All seven of the free agents the Boston Red Sox signed this offseason have had one thing in common: None was tendered a qualifying offer by his former team, and thus none has required draft-pick compensation. That's not a coincidence.
Even in an era in which money cascades into Major League Baseball like never before, the deteriorating quality of free-agent classes has made building around young, cost-controlled players the only sustainable means for success. At the same time, new rules have made obtaining young, cost-controlled talent more difficult than ever -- and thus has made that talent even more valuable.
For that reason, even a second-round draft pick usually will be too steep a price to pay for all but the most elite free agents, or those who could represent the last piece of the puzzle for a World-series contending team -- unless that player can be had for less than the acquiring team believes he is worth.
Drafting and developing talented players already was a challenge. A team that yielded just one impact player out of each draft was doing about as well as could be expected.
But severe new spending limits restrict teams from being able to pay draftees what they once could, effectively restricting the number of elite draft picks they can sign. In addition, in contrast to previous years, while a team still must forfeit a draft pick to sign a compensation free agent, the team losing the free agent doesn't inherit that draft pick. The pick instead vanishes into nothingness -- and, with it, the $1 million or more the team would have been able to add to its newly restricted signing-bonus allotment.
One might gauge how much a team values a draft pick by the size of his signing bonus -- in other words, its investment in him. In the first 10 rounds of the 2011 draft, Boston handed out 10 signing bonuses worth more than $100,000 in the first 10 rounds, eight of which were worth more than $500,000.
In 2012, the first year of the new spending system, the Red Sox handed out just seven signing bonuses worth more than $100,000, five of them worth more than $500,000. Of the players Boston drafted in rounds 6-10, all but one received a bonus of $25,000 or less, an indication that those players were selected more to allow them to allot money elsewhere than for their potential impact as prospects.
What does that mean? Rather than bringing 10 or 11 players who realistically could be viewed as prospects, the Red Sox brought in just seven. The challenge of producing one impact player from the draft class grew steeper accordingly.
The same took place elsewhere. Toronto last year drafted handed out four bonuses worth more than $1 million and three others worth at least $750,000 -- and then signed its next seven draft picks to bonuses worth $5,000 or less. Those seven players essentially are afterthoughts. It's a stark contrast to 2010, when the Blue Jays invested at least $175,000 in all 13 of the players they drafted in the first 10 rounds and at least $500,000 to eight of them.
Still, there's a time when forfeiting a first- or second-round draft pick does make sense. A blanket decision to steer clear of free agents tendered qualifying offers would be absurd.
But there is a surplus value gained by developing a player rather than signing him in free agency. Whether you believe Mike Trout or Miguel Cabrera had the superior season last season, you can concede they at least were close -- and yet Cabrera was paid $21 million while Trout was paid around $500,000. One could argue that Trout was worth $20 million or more in surplus value to his team.
That doesn't mean every homegrown player is worth $20 million, obviously. Most draft picks don't pan out. Most draft picks that do pan out perform at a level significantly below what Trout did.
From 1995-2005, the average player drafted in rounds 31-40 -- the supplemental first round and early second round -- produced 1.33 wins above replacement in his first three years in the major leagues, the years when he could be paid next to nothing. That figure includes both the stars that panned out and the busts who never reached the major leagues.
(Fangraphs' Wins Above Replacement metric is a comprehensive statistic designed to capture offense, defense, pitching and base-running contributions in one number.)
Over the last five years, players signed to free-agent contracts have on average been paid $4.5 million for each 1 WAR they earn on their new teams. It follows that the market value for a draft pick that produces an average of 1.33 WAR is a little more than $6 million.
Subtract out the average slot bonus for those picks ($1.41 million) and the three years' worth of minimum wage the player is paid (around $1.5 million) and an early second-round draft pick still has a surplus value of $3.3 million for the first three years. The next three years represent even more surplus value, but as the arbitration process allows salaries to grow, the surplus value naturally goes down.
Even being conservative, an early second-round draft pick figures to be worth in excess of $3.5 million in surplus value to a team. Forfeiting that draft pick to sign a free agent means forfeiting that $3.5 million in surplus value.