MLB Draft Podcast - Episode 01

The Draft Opportunity
In this episode, we breakdown the incredible opportunity an amateur player has to become a professional baseball player. We detail what's the probability, the career trajectory, and pathway to navigate the MLB Draft process successfully.

It's hard to encapsulate the excitement surrounding the upcoming MLB Draft. Years of hard work, sacrifice, and dedication all point to this one day. Becoming a pro.

It's a rare opportunity to realize a childhood dream, but equally as important, it's an opportunity to change your financial future. With one announcement from the podium, players will move from asking their parents for lunch money to becoming one of America’s wealthiest.

In last year's draft:

$316 million paid to draftees $128 million of that was on the first 34 picks 71 players signed for $1 million or more Only two players drafted in the top 10 rounds did not sign 73% of the first-round draft picks play in the major leagues according to Baseball America

Baseball is a game. Professional baseball is a business.

You are now responsible for thinking about your career from a business standpoint and you're going to be forced to make decisions, whether you make them well or not, they will have a significant impact on your current and your future life.

Episode one is the starting point for making the right decision.

 

Show Notes:

Erik Averill:                         00:02                 
Welcome to the MLB Draft Podcast. I'm your host, Erik Averill, Certified Financial Planner, Certified Private Wealth Advisor, former pro-athletes and the Co-founder of AWM. I'm joined by my co-host, former major league baseball pitcher and certified financial planner Travis Chick. Our goal on the MLB Draft Podcast is to provide you with the roadmap to successfully navigate the MLB draft and becoming a professional athlete. You're going to hear from scouting directors, GMs, agents, former and current players, elite performance coaches, and of course, leading financial experts. What is traditionally seemed to like a black box we are going to bring to light the critical details you need to know to help you make the decisions that are in your best interest. So with that, let's jump right in.

Erik Averill:                         00:57                    
Travis, excited to be on the podcast with you. How's it going out there in Texas?

Travis Chick:                       01:01                    
It’s going great, man. It’s a beautiful day out here.

Erik Averill:                         01:08                    
Well the reason I’m most excited about jumping into this topic is, I think, as we have experienced over our own personal draft process all the way through talking to former teammates and now advising some of the best players in the country year-in and year-out, is the draft seems to be a little bit of a black box. It's the one thing in the information age that I feel like you can’t jump on the computer and Google how is the draft going to happen. And it seems like every June what we know is what everybody expected to happen, doesn’t happen. So I’m really excited for you and I to be able to talk back and forth on the main questions that we’ve heard families ask over the course of the last 10, 12 years that we’ve been doing this from an advisor standpoint. Where I thought it would be fun to actually start is your own personal draft experience because I think it’s actually typical of most families. So would you mind just walking us through what it was like for you and your family going through the draft?

Travis Chick:                       02:06                    
Yeah for sure, I mean it’s definitely not typical of what happens now because the information is so much more prevalent now than it probably was 15-20 years ago when I got drafted. And so for me it was obviously very exciting. I thought I was going to be drafted a lot higher than I was, but I didn’t have the luxury of having a really qualified agent to give me a lot of the information that the kids have access to now. Growing up in Whitehouse, Texas, I was the only person I knew of that had ever been drafted. And so I didn’t have anybody I could bounce ideas off of. I didn’t know any scouts who would get me enough information to make an educated decision. And so at the end of the day, I signed in the 14th round. And for me, looking back, it was such a blessing for me to be able to start my professional career because I got the opportunity to pitch in the big leagues. But now knowing what I know, I probably would have loved to have been able to lean on some experts to help me make that decision.

Erik Averill:                         03:02                    
Yeah it makes a lot of sense. The one thing that I think is interesting is… how much did you view the draft through “This is a business, big time industry of Major League Baseball” or was it more of just the thought process of “Hey, I’m getting to pursue my dream.” How much did you know of the business side of baseball?

Travis Chick:                       03:25                    
I knew nothing. And I think my parents probably knew nothing. And I think that anybody I could have possibly tried to dig into and find answers from probably knew nothing. In 2002 when I got drafted, we had to listen to the draft on the MLB.com through basically a radio podcast. It wasn’t nearly as fancy as it is now, obviously. They’ve done a really good job of digging in and finding information about all the draft picks. So yeah, for me it was 100% my focus was just on getting out and playing baseball. There was no business decision involved at all.

Erik Averill:                         04:00                    
Which is totally understandable. I think through my draft experience, it’s the same thing. We’ve grown up our whole lives watching these guys on TV and thinking, “Hey, this is what’s going to drive it.” The reason I bring that up is a large part of what we see when we’re dealing with players and agents and families is it can become a very emotional process. Hopefully what we want to achieve on this podcast is never to remove the excitement about it, or even some of the nerves, but to provide really a framework and lens to understand how Major League Baseball and these 30 teams are viewing your son or you who is an athlete from a draft pick standpoint.

Erik Averill:                         04:45                    
And so, I thought it was interesting. We pulled down some numbers just to put into context what type of business we’re talking about when we talk about baseball. In 2018, for the 16th consecutive year, Major League Baseball recorded revenues that eclipsed $10.3 billion.

Travis Chick:                       05:05                    
Staggering!

Erik Averill:                         05:06                    
Those numbers are mind-blowing, right? This is a $10 billion industry. One of the things that I’ve heard said is, “Baseball is absolutely a kids game. But professional baseball is a business.” The first word of that being pro is this is somebody’s job now, and not in the negative way, but I think it’s very healthy to help families understand that the reason these companies (these teams, I use the word company very importantly) are drafting this athlete because they believe that that athlete is going to be a good investment. That that athlete, at some point in the major leagues, is going to help produce more revenue than they pay that player to drive profit and the bottom line. And that’s not to negate the great opportunity of realizing your childhood dream. It’s just an understanding that these teams are very non-emotional and they are making a calculated investment. What do you think when you hear that?

Travis Chick:                       06:09                    
Oh 100%. You look at the teams now and their investment in the analytics and that goes not only through the free agents of the MLB side but that even goes as far as getting information as young as kids in the Perfect Game All-American event in San Diego. The information that teams have on these players now is just like you said. They are billion dollar companies in a billion dollar industry making very calculated investments in players now. Even though they are a commodity, a product that someone can invest in, that shouldn’t take away from the joy of being able to go out on a field and compete. But they do have the information to be able to dial in on a player’s worth a lot more than they did in 2002 when I was going through it.

Erik Averill:                         06:58                    
And I think that something you hit is key there. This is not us trying to take away the joy about you get a chance to live your dream and hopefully do that as long as possible. But we actually see it as an incredible financial opportunity. Because you have this value as an investment that this company wants, you have actually have an opportunity to set your future family up potentially up for the rest of their lives. And a few of these players are going to be able to set up their kids’ kids.

Erik Averill:                         07:30                    
When we think about this, whether or not an athlete is going to capitalize on this opportunity is really going to be determined by having a business mindset towards their career and the draft. And then we would argue most importantly the people they choose to surround themselves with. So let’s talk about this first business decision that the amateur athlete is going to be faced with: the draft opportunity. What exactly are we talking about when it comes to the upcoming draft?

Travis Chick:                       08:02                    
Yeah it’s a huge financial commitment from the teams and it’s a huge financial decision for the draft picks to make. And it's growing every year. Last year, the 30 teams combined to spend over $316 million on draft picks. $128 million and change was spent on the first 34 picks. Those 34 picks signed for an average just north of $3.7 million. Obviously 3.7 million is a pretty substantial number so you can kind of see the opportunity there. And then when you break it down even further, 71 players signed for more than a million dollars. The striking thing to me was that but two players who were selected in the top 10 rounds actually agreed to deals. And so you have over 99% of the players getting drafted in the top 10 rounds signing. You can kind of see the calculations done by the major league teams. They know who is going to sign because of the information that players are able to give out and their commitment to be able to move into the professional ranks. And two, all but two first round picks signed either at or below that slot value. That’s probably the biggest change from when we were going through it. The slot number is such a hard number now and a lot of that is calculated based on the value that each team’s specific algorithm that they’re having on these players. They have all of this information now. It’s not hard for you and I or anybody at home to Google any information they want on any of these players and know what their projected value is, what their pop times are, what their times to first is, what their top fastball is. So they know and back then, it was well a scout was saying this guy is going to be a ballplayer. So the times have definitely changed. But the cool part about that is now, because of that change, the opportunity is much bigger.

Erik Averill:                         10:01                    
Yeah you’re talking life-changing money, right? We saw Adley Rutschman sign first overall for $8.1 million.

Travis Chick:                       10:12                    
Fantastic!

Erik Averill:                         10:13                    
The first 34 picks of the draft, of that $316 million that was spent, around $180 million was spent on those first 34 picks. And so if you’re at the top end of this first round, this truly is life-changing money. The other thing that struck me was that last point you said, that only two players signed above slot value. What I think that is important to indicate is for families to understand that nobody is going to get your son, or you as an athlete, no one is going to move you up and down on that draft board more than what the team actually values you. The reason I think that’s really important is there’s, and you would never hear this come out of the mouth of the true agents who are the expert in this business, but there can be some of this conversation where agents are trying to tell these families, “Oh I can get you drafted higher and X, Y, Z.” That’s just not true. Now they do have information of knowing which team, what their algorithm maybe says is the type of player they like, and who is going to be a better fit. They have better understanding there. But I think the other thing is that there is also a little bit of ease taken off the families in a situation that it’s so easy to get caught up looking at, “My son is better than the other shortstop in their current class.” But I think it’s understanding the perspective that these Major League teams, they’re not actually evaluating where you’re at today against your current class. They’re predicting, “How do we think you’re going to perform and help that Major League team and we have all these advanced analytics and algorithms. So every year when you see the draft board, there are always surprising picks. And they’re going, “How is that person being picked at 15th overall and given $4 million when he wasn’t even an All-American?” And I think that that’s just an indication of how analytical these teams have been and really, the same approach that you should take toward the draft is a very business mindset, not based off of emption.

Travis Chick:                       12:21                    
No, 100%. And it’s interesting, one of the things you said is they’re evaluating based off of what kind of Major Leaguer that they think you’re going to be, which brings me to another point. A study last year by Baseball America showed that 73% of first round picks will play in the Major Leagues. And obviously that number drops off quite a bit by the second round, it goes down to around 50%, and then the third round down to 40% and continues to dip from there. Like we said earlier, at the end of the day, this is probably should and primarily be a financial decision, especially for the kids in the first round. The numbers don’t lie. Everybody is analytically driven so we can deduce analytically what kind of opportunity getting drafted in the first round is based on statistics. What those statistics show is that first round draft picks, over 37% of them, will actually reach arbitration. That’s where they start actually making even more life-changing money. 75% of those have earned more than $10 million in their career. 53% of them have earned $25 million and 38% have earned $50 million or more. So as you can see, obviously the guys that are drafted especially in the first round, there is a really high probability and there’s really a consistent trend that shows that teams are doing a really good job of predicting future Major League success.

Erik Averill:                         13:48                    
Yeah those stats are crazy, especially when you start to talk about the earnings capacity of the Major League player. And the probabilities, right? I think that this is where, I understand from a family standpoint, we don’t want to count our chickens before they hatch, we don’t want to assume things, but the probability says that this is most likely going to happen and preparation is key. The determining factor that so many of these families are trying to figure out is “Do I sign a professional contract or do I go to college? Or do I stay, if I’m a draft-eligible sophomore, or maybe I’m a JUCO guy, what’s more valuable and what’s my number? In the next episode, that’s where we jump into is going how do we actually determine what is the value of my education? At the end of the day, there are all these different valuables at play of whether or not I’m going to sign professionally or if I’m going to go to school or stay in school. But the bottom line is it’s really a financial decision. So the next episode we’re going to dive into how do you look at that, how do you value it if it’s Stanford or Vanderbilt or Florida, what’s that mean, and what’s the bonus you should be looking for.

Travis Chick:                       15:06                    
Yes, sir, looking forward to it!

Erik Averill:                         15:11                    
Hey, thanks so much for listening to today's show. We hope that you enjoyed it. Our goal here with the MLB Draft Podcast is to make this the Go-To resource for all families and athletes looking to take their career to the next level. And so, this show really is all about you. And we would love to hear from you.

Erik Averill:                         15:51                    
Are there any questions you have, topics that you would love for us to cover? Please do reach out. You can shoot us an email [email protected] or [email protected]. Of course, you can find us on social. We're on all the major platforms @athletewealth. And if you'd like to set up a phone call with us, you can reach us by going online to athletewealth.com and you'll see right at the top of the page, there's a button where you can schedule a call directly with us. And so, we would love to hear from you. And until next time, stay focused, stay hungry, and be a pro.