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Friday, August 04, 2006
Royals Sign No. 1 Draft Pick to Major League Contract

The No. 1 overall draft pick this year, Luke Hochevar, agreed with the Royals on a four-year major league contract with a guaranteed $5.2 million over the length of the contract and incentives that could push the deal to about $7 million. Major league contracts are not usually given to draft picks. As stated in the linked press release, Hochevar will become the fourth No. 1 selection of the draft to sign a major league deal in the last 20 years. The others were Alex Rodriguez in 1993, Pat Burrell in 1998 and Delmon Young in 2003.

Signing a major league contract can be beneficial to the club because it allows the club to defer payment of the signing bonus by spreading it out over the term of the contract (typically backloaded). Whereas, signing a minor league contract requires the club to pay the entire bonus before the end of the calendar year of the year following the draft (i.e. within 18 months). Major league contracts are beneficial to the player because the player must be placed on the 40 man roster right away and the 3-year option clock starts ticking. In other words, the club has three years in which to get the player on the 25 man roster or risk losing the player to another team through waivers. Although signing a major league contract does not affect the player's eligibility for arbitration or free agency, it can potentially create roster problems for the club if the player is not ready for the big leagues after three years due to the option rule.

Hochevar is represented by Scott Boras. He was drafted out of the University of Tennessee by the Dodgers as the 40th overall pick in 2005, but did not sign. John Manuel and Kevin Goldstein of Baseball America wrote a really interesting article last year (9/5/05) outlining in detail the fiasco that lead to the failure of the Dodgers and Hochevar to reach agreement ("Hochevar Negotiations Get Weird"). In a nutshell, Hochevar (with Boras as his "advisor") was holding out with the Dodgers (imagine Boras doing that!) and they were unable to reach a deal after the 2005 draft. Another agent approached the Dodgers and negotiated a $3M signing bonus. Hochevar then terminated Boras on Sept. 2 before signing the contract, but that evening Boras convinced Hochevar that he was worth much more and convinced Hochevar not to sign and to stay with him. Hochevar decided not to play his senior year at Tennessee and played in an independent league so that he could continue negotiating with the Dodgers up until the 2006 June draft. Since they still did not reach agreement, Hochevar re-entered the draft and was selected by the Royals with the first pick.

From a purely economic standpoint, Boras definitely called this one right. All along Boras had been saying that Hochevar is comparable to 2005 draftee (and Boras client) Craig Hansen, who received a $1.3 million bonus and a guaranteed $4 million major league contract, and to Philip Humber, the Mets’ 2004 first-round pick who signed for a $4.2 million major league deal with a $3 million bonus. On the other hand, Hochevar's holdout prevented him from gaining valuable experience for two seasons playing for an organization in a much more competitive atmosphere than the independent league, which I believe has tremendous value that obviously can't be measured from an economic standpoint.


Thankfully Hochevar didn't turn into another Boras client - Matt Harrington. But I wonder how much money he lost by postponing arbitration and free agency by one year. While it's not the $100 million decision that going to college is for a Lebron James, the postponing arbitration and free agency could cost him more in the long run than his increased salary in his initial contract.

Anonymous PK -- 8/04/2006 10:58 AM  


It's not certain right now if he has in fact postponed arbitration and free agency. However, you are right IF in fact his not playing for two seasons in the minors ends up delaying his playing in the big leagues because arbitration and free agency are based solely on service time (signing a major league contract does not affect eligibility for arbitration and free agency). You're point is well taken though, because I believe that it's more likely than not that his time off will delay his entry into the bigs.

Blogger Rick Karcher -- 8/04/2006 11:59 AM  

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