MLB Rule IV Draft: Valuing Draft Pick Slots

Author

ANTHONY CACCHIONE, CUNY City CollegeFollow

Date of Award

2018

Document Type

Thesis

Department

Economics and Business

First Advisor

Robert Mellman

Second Advisor

Kevin Foster

Keywords

MLB, MLB Draft, Discounted Cash Flow

Abstract

This study explored the Net Present Value (NPV) in dollar terms of draft pick slots in the Major League Rule IV Draft. In order to accomplish this, the cumulative performance of players selected in each slot within the draft was evaluated and brought to the Present Value of the time they were selected using a discount rate. The performance of the players was determined using the baseball-reference Wins Above Replacement (WAR) metric. It is intuitive that earlier draft picks are the most valuable; however, it is unclear how quickly the value of draft picks decline. This research demonstrates that the decline in NPV is rapid for the first 40 draft selections before the pace slows. Around the 116^th selection, draft pick slots level off and experience little decline, as teams are less able to determine the value of the players’ talents. There is substantial difference between the top 5 picks in the draft and the draft picks following the 116^th selection, as the top 5 picks are worth in excess of $28 million each, while the later selections level off around $2 million each.

Recommended Citation

CACCHIONE, ANTHONY, "MLB Rule IV Draft: Valuing Draft Pick Slots" (2018). CUNY Academic Works.
https://academicworks.cuny.edu/cc_etds_theses/754