Why Retaining a Protected 1st Round Pick is Crucial for the Cubs

Coming out of a blistering month of August in which they won 16 of their 30 games while smashing 38 home runs, optimism for the future of the Chicago Cubs has never been higher. Jake Arrieta is still rolling, Jorge Soler is mashing in MLB, and production is coming from all over the roster. They’re 47-49 since late May and they seem to be getting better. When the team is winning like this it’s not hard to look at the roster and see a contender in the near future.

In a just world, one where free agency isn’t tied to draft picks, these wins would be nothing more than good feelings coming from meaningless games. Unfortunately, each win pushes the Cubs a bit closer to dropping out of the range of protected draft picks.

I know some read that sentence and think, “I am TIRED of building for the future, it’s time to win some games!” I don’t disagree, but if you’re hoping to see a contending team in 2015 or 2016, you had better hope the Cubs head into the offseason with a protected draft pick.

For those of you who are not aware, if the Cubs do not finish with a bottom-ten record in the league they forfeit their 2015 1st round pick if they sign a player who received a qualifying offer. In general, teams trying to acquire QO-quality players are not bottom-ten teams, and this presents a real advantage for the Cubs. In the simplest terms, the Cubs can pay more for free agents because they are losing less by signing a player.

I wrote about this way, way back when on In the Shadows of Wrigley when I argued that the Indians should’ve signed Kyle Lohse based on this premise:

If a team with a protected 1st round pick is able to sign one player who is worth forfeiting their second round pick, it is advisable to sign as many compensation-tagged players they can fit on the field and in their budget.

I think the idea could use an update and some numbers to go with it.

Draft Pick Value

The first thing to do is figure out what a draft pick in the first few rounds is worth. This isn’t easy, as the differences in scouting departments between teams makes a pick very valuable to a team like the Cardinals, and maybe not so valuable to the Brewers. Beyond that, the data to figure out how much each player made before free agency, or when they reached free agency, or how valuable they were in that time frame doesn’t exist. I could make it exist, but a rough estimate of how much data I’d need is on the order of 60,000 individual points, and the nature of the draft would make that task nearly impossible. (I’m just a dude who writes on a blog, I don’t have time for that kind of data collection)

Instead, we’re gonna jerry-rig ourselves some data and make some assumptions along the way.

First assumption: All players who end up with a similar career WAR aged in a similar fashion. I’m using this study from Rany Jazayerli to get an idea of what each draft pick was worth in their career, but that doesn’t tell us much about how much value they provided during the first 6-7 years of their career. From this study, though, I’ve found that a back-end top-ten pick is worth, on average, 23 WARP, a back-end first round pick is worth 8-14 WARP, and any picks after are usually worth 4-5 WARP. From there, I created aging curves based off of every player since integration who produced on roughly those levels.

Second assumption: All players played their first 7 years with the team before being paid market-value. Using the aging curves from above, I was able to figure out what a player was worth in each year under team control. Years 1-4 are at roughly $500k (assuming players have up-and-down periods), and years 5-7 are paid on an arbitration scale. I used a $6million/win value and a standard 40%/60%/80% of market value arbitration structure.

Third assumption: All players sign with teams for exactly their allotted draft pool. This one is fairly simple, and paying a signing bonus should factor into these calculations. I’ve averaged out the slot values for each pick range.

Fourth assumption: All teams value current and future value roughly equally. This is obviously not totally true, but given how MLB teams seem so loathe to trade prospects or give up picks recently, I think it’s close enough to work for what is a ballpark estimation with huge error margins.

Fifth assumption: I’m not including draft pool shenanigans here. Though if I did, it would increase the value of the protected pick. You can spend a lot more in overslots by saving 20% of a $3.22 million slot than a $1.82 million slot.

Findings

The first thing to notice is: whoa, arbitration saves teams a LOT of money! The rest of it isn’t too shocking – the surplus value generated by your average 6-10 overall pick nearly doubles that of a back-end first round pick.

Where this gets really fun is how you apply it to free agent spending. Note: I’m going to quote the values in the far-right hand side of that table for the rest of the article, but know that these values are anything but precise. This is more of a fun exercise than a statement of exact fact.

Here’s the basic theory on free agent contracts: a team decides how much value a player is going to bring to their organization through whatever Magic 8 Ball they prefer. They then will negotiate with the player to try to agree on a deal less than or equal that number. If negotiations go beyond that point, they will drop out of the bidding. Theoretically, players will make their market value through this system. However, things get complicated when a team has to forfeit a pick.

If two teams value a player’s on-field contributions at $80 million, but one has to forfeit a pick worth roughly $40 million to them and the other forfeits a pick worth just $18 million, the valuation is going to change. The former team starts losing value once they go over the $40 million mark, and the second once they go over the $62 million mark. Therefore the second team can try to negotiate a deal for more money than the first team while also saving some surplus value.

If the Cubs and a team with an 11-25 overall draft pick were fighting for a QO-tagged player and the Cubs do NOT have a protected pick, the Cubs value that free agent at roughly the same amount other team. If they DO have a protected pick, they value the player at roughly $23 million MORE than the other team, since they’re giving up much less valuable pick to sign him. This is less, however, pronounced if they were fighting with an elite team for a player.

That extra value gives them the wiggle room to up the offer by a season, or by tens of millions of dollars. It’s a big advantage when it comes to signing guys.

If the Cubs really wanted to push for contention in 2015, they could use this principle to sign a bunch of free agents while staying in the net positive for value brought to the org. If you assume every dollar of surplus value was available for use in signing players, and that post-3rd round picks aren’t worth much of anything, the following table applies:

Right there is the ability to fortify a roster through free agency. The Cubs wouldn’t have to spend that much extra money to sign players, but that’s the amount they could go up to without making it a bad long-term deal for them. So if the Cubs did plan to spend on 3 QO-tagged free agents, they’d have $54-$87 million to play with to steal guys off the market.

You can find $40 million extra there for a Max Scherzer-type if you can find other QO guys to fill other roles. You can splurge on a high-leverage relief pitcher to put your bullpen over the top. There’s no “oh, we’re giving up a first rounder for a closer” dilemma because you’re giving up a 3rd or 4th rounder to sign a stud reliever to go with one to two other valuable pieces you just signed.

This is roughly the same path the Indians pursued a few seasons ago before they won 90+ games. Michael Bourn and Nick Swisher weren’t all that sexy for teams without a protected pick, but the Indians were able to sign both because they only had to give up their 2nd and 3rd round picks. Yes, those contracts don’t look great now, but they bridged a gap for a young team to mature into a winner.

There’s another way to look at this, too, and that is making up for the difference in marginal win values between a good and bad team. A good team may value a player’s contributions by $20-$40 million more than the Cubs, but the differences in draft pick value losses makes up some of that difference, keeping the Cubs in the hunt.

So this is what we’re looking at as Cubs fans with only a few more weeks of baseball. Yes, losing sucks, but that protected pick gives the Cubs a lot of options to improve things in the offseason. It’s a small thing to hope for, but with payroll expected to be at a historic low, the Cubs are poised to spend big. And if they do, I want them to have every possible advantage in doing so.