Teams evaluating draft like investors

6/10/2006 - MLB

In an industry that at times seems allergic to change, there's an interesting development in a few scouting departments: They're treating the draft like an investment portfolio ... which, if you think about it, is exactly what the draft is. So just as investors look to maximize their reward while minimizing their risk (something the Sharpe Ratio attempts to capture), some teams are now evaluating their drafts along similar lines.

Major League Baseball's Rule 4 Draft is rife with inefficiencies, a fact that was clumsily chronicled in "Moneyball," a book that blended fiction and nonfiction to give the impression that only "sabermetric" organizations were trying to improve their performances in the draft. (It also gave the impression that "moneyball" was a synonym for OBP, that smart drafting meant eschewing high school players and that the book's main human subject was also its author.) In reality, teams across the philosophical spectrum are increasingly looking at ways to improve their return in the draft without increasing their overall portfolio risk.

The default drafting strategy is pick-by-pick: Each selection is independent of the players the team has already selected and independent of the current state of the organization. A few teams still draft along these lines, and you can have successful drafts this way simply by selecting the best player available with each pick. However, if the goal is to maximize the return on investment of every draft -- that is, to get the most value for the dollars spent in each draft -- then a team has to look at each selection as a part of a larger whole. Enter the portfolio strategy.