04 August 2011

Cup of jO's (August 4, 2011): Callis on Bundy/Bauer deals

Game Summary
Orioles 2, Royals 6
Box Score / Play-by-Play / AP Recap

Baltimore's quest for its first AL series win in almost two months will last at least one more night, as Jeremy Guthrie and the Birds fell to Kansas City 6-2. In what has become a frighteningly routine occurrence when Guthrie takes the hill, the Baltimore bats were nowhere to be seen, with just three runners reaching base after the third inning (two by hit and one by strikeout). Baltimore will look to Zach Britton to break his streak of "meh" starts tonight; he's opposite Jeff Francis. STATS LLC preview here.

Of interest....
Trevor Bauer became the first top 10 pick in the 2011 draft to ink a deal when he agreed to a Major League contract with a $4.45 million bonus and a structure that could allow him to earn over $7 million through its duration. Bauer, selected one pick before Orioles top pick Dylan Bundy, was this year's recipient of USA Baseball's Golden Spikes Award, as well as Baseball America's Collegiate Player of the Year Award. At first glance, it would seem that Orioles fans should be pleased that an advanced college arm selected in front of Bundy received such a "reasonable" package. After all, it would follow that a lower pick, with a riskier developmental profile, would likely be looking at a slightly lesser deal, right? Wrong.

As we have pointed out a number of times here at the Depot, bonus comps are rarely used among draft picks, and are almost never used among draft picks from different cross-sections (college vs. high school, pitcher vs. position player, two-sport vs. one-sport, etc.). Baseball America's Jim Callis sums up the issue well in a discussion with MASN's Steve Melewski:

"Bauer is a college pitcher but a high school guy (like Bundy) has got more leverage...I don't think it's a great comp (comparing Bauer and Bundy), even though they were picked back to back...I am sure the Orioles would love to tell Dylan Bundy's representation, 'Hey, Bauer got $4.45 (million) guaranteed, so Dylan has to come in under that.' But I don't think the Orioles would try to make that argument and I think B.B.I. Sports Group (Bundy's representatives) would laugh at them if they did...MLB likes to act like these deals impact everybody else and they really don't. As agents tell me, this isn't arbitration like the comps there; it doesn't work that way."
In reality, these bonuses are generally not very difficult to figure out. As someone with some experience in the process, I have found that generally history wins out and history tells us 1) bonuses for a player type are unlikely to improve be more than 40-50%, and only by that much in the rarest of circumstances, and 2) Andy MacPhail and the Orioles are unlikely to negotiate a record breaking deal.

Bryce Harper and Stephen Strasburg were back-to-back "generational" players who received total packages topping anything previously handed out. Those record breaking deals topped their closest comp (for Strasburg, college arm David Price; for Harper, high school position player Donavan Tate) by around 50%. Using that as a general guide, we set Bundy's "max" deal at around $10 million, or right around 50% more that high school arms Josh Beckett and Rick Porcello received. In reality, Bundy is not a "generational" talent -- that is, he doesn't stand easily above his contemporaries, as far as scouting profiles are concerned. Accordingly, we put his expected bonus close to either what Porcello earned: around $3.5 million guaranteed and a Major League deal worth upwards of $7 million, or what Jameson Taillon earned as the top high school arm in last year's draft: $6.5 million in bonus money and a Minor League deal.

Inflation might bring those numbers up some -- let's bump the window to $7.0 to 8.0 million. Baltimore's sensitivity to slot suggestions, or more accurately not outdistancing early slot projections by to wide a margin, could cause this number to fall some. Additionally, the Orioles have proven to be shrewd negotiators willing to draw a line in the sand when they have determined that a player is incentivized to sign and they have made what they consider to be a fair offer.

Historically, the largest Major League deal Baltimore has given to a high school pitcher is Adam Loewen's 2002 Major League deal that included about $3.5 million in bonus and another $800 thousand in guaranteed salary. Baltimore's most recent 1st Round high school arm Matt Hobgood received $2.4 million and a Minor League deal as the fifth overall selection in 2009. It's safe to say that any Major League deal signed by Bundy will eclipse $800 thousand in salary given to Loewen and likely that the bonus will improve -- if only nominally -- over the $3.5 million offered to Loewen.

While Bundy has leverage as high schooler with the option of going to college and re-entering the draft, that leverage is limited due to: 1) the risk associated with playing as an amateur for three more seasons before being able to declare again (he is a Texas commit and four-year college players must wait until their junior year, or the year in which they are 21 within 45 days of the draft), 2) the uncertainty as to how the new Collective Bargaining Agreement might change the draft landscape (including instituting slot bonuses for 1st Rounders), and 3) the fact that he has very little room to improve as a top 5 talent in 2011.

Risk 1 can be avoided by retracting his commitment to Texas and enrolling in a junior college, as junior college players are eligible for the draft each year, regardless of age or standing. Risk 2 has not come into play with the negotiated deals to which I have been privy this summer, though the risk is much larger for a top 5 pick looking at seven figures than it is to a 3rd or 4th Rounder receiving mid-six figures and about 5% over slot recommendation. The final risk is the largest, and ultimately negates any perceived leverage Bundy has.

While it's true that Bundy could go to a junior college and re-enter next year as a favorite to go 1st overall, that choice carries with it risk of injury, change in draft slot structure and the risk of under-performance. The latter is the hardest to drum home to players and their families, as most top talents have difficulty envisioning struggling.

So where do we end up? The lower threshold for bonus/ML deal package is probably around $6.5 million -- what Jameson Taillon received as the top pick last year. The upper threshold is probably around $8 million -- about a 14% improvement on the total ML package received by Porcello. When discussing this signing with two National League evaluators, the consensus was that Bundy would receive a ML deal due to his advanced profile, with a bonus likely in the $3.5-4 million range and salary structure bringing the total haul to $7 million. Whether Baltimore keeps the number slightly under that or Bundy pushes the number upwards of $8 million will depend on a myriad of factors, the most important of which is probably as simple as who blinks first on the eve of August 15th.

1 comment:

Ryan Solonche said...

They can, and should, sign him for about 8.5 after all is said and done. Maybe the greatest leverage of all is on the organization's side with his brother (who is having a hell of a year) committed and producing for the O's.

I think young Bundy will sign shortly and progress quickly. Given his ridiculously advanced build and fastball for (I believe... too lazy to check) an 18 year old, could it be possible (even if unlikely) to have two Bundy's on the staff as early as 2013?