MLB Draft 2013: How the MLB draft works

Your guide to the rules and more of the 2013 MLB draft.

By Marc Normandin@Marc_Normandin Jun 6, 2013, 9:00am EDT

You would think an institution like the MLB draft would be simple to understand at this point, given it has existed for decades. Thanks to constant rule changes -- the 2013 draft is the third in three years with new wrinkles -- and the fact it isn't structured at all like the drafts of other major sports, though, baseball's draft takes some explanation. Consider this guide a starter kit that doubles as a refresher course.

The Basics

Every team begins with a first-round draft pick, meaning there are 30 in all. Clubs select in reverse order of record, so, last year's 107-loss Astros get to go first in the 2013 draft. When we say "begins" with a first-round draft pick, what we mean is that everyone is scheduled to have just the one, until their own actions cost or gain them additional selections in the first round.

A team can gain additional first-round picks in two ways. Let's take an example from this off-season. The Yankees offered departing free agent Nick Swisher the qualifying offer. This made it so that if someone else signed Swisher, the Yankees would receive compensation in the form of a first-round draft pick. The Indians inked the outfielder, and New York received the #32 pick in the draft for their loss. The Yankees also gained another compensation pick for the loss of Rafael Soriano, giving them the #33 pick in the draft as well.

In addition to the Yankees, the Cardinals, Rays, Rangers, and Braves all received one compensation pick for the loss of their own free agents.

The other way to gain a pick is through failure to sign the previous season's first-round selection. The Pirates drafted Mark Appel in 2012, but did not sign him -- they now have a similar pick in the top-10 this year, in addition to the #14 selection based on last season's standings. You can gain them for other rounds, too: the Mets, Phillies, and Athletics have picks in the third round for failure to sign picks there last year.

As for losing picks, by signing a free agent who has been given the qualifying offer, a team agrees to give up their first available draft pick -- with the Indians and Swisher, since their first-round selection was in the top-10, it was protected. Therefore, they have sacrificed their second-round pick, but the Yankees still received a first-round selection for their trouble. Cleveland's pick simply vanishes, and everyone moves up a spot in the order. The Nationals, who signed Soriano from the Yanks, did not have a protected pick, so they are without a first-round pick -- that's how you end up with only 33 picks for 30 teams despite the fact there are seven "extra" picks in this year's draft due to compensation and the Pirates.

The Budget

A newish wrinkle to the draft is the budget. In years past, MLB recommended values for each draft pick based on where they were selected. Teams didn't have to follow these recommendations, though, and the only penalty for failure to adhere to them was a stern look from commissioner Bud Selig. Now, though, the most recent collective bargaining agreement changed that, and made it so that the values weren't just recommended, but were considered something of a soft cap on spending. Each pick has an assigned value, with the first overall being worth the most, and going down from there.

This budget covers the first 10 rounds of the draft. The money allotted to a specific pick does not have to be used there, though: if a team wants to draft a player who can be signed for less than the recommendation, they can, and they could then use the "extra" money leftover on a player who is more expensive than the recommendation.

As an example, in 2012, the Red Sox drafted multiple college seniors within the first 10 rounds, as college seniors typically have little in the way of leverage, and are apt to sign much smaller bonuses than younger players. In the fifth round, they drafted college senior Mike Augliera. That pick had an assigned budget value of $218,000, but Boston signed Augliera for just $25,000: they then used some of those savings, as well as the savings from other college seniors (including $142,000 saved by signing seventh-round selection Kyle Kraus to a $1,000 bonus) to sign high school pitcher Ty Buttrey for $1.3 million. Buttrey had been selected in the fourth round with a pick valued at under $300,000, but Boston was able to hand him nearly $1 million more by cutting costs elsewhere. They weren't the only team to do so, and expect to see more of this in Thursday's draft as well.

A team can go over their budget, but if they go too far over, there are strict penalties. If a team spends by 0-5 percent more than their budget allows, they are taxed 75 percent on the extra. If they spend between 5-10 percent more than allotted, they are taxed at a 75 percent rate and lose a first-round pick in the following draft. Overspending by 10-15 percent results in a 100 percent tax and the loss of both next year's first- and second-round selections. Pass that 15 percent threshold, and a team loses two future first-round picks, while also paying a 100 percent tax on the extra.

A team also can't just save all their high ceiling high schoolers for after the first 10 rounds covered by this budget. If a bonus from round 11 onward exceeds $100,000, it will count towards the allotted budget, meaning a team could get itself into trouble with penalties despite when the pick was made.

If a team fails to sign a player, as the Pirates did with Appel in 2012, they lose access to the value assigned to that pick. They can't just sign someone like Appel and then feign ignorance about his signability issues, use the allotted budget elsewhere, and collect their bonus pick in the following draft. Teams have to use the budget or lose it, and failure to sign a player means they've lost the budget associated with that selection. This makes players who could go into next year's draft, or head to college rather than the pros, occasionally risky.

Stanford's Mark Appel (Photo credit: Melina Vastola-US PRESSWIRE)

This leads to some weird situations, where potentially better players are taken a bit later in the draft: to go back to the Red Sox for a moment, Buttrey was their fourth-round pick, but might end up being the best player they drafted if he can actually reach his ceiling. However, if he had been selected with Boston's first pick, he could have demanded the full value for that slot, which was $1.75 million, or even more than that considering he still managed to pull in $1.3 million three rounds later. Failure to sign Buttrey in the fourth round would have cost them less than $300,000 on their budget, but failure to sign him in the first would have meant nearly $2 million gone from a budget of just $6.88 million, and severely impacted the rest of their negotiations.

Competitive-Balance Picks

The last item to cover is the introduction of competitive-balance picks. There are two rounds of extra draft picks inserted in between the first and second, as well as the second and third rounds. These are brand new, as they were discussed, but not implemented, in last summer's draft. In short, teams deemed to be in the smallest markets take place in an off-season lottery that determines where and how many extra draft picks they get in order to -- wait for it -- create competitive balance. So, teams like the Reds and Cardinals, while talented and successful, aren't from the largest markets. In order to be given the chance to remain talented and successful, they get extra picks from this pool, and the budget that comes with them, too.

Picks 34 through 39 in the draft are in this first round of competitive-balance, and 69 through 73 comprise the second round.

The neat thing about these picks, the thing that can't happen with any other pick in the draft, is that they can be traded. The Marlins, Pirates, and Tigers all swapped around competitive-balance picks this past off-season. One wonders if this is a precursor to eventually being able to trade any pick. Don't start planning for that to happen anytime soon, though.

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You can watch the draft on MLB Network starting at 7 p.m. Eastern on Thursday, June 6. You can also check back with us throughout the day and during the draft, as we'll have coverage leading into the event as well as reactions and analysis during it.