July 2, 2010

Ahead in the Count

Why Baseball Needs a Draft Lottery

by Matt Swartz

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The nation’s capital is filled with hope about brighter futures for their teams, thanks to some exciting No. 1 draft picks who appear primed to buoy Washington's frustrated sports scene.  Last year’s No. 1 overall pick in baseball, Stephen Strasburg, has been setting the league on fire for five starts now, and the Nationals added a second consecutive No. 1 pick in a row in the 2010 draft, as they now must only work out on a contract with power-hitting mega-prospect Bryce Harper.  Baseball is not the only sport where Washington has gotten the first overall pick recently. The NBA’s Wizards were lucky enough to pick Kentucky point guard John Wall last week. Of course, when I refer to them as lucky, there is a reason that I use that word.  The NBA draft uses a weighted lottery drawing to determine who gets the first pick among the 14 teams that did not make the playoffs the previous season. The famous “Olajuwon draft” of 1984 forced the reactive implementation of this system, as teams reportedly intentionally tried to lose games in an attempt to increase their chances of getting in on the glut of superstar players in that year's draft, led by Hakeem Olajuwon.

With two straight terrible seasons, the Nationals are primed to improve their lot after grabbing such talent, and teams are bound to notice.  Unfortunately, what it could make them notice is that the current system creates the incentive to lose games.  I am not saying that the Pirates and Orioles are going to start throwing fastballs down the middle on every pitch to give their opponents a better chance to help mash them to the front of the draft, but it is not hard to see the incentive to avoid calling up their best players.

Everybody has heard the rumors that the Nationals might have just possibly waited until Strasburg would presumably no longer be eligible for salary arbitration in 2013 before they called him up, but what if they were shooting themselves in the foot by bringing him up even for the last four months of the season?  The Nationals may no longer have a bad enough team to get the first pick again in 2011, but every time they win a game, they are moving further and further down in the draft.

Using Sky Andrecheck’s draft pick value calculator, adjusted to find the first six years of WARP instead of career WAR in the same way I did when creating the new MORP, I found some WARP3 values for the first six years of the first round of the draft.  Then I figured the gain in WARP3 from moving between each pair of adjacent picks in the draft (with some minor adjustments for opportunity cost of signing a higher pick).

As you can see, there is a lot of incentive to get the first pick.  The first pick adds nearly four wins above the second pick in the draft, while the team who gets that pick loses nearly five games more than the second-worst team in the league.  Of course, the difference of those five games is pretty minimal and the Nationals certainly hope that the four wins that they get out of their top draft picks come primarily when they are on the playoff bubble.

Even for other high first-round selections, the gain of receiving those picks is a little bit less than a win in most cases, while about one current win separates the teams receiving those adjacent picks.  Yet the gain from those draft picks comes later when a team can hope to use them towards a playoff run.  The relative value of wins later is so much higher for a non-competitive team that plans to be competitive later that throwing away three wins now to get two wins later is probably a good move.  This is only added by the fact that if one’s team is not competitive later, they can trade away those players at a premium and get prospects for yet another time when they might be competitive.  In fact, trading away those drafted players later when it turns out development requires more time would even help them get higher draft picks in addition to the prospects returned from the trade itself.  Basically, they have a built-in hedging option.

The Nationals certainly have an extremely talented pitcher on their hands in Strasburg, and he is adding to their win column right away.  Odds are that even a regressed performance from Strasburg adds three wins between now and the end of the season, but the problem is that those three wins are not going to help the Nationals make the playoffs.  The most recent PECOTA version of the Postseason Odds gives them only about a 1-in-1,000 chance to make the playoffs.  However, if the Nationals improve three games in the standings and move themselves three slots down in the draft, they might cost themselves two wins later when they might be competitive.

What if Strasburg were on the Orioles?  Currently the Orioles are just a couple games “ahead of” the Pirates for the worst record in the majors.  If the Orioles had the opportunity to call up a prospect like Strasburg, it would not be in their best interest to do so.  Adding four or five wins from a superstar like Strasburg would decrease their chances of getting that first pick by about 30 percent, and could even move them all the way down to third or fourth in the draft.

Major League Baseball is already going to need to start thinking about changing its approach to arbitration, whereby suspiciously five of Kevin Goldstein’s top nine pre-season prospects were all suddenly to be promoted to the major leagues at once last month. The NBA created its current system retroactively in response to suspicious behavior by teams that already compromised the integrity of individual games.  Now, MLB should be proactive and create a lottery system where losing one game more than another team does not automatically give you a win in the future.  A weighted lottery likes the NBA’s would lower the marginal benefit from losing enough to do the trick.

Only eight baseball teams make the playoffs every year, meaning that most of the league has an incentive to avoid playing their best players at the end of the year.  There are already 13 teams with less than a 3 percent chance of making the playoffs, according the PECOTA version of Postseason Odds.  As teams are getting more and more savvy, MLB should step ahead of the curve and create a system that wouldn't tempt teams to try to lose.

Matt Swartz is an author of Baseball Prospectus. 
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