciated historical MLB production from the draft slot, which means that the risk of a player reaching the MLB from the draft is taken into consideration when evaluating a player); (2) players can be judged against their own annual prospect evaluations (for example, Monte Harrison’s surplus could be assessed by comparing the fluctuations between his 2015 assessment as a “High 6 first-division regular/All-Star” and his 2017 assessment as a volatile potential five-tool centerfield package). Method (2) is quite tricky, however, because it includes a “Chicken and Egg” problem; for example, in the case of Harrison, if he materializes value as a 50-to-60 OFP MLB profile, was that initial assessment always his value, and was the fluctuation simply evidence of the time necessary to graduate a high school prospect to the MLB? Or was the fluctuation something real, actually placing the 60 OFP tag in doubt? It is not clear to me that I have the methodological tools or proprietary analytics available to answer these questions, so I am using method (1) to rather crudely assess a player’s OFP (or MLB production, once graduated) against their historical draft performance.

From the get go, there is one extreme bias built into this system, and that bias is “reaching the MLB.” This seems unavoidable, to my mind: as former President Doug Melvin said, “I’d rather make the cover of Sports Illustrated than BaseballAmerica” (interestingly leaving the question open about how he’d feel on the cover of the BP Annual…). Meaning, MLB teams do not draft and develop to possess 45 OFP, 50 OFP, 60 OFP, or 80 OFP prospects; they draft and develop to turn 60 OFP prospects into 60 OFP MLB players (or at least that’s the hope). That there are a full range of MLB performances between the extremes of a “prospective OFP” and “actual MLB floor or ceiling” does not render it more valuable to assess draft slots at their ability to produce prospect rankings. Prospect evaluations are held against the assumption that value is delivered at the MLB level (as a side note: this leaves a rather interesting question about trading prospects for MLB wins, which is another possible application of the MLB draft, and one that basically allows clubs to cash out variations of uncertain futures. Basically, a “long-term uncertainty” [the prospect] is turned into a “short-term uncertainty” [the MLB player], which hopefully delivers MLB wins).

In order to assess surplus, I divided the system into “earlier” and “later” drafts. The earlier drafts span 2010-2013, representing the last remaining prospects on the MLB 40-man roster (such as Yadiel Rivera), and the last Bruce Seid draft before the righteous strategy shift in 2014. The 2014 Seid draft, and 2015-2016 Ray Montgomery drafts, represent the “later” drafts. This is also convenient because the 2014-2016 drafts have not seen a system graduate to the Brewers (Brandon Woodruff is probably closest). Since each of these periods comprise around one hundred system players to track, I attempted to focus on top prospects, “interesting depth guys,” and (for the earlier draft) players who reached the Brewers club or were traded.

2010-2013 Drafts: Of Devin Williams and Jimmy Nelson
While the early Bruce Seid drafts are generally know by Brewers fans for their inability to deliver impact MLB stars to the Brewers club, the drafts should be known for their fantastic depth trades. Witness the organizational players involved in impact moves for the Brewers, from the Gerardo Parra buy-in (yielding Zach Davies) made by Melvin to the Jason Rogers and Cy Sneed trades (to name a few) made by GM David Stearns.

It’s difficult to estimate whether surplus performance for this draft would have been better by assessing each prospect against their historical OFP progressions, rather than being assessed against the value of their respective pick. This is especially tough with someone like Jimmy Nelson, whose career is in progress and is essentially what a “middle rotation” report (from some of his middle year scouting reports) looks like at the MLB level. The 2011 First Round picks truly were as bad as advertised, costing the club approximately 5 WAR based on the historical value of those picks. However, one ought never assess a draft solely by the early rounds, as Jacob Barnes is poised to recover at least 2 WAR (and perhaps more, either through several seasons’ playing time or eventual trade return) thanks to his transformation as an impact reliever from the 431st pick. In terms of either MLB surplus or OFP, Devin Williams remains the most valuable player of this group (based on 2015-2017 assessments), even if the righty is currently injured and therefore has more risk in that profile.

2014-2016 Drafts: Brandon Woodruff and Cy Sneed
For all the clamoring about the 2015 and 2016 drafts, these prospects demonstrate simply how valuable reaching the MLB is, and how much less valuable OFP surplus is by comparison. Prospects like Lucas Erceg, Corey Ray, Trent Clark, and Cody Ponce (among others) may have great overall upsides, but the risk of failing to reach the MLB diminishes the polish from those OFP. Each of the aforementioned prospects reached the Brewers’ 2017 Baseball Prospectus Top Ten (the only players drafted by the Brewers to reach the Top 10), and their collective surplus compared to the historical value of their respective picks is $15.2 million (or roughly 2-to-3 WAR). Still, in terms of overall surplus, these three drafts are worth at least $120.7 million in depreciated surplus (which could reasonably be cashed into approximately 20 WAR via trade or successful development). Brandon Woodruff is the most valuable prospect among each of these drafts, another fantastic win for Bruce Seid’s last draft.

I want to use a prospect such as Mario Feliciano or Demi Orimoloye to demonstrate the sheer difficulty in assessing prospect ceilings. Orimoloye is known as one of the toolsheds from his draft, and the outfielder is putting it together at the plate during his first full professional season. There’s obviously a ways to go with Orimoloye, which was known from the start. Orimoloye is an extremely risky prospect, but one that could have a potential starting right fielder profile if everything breaks the right way. But at this point, with so few tools materializing (and rightfully so, it’s merely halfway through his first full season), is Orimoloye a 50 OFP (average MLB RF) profile? Does the promise of five potential tools make him a 60 OFP (impact RF) ceiling? I split the difference between Orimoloye and Mario Feliciano, who is a catching prospect working in his first full professional season. The idea that Feliciano could remain behind the plate makes him an immediately more valuable prospect, even with all the extreme risk considered. But there is a problem with the calculations here; shifting Feliciano from an “unknown” ceiling to a 50 OFP ceiling changes his surplus from approximately $0.1 million to $7.0 million, which is an extreme shift (basically one full WAR). The same issue exists with Orimoloye, who may have the surplus value most deflated by my approach. In this case, I’d rather err on the side of caution than hype, but I want to explain this issue to demonstrate and acknowledge that this is all quite subjective and ready to fluctuate.

Finally, I’d love to point out that although Milwaukee has failed to return surplus that matches historical value of the draft picks used in these 2014-2016 drafts, the Cy Sneed trade (for Jonathan Villar) has almost perfectly covered that deficit. This is an extreme argument in favor of trading prospects; there is a sense that cashing out the risk of developing organizational depth into immediate MLB wins will improve the overall value of the franchise. This is especially so because that traded surplus can be applied at the MLB level, immediately, and that’s the whole point: however it happens, via trade or development, the purpose of the MLB draft is to deliver MLB wins.