After Zach Davies signed today, I asked myself a question. I have always been a proponent of overslotting several players in drafts and I have also been heavily supportive of dedicating money to sign international free agents. So, this question was simply...what is a more efficient use of funds: spending more than 500k for players after the tenth round or 500k for an international free agent.
1) Reed MacPhail wrote a solid piece on the value of overslotting players later in the draft. His basic conclusion was that it costs about 400k to sign a third round talent in the third round. To sign the same quality player after the tenth round, it costs about 600k. Quality of player is defined by Wang's work using prospect rankings and resulting performances in the Majors.
2) Various sources have looked into how much the draft depresses the amount of money a player can earn if he was able to sell his services in the free market. Jim Callis suggested that the draft reduces a player's value by a factor of four to five.
3) When I looked at the differences between IFAs and Rule 4 Draftees, I came up with with a 400k draft talent as costing 570k internationally.
Based on these pieces we have a couple things we are sure of: it is cheaper to get third round talent in the third round and that overslotting players past the third round is not more expensive than signing international free agent talent. What becomes a bit more confusing is to what degree are overslots a good deal? If you go by Callis a third round talent may be worth up to 2 MM. My calculations placed that IFAs and overslots were basically equivalent. This may mean that if you believe in your scouting, feel free to go crazy with overslots because these domestic players are just as valuable as IFAs.
It also makes it look more reasonable to hand Josh Bell a 6MM deal. He would cost that much if he was Dominican or Venezuelan. Does it really matter that he is an American? Value is value and hard slotting is likely around the corner.