As the clock struck seven on the evening of June 5th, the Houston Astros stared with wide eyes at a deep draft board. The organization held a handful of early picks and $13,362,200 in available spending, the most of any team, putting it in an position to load up its minor-league system with high-level draft talent. But 42 days and 22 hours after the Astros announced the first selection of the 2014 draft, the front office somehow found itself with one of the lightest pulls of the draft, a bruised reputation, and public scorn from both the MLB Players’ Association and one of the game’s most high profile agents.
This was only the third time in the history of the draft, and the first time in 30 years, that the first overall pick had failed to come to terms with his drafting organization. The impasse was especially notable because the two sides had appeared to agree to terms quickly after the draft, a month before the signing deadline.
What follows is a summary of the players involved in this drama, an analysis of the sequence from draft day to the signing deadline, and some conjecture as to what lies ahead for each of the participants.
The Players
Brady Aiken (LHP, Cathedral Catholic (San Diego, CA)), a UCLA commit, was a consensus top three talent in the 2014 draft class, considered by many to be the top overall draft-eligible prospect. He entered June offering potential front-end stuff, good athleticism on the mound, physical projection, projection in his arsenal, and advanced feel for a prep product, all from the left side.
Jacob Nix (RHP, Los Alamitos (Los Alamitos, TX)), also a UCLA commit, was considered a developmental project, but one with solid upside, drawing mid-rotation projections from some. Due to the perceived strength of his commitment to UCLA, most figured it would take seven figures, and perhaps as much as $2 million, to buy him away from the Bruins, making him a likely target later in the draft for teams with a spending pool surplus.
Casey Close, agent and advisor with Excel Sports Management, is one of the most highly decorated, and respected, agents in the game, and served as advisor to the Aiken and Nix families in connection with the draft. NCAA rules stipulate that in order for students to maintain eligibility they must not (among other things) engage an agent to represent them in negotiations with professional sports teams. Accordingly, a player may hire an “advisor” to step them through the process and give advice in negotiations, but the only individuals who may interact directly with the team and its representatives are the player and his parents or rightful legal guardians.
The Houston Astros. Outside of the Miami Marlins, no team in baseball could even come close to Houston’s ability to add significant talent from the 2014 pool of draft-eligible players. The Astros were allowed more than $13 million in potential spending. Further, the combination of picks gave them more “opportunity leverage” than any other team, as they could expect to receive more value at some draft spots than they would pay in bonuses. Overall, the organization had the first overall selection, three selections in the top 42, and five selections in the top 106—all in a very deep draft class.
Setting the Stage
Breaking Down Houston’s Draft Class
Through their first 22 picks in the 2014 draft (carrying through the 21st round selection of Mac Marshall), the Astros grabbed just four high school players—Aiken, Nix, Marshall, and 19th rounder Rueben Castro (C, Puerto Rico Baseball Academy (Gurabo, PR)). This is consistent with the front office’s approach, which places a premium on college talent—a cross-section of the draft that better lends itself to statistical analysis (though many would consider the utility of that analysis limited; a discussion for another day).
One upshot of the strategy this year is that it provides a clear tell of where the organization expected to spend its pool allotments. Upon completion of the draft on June 7th, it was announced that Aiken and the Astros had agreed in principle to a deal for $6.5 million, strongly hinting that the two sides were on the same page prior to Aiken’s selection, common for a first overall selection.
With around $7.9 million allotted to the Astros for the first overall pick, Houston would thus save $1.4 million, which could be spent elsewhere in the draft to help sign a player who required more money than his draft slot allotment otherwise allowed. There were only two candidates in Houston’s first 22 picks that would reasonably require such a bonus: Nix (fifth round) and Marshall (21st).
Under the new Collective Bargaining Agreement, only draft picks in the first three rounds are “protected,” such that a team failing to sign the player receives a compensation pick in the following draft year. Because the Astros elected to use a non-protected, relatively early round pick on Nix, we can safely assume that selection was made with a high level of confidence that a deal could be reached.
The other evidence that the Astros believed they would sign Nix is that we don’t see any sort of “backup plan” for that $1.4 million, outside of Marshall. What’s interesting about this is that Marshall was selected a good five to 10 rounds later than you would generally see a team choose a “backup” for a potentially difficult early-round sign. That is, if a team truly expects there might be a chance that an early round pick will not sign, you generally see that team provide itself an out with a specific target just outside of the top 10 rounds (the top 10 rounds being the rounds that produce the organization’s pool allotment, and therefore generally reserved for players the team is confident it will ink). In order for the Astros to end up with Marshall, 29 teams had to pass on him roughly 20 times apiece—hardly an indication that Marshall, as a specific target, was a high priority.
We saw the Astros take this “fallback” approach in 2012 when they popped Hunter Virant in the 11th round as insurance for Rio Ruiz, a fourth round selection believed to require an over-slot investment in order to sign. (The Astros ultimately secured his services at a cost of around $1.8 million). Conversely, in 2013 Houston had relative cost certainty in their top 10 picks, with 10th rounder Austin Nicely the only selection likely to require significant over-slot investment. (He signed for around $600,000, with around $475,000 of that bonus available thanks to first overall selection Mark Appel’s below-slot deal.)
Without belaboring the point, the composition of Houston’s 2014 draft class, and the lack of a traditional “backup plan” selection in the first few rounds outside of the top 10, point to three facts: 1) The Astros had relative cost certainty with their picks in the top ten rounds, 2) the Astros were not looking to significantly leverage back-up options in closing the deal with Nix, and 3) Houston really wanted Nix and Aiken. And it expected to sign them.
June Timeline
A deal in principle between the Astros and Aiken was announced just days after his selection. Shortly thereafter, news leaked that Nix was believed to also have a deal in place for $1.5 million, which left a few hundred thousand dollars of wiggle room for the Astros to complete the remainder of their negotiations.
Aiken and his family flew to Houston to complete his physical and sign his paperwork, with the Astros undoubtedly excited to announce his formal signing and introduce him to the Houston fan base. But an MRI revealed “issues” with Aiken’s elbow and the Aikens left Houston without a deal. Sources have indicated the issue with Aiken’s elbow is structural, intrinsic to Aiken’s elbow—not a matter of existing injury or damage. The Astros have not claimed Aiken is injured, and the SoCal prep product closed his year throwing comfortably in the mid-90s, both in high school game action and in pre-draft workouts.
After the physical, the formal offer of $6.5 million was pulled. Houston instead submitted the minimum formal offer required to ensure a 2015 compensation pick if Aiken didn’t sign (40 percent of the slot allotment, around $3.2 million in this case), as well as an informal offer of $5 million, a further $1.5 million discount from the initially agreed upon bonus.
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That specific discounted amount would free up just enough money to make an earnest run at signing Mac Marshall. Per John Manuel of Baseball America, Houston did just that, reaching out to Marshall around the time that Aiken’s $6.5 million offer was pulled off the table. The inference is that the Astros were still very much interested in signing Aiken, but only for an amount that would allow them to sign Marshall, as well.
At this point the breakdown in negotiations took a hard turn, as Casey Close escalated the dispute to a public matter, stating that “we are extremely disappointed that Major League Baseball is allowing the Astros to conduct business in this manner with a complete disregard for the rules governing the draft and the 29 other clubs who have followed those same rules.” Houston countered by noting they believed they were acting in accordance with MLB rules and had been careful to ensure compliance throughout the negotiating process.
The signing deadline passed on Friday, July 18th. Per Major League Baseball’s draft rules, the failure to sign Aiken meant the Astros lost their access to the entire $7.9 million allotment for the first overall selection. With that allowance gone, Houston no longer had the savings needed to sign Nix and, accordingly, pulled his offer as the deadline passed.
While this is not the first time a high draft pick has failed to sign, this is by far the ugliest such incident under the new Collective Bargaining Agreement, with the top overall selection and his drafting team disagreeing about an MRI, and a third party (Nix) caught in the fallout. From the failed physical onward, the negotiations were dysfunctional enough to cause the player’s advisor to go public, and to cause the MLBPA to issue a scathing statement after the signing deadline passed:
“Today, two young men should be one step closer to realizing their dreams of becoming Major League ballplayers. Because of the actions of the Houston Astros, they are not. The MLBPA, the players and their advisers are exploring all legal options.” —Tony Clark, Union Head
The ultimate resolution left no party happy, and it left the Astros’ front office with yet another piece of bad PR to add to the growing pile. So who is to blame, and how could this have been prevented?
Understanding BATNA; Where the Astros Lost Their Leverage
In any high-leverage negotiation—indeed in any “basics of negotiation” class—the first task of the negotiators is to identify their best alternative to a negotiated agreement, or “BATNA.” Essentially, this is a party’s best case scenario if they are unable to come to terms with the person with whom they are negotiating.
At the top of the draft, leverage is fairly balanced, as a general matter. Teams are seldom, if ever, interested in risking the loss of their largest slot allotment and highest valued talent acquisition, while players are highly incentivized to grab the big payday that comes at the top of a draft, rather than risk injury or poor performance in subsequent years. Because both parties are highly incentivized to reach an accord, a great deal of resources are put into vetting potential draftees to make sure their bonus expectations and the drafting team’s spending expectations align.
As variables are introduced to a negotiation, that leverage can skew to one side or the other. One example of a variable resulting in the drafting team having extra leverage would be a late season injury, like we saw this year with Jeff Hoffman (drafted 9th overall) and Erick Fedde (drafted 18th overall). Because of the timing of those injuries, neither pitcher had a good alternative to signing. They are unlikely to be back at full strength in time to demonstrate their health before next year’s draft. Accordingly, we saw both Fedde and Hoffman fall deeper in the draft than a healthy version of each would have lasted, and both drew bonuses well below what was expected prior to their injuries. The drafting teams get the big upside at a discounted price in order to account for the shift in leverage.
Conversely, a high school player or underclass collegiate draftee might have natural leverage due to his ability to head to a four-year school and attempt to grow his draft value (though the closer the top of the draft, the less that leverage matters, as the player will have a harder and harder time improving his stock the next time around).
One recent example of a player creating leverage for himself is Kevin Gausman.
Gausman was drafted fourth overall by the Baltimore Orioles in 2012. He and his advisors were able to drag out negotiations until late in the process, eventually identifying a point when Baltimore looked unlikely to reach agreement with some late round over-slot draftees. That left an excess of pool allotment, which Gausman demanded and ultimately received. The argument, in flat language, goes something like this: “We both know you are a rebuilding club that can’t afford to lose your top draft pick, and we both know you don’t have anything else to spend that pool allotment on. Give it to me.”
This can be a tricky argument to make, but Gausman had some built-in leverage as a draft-eligible sophomore, and the excess he demanded was not so much that it would sour Baltimore on its investment. This year we saw the White Sox short-circuit any ability of the player and his advisor to create leverage by signing all of their picks before turning to their first selection, Carlos Rodon (who went third overall). The Sox knew Rodon was looking for an over-slot deal, even at third overall, and by signing their other picks they were able to create a cap on what Rodon could ask for. He ultimately ended up with a bonus that was roughly 10 percent over slot, giving him and his advisor a deal they could happy with while avoiding a hard-nosed negotiation as they moved toward the signing deadline.
The Astros seem to have done a solid job of identifying their targets, and the aggregate expense of those targets. The selection of Aiken and Nix, as well as the relatively quick announcement that agreements were reached in principle, indicate that all parties were on the same page. However, Houston’s comfort with its plan was also its undoing.
Because the Astros were so comfortable with the demands of their draftees and the amount of money the organization had to spend, the front office failed to build in an adequate failsafe for a complication that should be foreseeable, especially when selecting a pitcher: What if something unexpected comes back in the medicals?
There is currently no formal mechanism for teams to get access to pre-draft medicals (something that will likely be remedied in future CBAs), so organizations are left to review whatever the player decides to make available. Anything a player elects to be made available to one team must be made available to all teams. Because of this huge unknown hanging over these draft picks—particularly pitchers—it is incumbent on a front office to cover its bases and account for the possibility that the goods they plan to buy might have some unseen defects. To say this game planning is of paramount import when dealing with the no. 1 selection in an entire draft class would be a massive understatement.
As noted above, the Astros had essentially one fallback option in their draft class, and that was Mac Marshall. His demands seemed to match up with those of Nix, making him a fine fit to check the box on that front, but the team had no plan whatsoever to account for the scenario they were actually presented with. What if there was something non-catastrophic in Aiken’s medicals that added to the risk profile?
All medical concerns are not created equal, and while the industry has found some level of consensus that, say, a frayed tendon is a significant concern, there is a large gray area. Multiple medical experts could disagree on the level of risk that should be assigned. That is where Aiken’s “structural issue” falls. The result is additional leverage on the team’s side, but that leverage is limited because the player's side might not agree on the level of risk—and, therefore, might not agree on how much leverage was lost. So long as there is relative uncertainty there, parties have to be reasonable as to the extent to which leverage in the negotiations has shifted.
The final piece here is the idea that simply saving money on the pick has limited utility. We will flesh this out below, but the best case scenario when additional risk surfaces with respect to a drafted player is that player is willing to take a discount such that you can now sign other players you have drafted, giving you a shot at bringing in and developing another asset that could save your organization millions down the line.
While we can’t be certain that Aiken and the Astros would have reached an agreement at $6 million or $5.5 million, having one or two other backup options willing to sign for various bonus amounts would have given the Astros something else worth pursuing—options that split the difference between the full agreed-upon $6.5 million and a 20 percent slash.
The Astros painted themselves into a corner by not taking the simple step of spending even one additional pick in the top 20 or so rounds on a college bound player whose profile they found interesting and who could potentially be signed for somewhere between maybe $500,000 and $1 million. Instead, they put themselves in a position where only an indisputably significant condition uncovered in Aiken’s medicals would free up enough money for the team to hedge its bets with additional acquisitions. When the Astros neglected to adequately plan for unknown medical complications they ceded any opportunity to leverage the results of those medicals.
Advising Aiken
It’s a big deal for a player to turn down $5 million. History shows us that passing on big seven-figure deals seldom, if ever, works out for the player. So did Aiken, be it on his own or through advice from Close, misstep in turning down the Astros, even if it meant taking a 45 percent discount on slot?
Let’s take a step back and look at Aiken’s BATNA. He could go to UCLA with the hopes of following in the footsteps of Gerrit Cole, who was likewise drafted in the first round and turned down seven figures to honor his college commitment, emerging three years later as the top overall selection in the draft. That route carries with it three years of risk: potential injury, developmental blips, or even something as simple as dissatisfaction or discomfort with life in college or the coaching staff. (Note, in no way am I suggesting Coach Savage or his staff have any reputation for being difficult or not providing a fertile ground for development in the Bruins program.)
Aiken could also go the JuCo or independent-league route were he interested in retaining eligibility for next year’s draft. This shortens the window wherein injury or developmental blips might sprout up, but also limits his exposure. That could impact his draft stock when organizations get limited views against inconsistent competition, while other draft-eligible players are in more traditional situations against top collegiate contemporaries.
In a vacuum, none of those options is particularly appealing when compared to a $6.5 million bonus, or even the $5 million “final offer” put on the table by Houston. So again we ask, should Aiken have simply sucked it up and grabbed the money?
Were the Astros able to create more leverage as a result of the medical findings, I have to think Aiken almost certainly would have been forced to sign a deal. That leverage could have come in the form of a more clearly discernable risk associated with the medical findings or a better BATNA for the organization. In each case, assuming that Aiken is indeed currently healthy and that there is indeed legitimate uncertainty about the level of risk that should be assigned to the “structural quirks“ in Aiken’s elbow, there just is not enough here for the Astros to shift gears from an agreed upon deal to a significant slash in bonus. There’s not enough leverage to justify a hard line approach to negotiations.
The other side of that coin is that a healthy Aiken might be supremely confident in his ability to stay healthy for one more season, be it at a JuCo or with an independent team (likely working out for big-league clubs leading up to the independent-league seasons, which tend to start later than the early February start for JuCos). Add to that the fact that Aiken is one of the younger members of his draft class and you get a situation where Aiken would enter the 2015 draft younger than some of the top high school seniors.
Is that alone enough to make him pass on the $5 million final offer? Maybe not, but it certainly pushes the needle in that direction. The final variable to take into account: Is there anything specific to the drafting organization that would discourage Aiken from deciding to commit the next six to nine years, minimum, of his baseball life to the folks in charge in Houston. This is where the specifics of the negotiations, and the mounting bad press surrounding the organization, likely ultimately undid the Astros, and eviscerated any perceived leverage the organization thought it held.
Were I advising Aiken, the purported squishy nature of the Astros’ concerns with his medicals would give me pause before swallowing a 45 percent discount on the slot allotment for the best player in the class. Adding to my wariness would be the coincidence that the team is adding an increased risk value that coincides exactly with the amount that another draftee is rumored to be asking for, and the team is rumored to have reopened talks with that player.
It would be impossible for me to move forward with advising negotiations thinking anything but that the organization is placing a higher importance on landing this other player than it is on reaching a good faith agreement with my client (Aiken). Assuming we were all in agreement that the agreed upon $6.5 million bonus should be reopened for further discussion, the idea that those negotiations should center around a figure that gives a 21st rounder his desired bonus would be highly frustrating at best, and devastatingly insulting at worst. The focus should be on reaching an amicable resolution with Aiken, then working to see if you can convince Marshall to sign for whatever is left over.
An ancillary issue to consider would be the struggles the Astros developmental staff has encountered in bringing along last year’s no. 1 draft pick, Mark Appel, and the deliberate nature in which the Astros have been developing and promoting their prospects. Add to that the piggy-back approach to developing arms in the lower levels and you have a situation that has the potential to be less than welcoming. That is not to say the Astros are doing anything wrong on the developmental side. Only that there is at least enough here for Aiken and Close to have seriously considered whether waiting to be drafted by another club was ultimately a tolerable outcome.
Where Aiken and Close outmaneuvered the Astros, creating enough leverage to make walking away a worthwhile option, was in getting the MLB Players Association involved, putting added pressure on the Astros and the commissioner’s office. While it’s highly unlikely Aiken will be granted free agency, that is an option that the commissioner’s office has utilized in certain circumstances in the past. By getting the Players Association on board for the fight, Aiken and Close strengthened the odds of Aiken being given the opportunity to avail himself to the market, even if it was only from, say, a two percent chance to a seven percent chance (both figures hypothetical examples).
The sum of the factors in Aiken’s favor in a potential grievance hearing include (1) the Astros requesting a larger discount in bonus than we have otherwise seen in cases involving indeterminate medical conditions, (2) the Players Association commenting during negotiations that it was troubled by the way the Astros were conducting business, then releasing a statement after Aiken failed to sign indicating it would be looking into taking on Aiken’s cause, (3) the Players Association having previously expressed concern with the Astros’ treatment of service time issues and general payroll concerns, (4) Aiken by all accounts being fully healthy at this point in time, and (5) a general feeling of frustration in the industry with certain modes of operations employed by the Astros, including most recently the security slip-up that resulted in a database filled with private discussions with other organizations being made public. All of this is underscored by the virtual lotto ticket that is the commissioner’s office’s ability to grant Aiken free agency, which would likely land him a contract in excess of $30 million.
Taking all of this into account, was Aiken right to pass on $5 million? Time will tell. What we do know is the Astros seem to have completely botched the draft from beginning to end. First, by not building in adequate fallback options to give themselves a satisfactory outcome should something less than $1.5 million in additional risk pop up on the Aiken front. Then, by taking a hard-lined approach to negotiations while simultaneously slashing Aiken’s bonus an additional 20 percent post-medicals—an approach that completely undersold the viable option Aiken had to walk away, healthy, and re-enter the draft next year as one of the youngest non-high school talents in the class.
Finally, Houston seems to have not even taken into account the fact that there is a non-zero chance that Major League Baseball could force them to honor their agreement with Nix. Were that to happen, the Astros would be well above their permitted draft spending per MLB rules, thanks to Aiken’s slot allotment evaporating. This would cost them seven figures in penalties and the loss of their next two first-round picks. While this outcome, like Aiken being declared a free agent, seems unlikely, the fallout from such an occurrence would be such a disaster that its mere possibility actually tips the leverage further toward Aiken and Close. In other words, by the time last Friday rolled around Houston was somehow operating as if it had a clear upper hand in negotiations, while reality shows us no one needed a deal more than the Astros.
The totality of facts, as we know them, seem to indicate that Aiken might not be in such a bad position re-entering the draft in 2015. He also has an outside shot at free agency and a huge payday, and will not be shackled to an organization which he and his advisor have clearly come to feel operates in a craven and disingenuous manner. I hesitate to say I’d ever advise any amateur to turn down a significant seven-figure bonus, but in this instance I can’t say I disagree with anything that Aiken and Close have done. In any negotiation, once you have reached a point where you feel the other side is not negotiating in good faith (whether that is perception, reality, or both) it is very difficult to get comfortable with any deal.
Should the Nix Agreement be Upheld?
Nix was collateral damage, and as an unrefined and less heralded prospect finds himself in a much less enviable position than does Aiken. Many talking heads have insisted that the only equitable outcome for Nix is Major League Baseball forcing the Astros to honor the agreed-upon deal, the argument being that it is unfair for one player’s deal to be contingent upon the consummation of another player’s deal. Others have asserted he had a verbal contract in place and should be awarded damages in an amount equal to his agreed-upon bonus. Unfortunately for Nix, I have a hard time finding any merit in either of these assertions.
Tackling the latter first: while a verbal agreement may be enforceable as a matter of contract law, Nix would first have to show evidence that the Astros’ offer was unconditional and that he reasonably relied on the agreement to the extent that he suffered damages (e.g., that he told other teams not to draft him).
Were that the case, evidence of that arrangement would require the Astros and Nix to have reached a formal pre-draft agreement, which runs counter to MLB rules. Further, I would be shocked if the exchanges between the Astros and Nix showed no indication, explicitly or implicitly, that the bonus was contingent on that amount being available within the pool allotment.
Further complicating Nix’s case is the fact that he was receiving advice from an experienced agent/advisor, whose expertise should have been such that he explained to Nix that being drafted does not ensure that a deal will get done, and that variables (including Nix’s own physical) could lead to an agreed-upon deal falling through. Because of the nature of draft negotiations, it seems unlikely that a court would find an enforceable agreement in place until such time as the team and player have in place a signed deal approved by the commissioner’s office.
As to whether Major League Baseball should, or could, force the Astros to honor their agreement with Nix, the case is a little stronger, but only because the commissioner’s office can essentially do whatever it wants within reason. The big issue I see is with establishing precedent. The commissioner’s office certainly doesn’t want to give players and agent advisors incentive to try and subvert the pool allotment process. Further, as frustrated as Nix and Close must be with the fallout from the Aiken negotiations, absent a signed and submitted agreement it seems clear on its face that the Astros did not consider the Nix deal formal and had no intention of formalizing the Nix deal until Aiken was signed and the organization was certain to have adequate pool space to pay Nix the agreed-upon amount.
What’s next for Aiken and Nix
The best-case scenario for each is to be declared a free agent. This seems unlikely, as Major League Baseball doesn’t want to encourage the filing of grievances on the grounds that a drafting team was not negotiating in good faith. By all accounts outside of some general comments from Close and the MLBPA, it does not appear the Astros violated any rules, and I have to believe it would take a special set of circumstances for the commissioner’s office to open up that can of worms.
Ideally Aiken and Nix will be able to attend UCLA or a junior college of their choosing, though the public nature of these disputes may push the NCAA to investigate the situation to make sure there was no violation of the “no agent rule.” One would hope that the NCAA does not elect to go that route, but there is certainly a real threat that either or both of these UCLA commits could be suspended from participation with the Bruins baseball team for a period time, or even prevented from playing ball at UCLA. Junior colleges have looser eligibility rules, but it’s conceivable they could be barred from pitching there, too.
If the college door is closed, Aiken and Nix will be forced to work out privately (or publicly) for pro teams next year and perhaps find an independent club with whom they can spend some on-field time in April and May leading up to the draft. This is less than ideal, but would still afford each player the opportunity to showcase his stuff and carve out an early round spot in next year’s class.
We should also note that while there have been no public comments dealing directly with any negotiations between the Astros and Marshall, the public nature of these disputes could also lead the NCAA to take a cursory look into the matter.
What’s the fallout for the Astros?
The Astros continue to take it on the chin in the arena of public opinion. As noted several times earlier, there isn’t any way to spin this for Houston. You simply cannot allow your entire draft to implode over a perceived medical issue that is insignificant enough to determine the player is still worth a $5 million investment. Also as noted above, this series of events exposed a hole in Houston’s process, whereby the organization left itself little room to maneuver when it was determined that the team should be doing something to counterbalance Aiken’s perceived risk.
Houston takes a very college-centric approach to its draft, and as a matter of process time will tell whether they are investing their resources in the best manner. But if that is to be their focus, the organization is doing itself a disservice by not allowing for some flexibility in its negotiations with the high schoolers it does elect to draft. Of course, this becomes a non-issue if the team is comfortable with leaving some money on the table.
The impasse arose when the Astros decided (my assumption based on the facts before us) that it needed to be able to make a run at signing Marshall in order to make the Aiken and Nix signings worthwhile. They misunderstood Aiken’s BATNA, soured Aiken on the organization, and have once again given fodder to critics who feel the organization is run in too analytical a fashion at the expense of relationship building and recognition of the human element.
That critique is one reserved for a different time and place. What should be evident to everyone, regardless of where you come down on the various issues at play in this odd draft drama, is that Houston’s process failed this time around, turning best situation in all of baseball into one of the lightest talent pulls in the league, on paper. The organization has further estranged its relationship with the MLBPA and has put the commissioner’s office in a situation where it will likely have to make some uncomfortable decisions as to the fate of Aiken and Nix, with the MLBPA watching closely and publicly invested in the outcome.
Failure to sign the top talent in the draft class over $1.5 million? Check. Lose the ability to sign your second or third most valuable draft asset (measured by bonus amount)? Check. Draw the ire of one of the most successful agents in the game as well as the further scorn of the MLBPA? Check. Leave open the possibility that the commissioner’s office will force you to honor an agreement with your fifth rounder that will effectively cost you seven figures in draft tax and the loss of your next two first rounders? Check.
You would be hard pressed to script a believable failure larger in scope, and more sweeping in potential fallout, than what we’ve seen with the 2014 draft efforts of the Houston Astros.
Nick J. Faleris is a practicing structured finance attorney and Sports Industry team member in the Milwaukee office of Foley & Lardner LLP. The views he expresses at Baseball Prospectus are his own, and not necessarily
those of the law firm.
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One question though, wasn't Houston BATNA in this situation making Aiken a qualifying offer, having him turn it down, and getting the second pick in next year's draft? I'll admit if that was their decision raising your offer from $3.1mn to $5mn doesn't make a hole lot of sense (not to mention losing Aiken = losing Nix), but at some level don't you think Houston thought they were better off with the 2nd pick next year vs an Aiken with questionable health?
I'm obviously not negotiating this deal, but I've been involved in a lot of high leverage negotiations with big time tension and hot heads. When you see negotiations slipping off the rails it's so very important to hit the brakes and try to reset things. Once you've tipped past the point where you think the other side isn't negotiating in good faith it's really tough to get that level of trust back.
Even if Aiken is worthless the Astros could have thought that Nix + Marshal >> having the second pick next year. Any value from Aiken could have been a bonus.
Of course, this indicates that there would have been a bigger disconnect between the sides regarding the extent of Aiken's injury, but makes the Astros negotiating strategy make more sense in that they assumed Aiken's issue was so bad that he would have to take pretty much whatever they offered.
If there weren't limit, does anyone really think Houston would've gone through all of this just to save $1.5 mil or so?
Let's assume that the Aiken/Nix mess does not affect their draft for 2015. Houston will have the 2nd pick in the draft (and the money associated with it) due to Aiken not signing, plus what is most likely to be a top-6 pick (currently 4th from bottom in the standings). However, they have zero recourse if they cannot find a deal with the #2 pick. Which most likely means that the #2 pick is probably going to be a slight overdraft and negotiations for the (most likely) lower pick are going to get a little rough because they will know Houston has a lot of draft dollars.
I assume that Houston's plan would be:
-slight to moderate overdraft at #2
-best-ish available at #1,3-6
-collection of hard signs with their later picks (which if they hit, might be nice...but probably means that in the top 10 rounds, they are going to lose 1 or 2 just due to lack of money)
Given that their total expenditures for 2014 & 2015 will be within 2-3 million what might have happened if they had signed Aiken/Nix this year, that's a sizable drop in talent purchased in the draft over two years for the Astros.
Although I still think they overdraft at #2 because then the fallout from this just continues to linger for the Astros.
I think your analysis is well thought out as a general matter. My best guess would be that Houston approaches the two picks as the otherwise would; trying to get the best return on their money invested. Could be straight investment playing board or gaming some to free up cash if the right targets are expected to be available later.
I have to wonder about whether this situation would have turned out differently if Nix and Aiken didn't have the same advisor and personal connection with their UCLA commitments.
Granted, it was very likely a tactical decision by the Astros to draft Nix. He was a purportedly tough sign, but they knew that he had the same advisor and college commitment as their #1 pick, who they would have known would sign for under slot.
Has there been precedent with a 1st round pick in a tough negotiation switching "advisors" post-draft, pre-signing?
Also, I think it's important to note that Close clearly assisted Aiken in making a decision that was right for Aiken, even though Nix ended up collateral damage. By all accounts it looks like he handled the situation ethically and professionally.
I'm not a doctor (or at least not "that kind of" doctor), but I would love to get a good, clear report on the medical situation with out-of-the-ordinary pitching elbows to match the terrific work you've done here with the legal side.
The issue is whether or not the NCAA is going to actually enforce a stupid rule when it will result in an obviously unfair result. They've done it as recently as a year ago, so most folks with any expertise writing about this incident will be 'no commenting' on this matter in a collective wish to give the NCAA plausible deniability to look the other way
That's all? What business does the NCAA have looking at phone records? I wouldn't be surprised if they obtained them, but it still shocks me the level of reach that this organization has. Why would anyone comply with them and why don't the schools just ditch the NCAA altogether? Everyone would be better off if the NCAA went away.
Schools don't ditch the NCAA because they make too much money as part of the NCAA, and also because the NCAA is a legal shield that limits the liability a school might have without it. Athletes might be better off if the NCAA went away but schools would not.
The basic rules are that if you want to be an athlete at an NCAA school, then you have to abide by the NCAA's rules, which include submitting to more or less unlimited investigative powers to make sure you are complying. Given that an advisor is an employee of a student, their phone records are probably fair game. NCAA gets way, way more intrusive than that in some investigations (google around and find out). At a gut level it feels wrong because it's an invasion of privacy, but academic grades are also a private matter and it's totally uncontroversial for the NCAA to demand those to verify academic eligibility.
http://blog.chron.com/ultimateastros/2014/07/18/jeff-luhnow-on-the-failed-brady-aiken-signing-and-whats-next/
I don't care if this is technically speculation, the Astros very clearly tried to gain leverage by threatening Aiken's NCAA eligibility - why else would Luhnow go out of his way to try to torch that eligibility like this? - and that's what pissed Aiken and Close off so much. Fire Luhnow now.
But am I wrong? Tell me where I'm wrong. I want to be fascinated by this theory.
If the Astros didn't believe Aiken was broken (worth less than 3.1 million), then they were disingenuous and stupid. Luhnow might be criticized for being cold-hearted, too wed to his stats, and disingenuous, but I personally don't buy into any notion that he is stupid in this manner. Crane yes; Luhnow no.
All told, it comes down to the Astros analysis of the "injury" and since no one in the public is privy to the info, nor likely capable of true analysis if they had the info, they are criticizing in a vacuum. Criticizing just to criticize in many cases.
http://bleacherreport.com/articles/2138063-under-the-knife-mlb-injury-analysis-on-tulowitzki-teixeira-wacha-and-more
I'm fine with not planning for a small probability event, so long as you don't let that small probability event sink your other plans. Had Houston simply walked away after the $3.1 MM offer, indicating they actually believed Aiken was no longer a worthy investment, I think the story would be a lot different.
1) Aiken was only worth a $3.1 MM investment, but
2) Aiken + Marshall + Nix was worth a $5 MM investment.
I would be very interested to see evidence otherwise (if that was in fact Houston's calculation). History (and research tells us that the practical value of over-slot draft prospects (and HS arms in particular) is much much lower than their theoretical value, since so very few of that cross-section of draft profiles pan out, relative to other draft profiles.
See my below comment regarding my feelings that there would have to be interesting math for 1) Aiken to be unworthy of signing for more than $3.1 MM but 2) Aiken/Marshall/Nix being worthy of investment at $8 MM.
It seems to me as a complete outsider that the Astros took a calculated risk after Aiken's physical to make the minimum offer possible in order to ensure the compensation pick next year. It's hard for me to believe they had an intention of signing Aiken at all at that point. To me, the last minute nature of the $5mm offer smells like a PR attempt to save face and have a defense if the MLB or MLBPA sought further action. Or, more cynically, maybe the MLB's efforts to make the draft a public event on par with the NBA/NFL drafts means that Houston felt pressure to keep trying to sign Aiken even after they decided they were ok without him.
If they have stayed at the minimum and refused to budge IMO it would have been a sign that they were so uncomfortable with Aiken's elbow that they were not willing to invest money in him. The minimum offer was made for only one reason, secure the draft pick next year.
Forgive my ignorance, but I thought I learned in contract law that any deal over a certain amount(like 1k or 10k) was not legally binding unless it was signed on paper. How could this verbal agreement between the Astros and Nix be seen as some type of legal trouble for the Astros?
As noted in the article, it doesn't seem to me as if there is a strong case for there being an enforceable contract in place, as a matter of law, re: Nix. MLB/commissioner's office has more leeway in its interpretations, though.
Sarge?
My guess is slashing the offer from 6.5M to just over $3M was a deal killer from the start. I have a hard time thinking of a precedent of slashing a bonus like that over an "abnormality" not an injury. Something in the 10% range was probably reasonable but saving that money 650K was not going to allow them to sign anyone else, they needed at least 1.5M to get Marshall.
Here's what I think happened.
Houston's analytics team and their model after the UCL finding said the risk profile of the UCL structure as well as Aiken's youth and time to the MLB (if he even gets there without blowing up his elbow) was too great and they decided to just punt the pick and offer him the 40%. (Were this a college pitcher, maybe they are willing to spend the money)
At some point, Jim Crane steps in and says "WTF? We're not going sign the 1-1 pick?" and tells Luhnow to make it happen. The analytics/stats people say it's a bad, bad deal from a money/probabilities stance, but say some of it can be mitigated by signing Nix AND Marshall even though 8 million dollars for a very high risk TOR HS arm and two MOR HS arms is still a bad investment.
So you had two sides of the organization trying to get a deal that neither really liked and you are now getting killed in the media for being the dumbest smart guys in the room.
I get the narrative, and it's a defensible approach from an analytical standpoint. But even if that was exactly how it went down I think that sort of approach to negotiations of this nature puts you on a very thin tightrope. In order for any of this to work out you need Aiken on board, and it doesn't seem like the organization put a high premium on making that happen.
I could completely understand the Astros walking away from the table because their docs/analysts determined this was not a good investment. It's hard for me to picture the addition of Marshall and Nix (who is also a low probability arm) would be enough to counterbalance the supposed catastrophic issues with Aiken.
Doesn't whether this was a failure depend on what the Astros believe they can do with the pick next year? Hypothetically, they there internal scouting loved the draft class next year and would value their pick next year over Aiken/year of development.
It's possible the Astros 1-2 and 1-? picks next year end up better than Aiken and 1-?, sure. But the team also lost out on the opportunity to sign their fifth rounder and otherwise spend that money. That's not taking into account the fallout on the PR/industry side.
The $6.5 million original deal was already under slot. A $5 million offer says the team did not really think the injury risk was significant enough not to sign the player, but was being used as a ruse to strong arm the player in negotiations. It also tells this player, this agent and all other agents that the Astros do not negotiate honorably. At some point, regardless of the amount, the player has to say I'll go back to school and try my chances later rather than let them cheat me in negotiations.
This raises lots of questions -- why not do the physical after draft day but before negotiating the number? Why not negotiate a bonus with an injury clause, part payable in 2-3 years but voidable if he blows his UCL?
(2) I'm pretty sure such an injury clause is not allowed under the CBA. The contract amount is and must be fully guaranteed. The only injury clause I'm aware of is the so-called "Lackey clause", but in that case no money was pulled back after he tore his UCL. It just added a cheap option year to the end of the contract so the team could get a discount on a future season in return for paying full fare for the season lost to injury.
I agree with all you have said but I would say to people belittling the pick is that most of the top college players were in the same situations as Marshall and Nix in that they believed themselves to be 1st round talents and were happy to prove that in college. Sometimes that works out great; cole, price, teixeira,Harvey, rodon, pedro Alvarez were all offered substantial sums of money to go pro and chose the college route. Other times it's a disaster see whitson and covey from the 2010 draft.
These players have talent and it could be 3 years from now you are all sitting there in June hoping your team gets a Mac Marshall or a Jacob Nix at the top of the draft or they could be but a footnote in the draft. We simply don't know right now
If Aiken is worth $30 million as a free agent I don't see why you don't just sign him and trade him if you don't like him. Beane notoriously wasn't happy with Bonderman and traded him away a year later.
I just struggle to realise why the Astros didn't just cave and agree to the original deals. While that might have looked weak it would look a whole lot better than this does now and all sides win. As far as I can see here everyone loses
Starzec
You'd almost wonder if this doesn't lead to a change where teams need to offer more than 40% of slot to get the "compensation" pick the following year. It isn't hard to imagine a situation (in a weak draft) where a team takes a high first rounder and makes no real effort to negotiate (here's 40% take it or leave it) because they feel there will be more talent next year.
Think about last summer -- almost exactly one year ago Carlos Rodon put up a painfully dominant start against the Cuban National Team, showing a legit 80 slider, plus fastball, a solid change, and good command across the board. Fast forward to June and he slipped to the White Sox at third overall after suffering through an up and down spring.
I think there is too much uncertainty this far out for teams to try and game the system in this manner with any sense of confidence.
I think the latter, and if that's true, then the negoatiations were in no way in good faith.
What a well written piece. Thanks for this work.
In analyzing the leverage that Aiken had, shouldn't the fairly well known fact that the Nix signing wouldn't happen without Aiken signing have given Aiken and Close additional leverage have been mentioned in the article? Perhaps it was considered too obvious to point out. It also speaks to the unusual coincidence that Close represented both players. While a conflict of interest couldn't have been anticipated before the draft played out, should Close have withdrawn as Nix's advisor after the linkage became clear? While I have no reason to doubt Close's ethics, that would be of little solace were I in the position of Nix and his parents in the event of a significant injury during his year in Juco, two months in the Independent League or his three years at UCLA. Knowing that the man who served as the advisor on the deal whose implosion eliminated the financial security associated with my $1.5 M offer was the same man charged with representing my best interests would be tough to live with. It's certainly possible that representing the best interests of both Aiken and Nix would have been at cross purposes in this situation.
The only folks who have the full body of evidence as to the process, the facts, and the individuals responsible for negotiating and ultimate decision making are in the Astros front office. Were I a fan of the organization I'd trust them to drill down and figure out what, if anything, needs to be fixed.
If the commissioner's office were to do the unlikely and force the Astros to honor the agreement with Nix, that would be about as big a disaster as can befall a team looking to transition from rebuilding to contention.
Do you think this will have any effect on how the next CBA treats the draft? The system was set up to punish those teams who overspend on the draft but now has resulted in punishment on players. The union ignored the new draftees in the last CBA agreeing to a system that helps current players but not future ones; so what are the chances they go back to the old sysyem?
Great piece buddy!
Starzec
Analysis nirvana over here