At MLB Signing Deadline, Links to Math and Economics Emerge

(Inside Science) -- Usually, sports drafts are exercises in talent evaluation. This year, the baseball draft is more of a theoretical problem drawing on mathematics and economics.

As explained in this post from June , the 2012 Major League Baseball draft had a number of new rules, designed to punish teams that outspend the league’s bonus recommendations, with penalties including taxes and lost draft picks. This established a whole new framework for evaluating the costs and benefits of drafting and signing players -- and little idea of how other teams might act. Some very interesting things have been happening, and with the signing deadline set for Friday, July 13 at 5 p.m., negotiators are staking out their final positions.

From MLB.com, here is a good roundup of where things currently stand.

The advent of penalties for overspending contributes an additional layer of variables to the way teams must make decisions and allocate their resources. MLB established a suggested bonus amount for each pick in the first 10 rounds (of 40 total rounds), and added them up to give each team a total spending pool. All players negotiate their actual bonuses: some want more than the suggested amount; some will settle for less.

The Toronto Blue Jays and Houston Astros have worked within the rules to shift the way money is distributed within their bonus pool. Both teams chose some players who were probably not the best ones available at the time of the selection. This approach enabled the teams to reallocate money to sign players who demanded more money than the suggested bonuses. Many teams chose players who were willing to sign for $1,000, in order to bundle savings for other picks. Fangraphs and Sports Illustrated [Editor’s Note: Link is no longer active.] had interesting analyses of the strategies.

Teams have many ways to allocate their resources. They could draft the best player with each pick and sign only a handful, because they couldn’t afford them all. Or, like the Blue Jays, they could sign a number of players at low rates, and spread that savings to other draftees.

The question becomes, is it a good idea to sign a limited number of top talents, a larger number of medium talents, or one big talent and many limited talents? You get the idea. That’s what teams wrestled with on draft day, and what some are tackling now, because they can choose to pay more than the suggested bonus pool, but not without penalties.

If a draft pick says he won’t sign for less than $5 million, and a team can only pay about $4 million without being taxed, and about $4.5 million before losing a draft pick next year -- those tradeoffs require much more analysis. Similar issues can arise with much lower bonuses as well.

The player, too, has a tough decision. Often, he can choose to remain in school. So, if a player believes he should be paid a certain bonus which is greater than the suggested bonus from MLB, he can choose not to sign.

The eighth overall pick, Stanford pitcher Mark Appel, who went to the Pittsburgh Pirates, illustrates this. Many evaluators thought he was the best prospect in the entire draft, and that he’d be paid like it. But the new rules complicate that. The Pirates have about $4 million left in their signing pool, far less than the Pirates gave their recent first round picks. It’s actually $1 million less than the team gave to their 2011 second round pick. Appel’s adviser, agent Scott Boras, is quoted in this article from TribLive , hinting at some of the reasons why some think Appel might not sign this year and reenter the draft next year, with the hope of getting a bigger bonus. The Pirates would receive a pick in 2013 as compensation.

Appel is one of several first round picks who have yet to sign. The first part of this discussion from Baseball America mentions the other most prominent players.

The Blue Jays and eight other teams have paid over their limits and will have to pay taxes. No team has, as of yet, paid out bonuses that will result in lost draft picks. Links to each team’s signings, spending, and remaining cap are available from Baseball America .

Of course, other parties plan to look carefully at how teams handled the new rules. Michael Weiner, head of the Major League Baseball Players Association, had this to say in an interview with Canadian broadcaster Sportsnet :