Major League Baseball (MLB) teams are often criticized for overspending on amateur draft picks. Sports business professionals and the casual baseball fan argue that awarding unproven amateur baseball players millions dollar signing bonuses is not a sound investment. However, previous studies in sports economics have found that teams are willing to sign better players to higher salaries or signing bonuses in order to increase their production or team wins. Similar to the labor market, baseball teams will attempt to create a product (team wins) by employing signing inputs (players who provide skills and services). This paper attempts to quantify or place monetary values on a single total value baseball statistic, Wins Above Replacement (WAR), to determine the Market Value of a baseball player’s production. WAR represents the additional amount of wins a player contributes to his team over a season. This paper then tests the overall performance and investment of baseball draftees from the 1996 through the 2000 Rule IV Draft. Results of this study reveal that professional baseball teams on average receive a very positive return on their investment in amateur drafts picks.
Includes bibliographical references.