Draft Day Advice

Some of the math came into focus recently and seems to make the economics of pro ball (just economics, not the daily life) a little more appealing.  For arguments sake, say a later round high school pitcher, say 15th, getting $400K bonus and $100K scholarship money versus going high D1 with a 50% scholarship.  Next assumption would be what high D1 - heaven forbid you are talking about Vanderbilt tuition.  For argument sake, let's say a state university with a reasonable $30K cost.  Kid or parents are still going to have to come up with $15K each year assuming the scholarship level does not get cut, especially if you actually stick around for 4 years and graduate - 4th year probably cut to 25% so another $7.5K out of pocket.  Compare this to 4 years in MiLB.  $400K bonus turns into $200K net cash - stash $100K and supplement each of the next 4 years with $25K (after tax cash).  Wash out after 4 years (released) and start tapping scholarship monies.  Looks like the pro route is decent on economics and parents get to keep from paying over $65K in college costs not covered.  Realize $400K is sizeable but also would not think 3 years at 50% is not considered "good" except for a select few pitchers that may get a little higher (if you are offered 100% than perhaps you draft potential would be a little higher and the math might still point towards going pro).  I guess it all depends on how big that first check is and whether the kid can get some level of enjoyment in MiLB given that less than stellar lifestyle.

We did an awful lot of calculatin for our older son in particular out of HS and but for a select handful, the economics of the decision doesn't work out all that often in favor of the player to go pro at that point.

 

Oh - you know your son will go back to school?  Sure, but he would be the exception according to most numbers I've seen.  Odds are far greater in his favor for finishing school if he gets 3/4 of it done in the 3 years after HS. 

if you actually stick around for 4 years and graduate - 4th year probably cut to 25% so another $7.5K out of pocket.

 

Where did you get that idea from?  I'm sure it happens but I can tell you in both of our sons cases it absolutely did not. in fact I will tell you that I know quite a few players who were offered (and some took) a raise to come back for senior year all the way up to 100%.  Let's be careful here not to throw things out like this off the tops of our heads. Too often, they are incorrect and mislead. 

I should have left out the cut in scholarship - was tryinhg a little too hard to make the math work in favor of pro.  My main point is that a "good" scholarship is only 50% to begin with and so saying "get your education paid for first" is a little misleading for the majority of kids - maybe "get half your education paid for" would be closer to the truth.  My math was focused on partial scholarship, and the college out of pocket costs to make up the difference, compared to a decent bonus and decent scholarship plan.  Saw on another thread where the scholarship plan was negotiable and one kid got 100% cost of attendance for 4 years - that alone was more valuable than than the original college scholarship that was less than 100% and unguaranteed at that.  2017 has had no hint of injury and I guess I just worry that something is going to happen - would rather him cash the check before it does.

 

Aslo seen lots of talk on this board about reducing senior scholarships to make room for incoming freshman - figured it was decent information as several posters mentioned it.  Didn't mean to mislead anyone.  Thanks for keeping the discussion as accurate as possible.

I read over your post a few times.  I am not sure I am getting what you said.

 

I remember quite a few years ago, there was a player here who was drafted out of HS.  cant remember what he got but he squandered away every penny.  17,18 year olds are not mature and disciplined enough to not spend. My son has an advisor, he calls him on every thing he needs, and its either yes or no and lets see how we can make this work.  He does a good job of not using his principle, letting him spend minimally but can live  abit as well. I dont think you get that appreciation until you have worked, and learning how to live on little in milb prepared him well for adulthood.

 

Mom and Dad are not going to stop junior from going to the mall.

I really do appreciate everyone's comments here.  As for my closing comment above, I was trying to seperate the math of college vs pro from the actual life experience between the two.  My thought was - the bigger the check, the more cushion you have if you mess up a little - if you only get a $200K bonus, you basically have no money to put away in my example.  Also, whether an 18 year old kid would thrive in the MiLB environment is a different discussion and one that needs to be had until the bonus gets really big (at some amount mom/dad can move with him).  Some kids would actually enjoy taking long bus rides and eating PBJ as long as they got to play.  On the other end, there are probably kids that would suffer life long setbacks if they went this route - something money cannot fix.  I was trying to lay out just economics and not reality - sounds like it was not warmly received.  Regardless, I did enjoy the discussion.  Good luck to everyone.

You're doing fine. It's a good discussion to have.

2017....no, it is a good discussion But then IMO you need to try to quantify what the non-$$$ items may be worth.  

 

I've been told by many that less than 10% use MLB scholarship funds so if you are going to use that $100K, may want to discount it by some %. Maybe 95% discount, maybe 50% but something.  if player gets permanently hurt, many/any colleges keep paying for same part of education. What about academics? Add that to your 50% so maybe the scholarship is 70, 75% etc 

 

then returning to non-$$$ items, what is college experience with your age group worth?  Future spouse? Life long friends? Opportunity to go to CWS? maturity level. College baseball experience. I could go on and on 

 

To each family, the amount a young man may willing to give up To go pro Directly out of HS is different.  If I told you what my son determined his number to be (with the help of his advisors), you would think he was crazy but I assure you it was well thought out. My son definitely wants to play pro baseball but more so wants to do it after 3 or so years of college. I hopes it works out for him but nothing is guaranteed.

"Future spouse?"

Ah - I know at least one college coach that uses that line quite effectively and routinely.

So you've heard same story that I've had. Don't know if its a wives tale or not. But the premise by the coach may be a good one. 

I think it is a great point about the percentage that use the scholarship money.  

 

When people say, "My son can go to college anytime."  I respond with, "Yes, but your son will never again be an 18 year old college freshman."  Those of us who went to college understand the experience we had at 18 - 21 versus those students we knew who were 25+.  

 

My son will not have to make this decision as his ability doesn't put him in the position, but if he did, I would counsel him to go to college.  Even if the bonus is huge (800K+), playing the percentages, he would never see a MLB paycheck and never use the MLB scholarship money.  At that point, what would his earning potential be?  Lately, I've seen college lists about mid-career earning potential.  It would be interesting to see some data on drafted and signed baseball players vs. university graduate.  I'll bet it would open some eyes.

Just because I came back with some questions doesnt mean its a good discussion.

Look this is a personal decision.  Money makes the decision alot easier

to live with. I know 400k would not have been acceptable Web in HS but it was as a college player. I know you are trying to make the numbets work.  But there are real life scenerios you need to think about that do come up.

 

 

Fair point,  for the majority of our players this is probably the right call.  The "college experience" question was one that I always had in the back of my mind when jerseyson passed up college.  We've talked about it quite a bit, especially now that he's done with baseball.

 

No doubt he missed out on going to the CWS and the other college activities however he says he  has no regrets.  While different, he had experiences in pro ball that most can only dream of.  Maybe his situation is unique however he also had his share of fun, learned how to take care of himself and built meaningful friendships (3 of his teammates were in his wedding).  Not so different than what I expect his college experience would have been.  The point being... in these types of situations, one size doesn't always fit all.

Focussing ONLY on the financial differences.

 

A 50% scholarship at a school like Vandy (top tier academic private school) is worth roughly 30k per year. It is not taxed. So a family needs to come up with an additional 30k per year. (Note this also: make sure the 50% includes room and board; many times the percentage the coach offers is bases ONLY on the tuition part of the equation.)  To satisfy the family contribution of 30k, requires roughly 45k of pre tax w-2 earnings. Assuming no inflation for the entire four year enrollment period means a family will need 180k in pretax earnings to get the player a degree and into proball after graduation (no meaningful bonus).

 

With the player signed after HS and pocketing all the remnant of his 400k bonus (let's say 200k), the player also has the MLB scholarship in hand. One original OP assumption was that the player would be released after four years. That assumption is not based in the facts known when the contract was signed. The original HS draft contract binds the player for six years. The only fair assumption is that the player plays his full six years and his career is then over by mutual decision (remember the player cannot just walk away early without (a) losing the MLB scholarship and (b) repaying (with after tax money) a prorated portion of the bonus).

 

Over the six year playing career, part of the bonus was assumed to be used every year. I think 25k per year was a bit much; but we'll use OPs original figure of supplemental support of 25k per year. Because the bonus money was needed, there was no possibility to invest that money safely and still protect the principal; therefore any interest earned on the balance was minuscule in the present interest rate environment. Once the player's six year career concluded his bonus money has been whittled down to a bit over 50k. (I think within the 25k per year supplemental support would be the vehicle purchased with the bonus money.)

 

To recap, the player now has 50k in the bank, his career is over, and he has the MLB scholarship, and he's 24 (we'll assume no obstacles to actually attending school like wife, kids, lack of desire).

 

Costs of attending a school like Vandy have now gone up 30% (5% a year for six years, ignoring compounding) and now cost roughly 75k per year (excuse me, I just passed out). So player (no longer a kid) needs to come up with 300k in cash to pay for four years.

 

MLB pays as follows: 60k per year taxable; but the amount requires that the player live in the cheapest way possible so he is living in a freshman dorm and eating on the meal plan (don't know where wife and kid will live, but he'll figure that out). If he wants to live in a more age appropriate environment, MLB will not pay for that. The 60k per year shrinks to roughly 40k after taxes. So, of the 300k cash needed, player has 210k (160 from MLB + 50k in bank), leaving him 90k in AFTER TAX dollars short (Let's say 140k in taxable w-2 wages.)

 

Comparing apples to apples by result: both players careers are over and both have degrees from Vandy. HS draftee needs 140k in taxable w-2 wages and has no bonus money left. College kid needs 180k in taxable w-2 wages to get there. The HS kids advantage is 40k in taxable money.

 

i didn't run the calculations with a state school with a 30k price tag. First, in my state this will probably just barely cover the costs today - certainly not in six years. Second, (and I'm a state university grad), there is a difference to some employers between a degree from Vandy and a degree from UT. But the economics are similar - the difference in purely finances are pretty small with a slight purely financial favor to the HS kid.

 

As we move further through the years, variables which we're keeping constant (and therefore ignoring for these calculations) make the results really suspect (e.g., will the player stay at 50% scholarship or transfer after year one of no playing time, will the costs really not increase over four years, will the player get drafted after three years, did the player actually stay on track to graduate after four years, does the HS kid have the motivation and skill to complete college, etc, etc.) I would say that based upon the OPs assumptions (with the minor change of the length of the HS player's career), the difference in economics is not a huge difference. 

 

If the economics for a 400k bonus is not really a determinative factor, we're back to the intangibles which push one way or the other.

Goosegg- outstanding analysis.  Are you a CPA by any chance?  If not, well done nonetheless.  I was going to say bean counter but then thought better of it as I didn't want to offend    

 

If I distill what your analysis concluded, a 400k bonus out of high school (assuming high school player retires and goes to college and graduates thereafter) is not much different than taking a 50% scholarship at a school like Vanderbilt and bypassing the bonus?

Again my attempts to make a point get me in trouble.  I wish I had not brought up the Vandy scholarship.  While this does help in the front end math argument (cost is really north of $60K today per website), a degree from Vanerbilt, or Stanford, etc. is truly an asset more valuable than your average State U (some are better than othes).  While I tried to make a pure math argument, I realize it cannot be done as there are just too many non-monetary variables.  If you are included to go the Vandy specifically for the education, then the discussion is quite different.

 

I had a good friend in college (State U) that was a few years older.  Not only did he thrive academically, he also had a pretty good time.  He realized (possible with some help from parents) that he was not ready for college coming out of high school.  He went into the Navy and "grew up".  I suspect one's first enlistment in the navy is kind of along the lines of MiLB. 

 

As jerseydad pointed out, the pro route is not only workable for some but can be a very fulfilling journey and shouldn't be viewed as a do or die situation where if one's MLB shot is denied your life is left in ruins.  I'm glad folks keep saying college is the better choice in almost all situations and explaining why.  Should improve the thought process of anyone having to make that decision.  After this beat down, I'm hoping the extra two dozen MPH don't show up in the next couple of years so we never have to go through this ourselves LOL.

It's not a beat down; you need to, and indeed accomplished, one type of analysis. There are many many ways to approach the decision (assuming a decision is on the table).  Each approach may yield a different result as a family orders its priorities. The only way to reach a fair decision is to look at the potential results (the known unknowns; leaving aside the unknown unknowns) and act accordingly.

 

From my perspective in life, a paycheck is only a source of irritation, never the deciding factor on whether I like the job. In the case of proball, the conditions of employment are so different from a regular job (e.g., the inability to change employers even if you like the career chosen, the inability to leave without severe economic penalty, the fact that you get paid for only half a year but spend for an entire year) that the conditions under which milb players labor need to be considered - indeed may even trump most other considerations.

 

TPM constantly points this out - and I believe she is right; unless you have a family member who has gone through the milb system, it's tough to really really understand the life of the player. What most see are the performance (game time) and that overwhelms what was sacrificed to get to game time (time, money, alternate opportunities).

 

It's a very personal decision highly dependent upon each player (how good, how smart, how ready, alternatives available, opportunity costs lost, do you want to hedge the results or okay to put so much on a lottery).

 

There is no black and white; it's fifty shades of grey.  

 

 

Part of the problem in my comments may be that I am throwing out a hypothetical situation which is then limited to just one component - money.  We/I are not having to make this decision nor will we likely ever have to make the decision so I am not wrapped up emotionally.  I think I've realized that for folks that have personally gone through this decision process that they do not take this discussion lightly - this is of great benefit for the rest of us that get to sit back and get educated and could be indispensible for those actually having to make the decision.  I agree with the paycheck being a source of irritation.  Above having my kid take a shot at living out his baseball dream is to get him to a place in life where he is happy.  I could see how a stint with MiLB at a yound age could be the worst thing for his long term happiness - and I can see the reverse - when I squint real hard.  In the end it appears that my simple math discussion has been put in its proper place as a small component of the decision with other life choices being the more important components by far.  If nothing else reading these posts have greatly reinforced that belief.  Thanks again.

^^^^

Congrats on your son's draft position.  4th round picks are given ample opportunity to climb the ladder.  Your son definitely has a real shot at it.  Best of luck!! 

In the economic-based posts above, Vandy and Stanford are used as examples of high cost of attendance even with 50% scholarship perhaps pointing towards (economically) taking the $$ in an MLB draft situation and running.

 

The truth is, those 2 schools along with some others, are the hardest kids to sign for MLB out of HS.  Those commitments tend to be stronger than most.  People who get into those two see a college experience and lifelong earning potential that are far greater than $500K, even $1M signing bonuses.

Congratulations to your son! JBB is correct, as a 4th round pick he will have many chances, a lot more than those signs out of HS.  Your post, IMO is why college becomes very important in the process.