Former Jay front officer Keith Law has an interesting article advocating for the elimination of the draft pick compensation system in baseball.
Law first calls out the Elias rankings (used to calculate compensation) as being inaccurate, nonsensical, and outdated. He then moves onto the more interesting part of his argument, which is that the draft pick compensation system is described as an redistribution to smaller market teams who are losing their free agents, but it actually functions as a giveaway to owners by depressing trade value and free agent salaries. For example, no one wants to give up a draft pick to sign Varitek or O-Cab, so they will not get as much money as they otherwise would.
I tend to agree with Law that the draft pick compensation system does not help small market teams disproportionately - the larger market teams are the ones who can afford to sign more players to deals and can afford to pay players for the length of the deals, then offer arbitration. Yes, small market teams have their home-grown players, but they take 6 years to yield compensation and most free agents that the larger-market teams are signing are for shorter deals than that. Anyone can make a trade, but a team trading for a player in the last year or two of a deal (or before free agency) is more likely to be a large market team, all things equal. The bottom line is that large market teams are bringing in more players, which means they are seeing more players reach the ends of their deals and probably getting more compensation. Neither Boston in the 2005 draft nor the Jays in their 2007 draft would properly be considered a small-market team.
Here's Law's argument that draft pick compensation depresses the trade market:
Eliminating draft-pick compensation would also boost the trade market. Right now, a team with a top player headed for free agency may look to trade him a year or half a year before it loses him, but it can always retain him and hope to obtain one or two draft picks when he leaves. Without that alternative, a team that's out of the playoff race in July would have every incentive to trade its potential free agents, because holding on to them until season's end would mean receiving no value at all when they depart.
Sure, but this means that draft compensation increases trade value. If you are foregoing a draft pick or two by trading a player during the last year of his contract, you are going to value keeping that player more and therefore will need more in return for a trade. This again works to the benefit of teams who have more players in walk years, which are likely to be more often bigger-market teams for the reasons I explained earlier.
Another factor is that we also know that draft picks are not all created equal. A team willing to go over slot can expect a better return on their draft pick. Bigger market teams are generally more willing to go over slot. The Jays have stuck to slot, in no small part because of currency equalisation payments the team has gotten in the past.
Law leaves this little nugget about a salary cap, which is interesting right now given the situation:
it's another example of owners taking advantage of the economic ignorance of fans and writers who are yelling and screaming for a salary cap right now. (Salary caps in sports are just wealth transfers from players to owners.)
This is the kind of unsupported argument by assertion that makes some of Law's writing so frustrating. But no worries - I found an excellent article on Umpbump on the perils of the salary cap. The article sets forth the view that owners unable to spend the money they make on players (and they will be making it under a salary cap) will just pocket the money. It is hard to disagree - a salary cap would transfer wealth from players to owners. But it is also hard to argue that it would not increase parity in the league. As Bill James said, would you play in a fantasy baseball rotisserie league where another team could spend $200 on players and you could spend $70?
The article also argues that the luxury tax creates perverse economic incentives because it transfers money from teams who want to spend on players to teams who don't. This is incorrect - as structured, the luxury tax transfers money from teams who want to spend an amount in great disproportion to the rest of the league to teams who don't. Further, Iit would be very easy to restructure the luxury tax so only teams who spent a certain amount on players would be able to benefit by it, thereby disincentivizing cheapie teams like the Marlins who don't want to spend a nickel on players but who want to enjoy the benefits of the luxury tax.
What do y'all think about a salary cap?