Draft or College?

You have not configured "Uncle Sam" and the agents and the future of Wall Street.

Bob

Before I retired from being a financial planner, this was the kind of analysis I did and advised my 2010 son on when he was drafted out of HS.  I came up with numbers and conclusions very similar.  One factor I had that's not here is the amount/value of the paid educational benefit that's typically in an Milb contract and looking at scenarios where the player never exercises the benefit (which is all ready accounted for here) and when the player does exercise the benefit taking 4 years of education after his Milb carrier that is 100% paid for.

 PS:  and as mentioned, taxes can be a big factor in looking to for a number.

Oh, and. . . son went to school since he didn't quite get the target number we came to. The offer was close, but am proud that son stuck to his guns over the temptation to get some money like he's never seen before.

Also not in the equation is the experience of college. You can only be a college student once in your lifetime and the experience should not be discounted. Also playing for a winning program and going through conference tournaments, Regionals and for the few lucky ones, a CWS experience is hard to put a price tag on. 

BOF posted:

Also not in the equation is the experience of college. You can only be a college student once in your lifetime and the experience should not be discounted. Also playing for a winning program and going through conference tournaments, Regionals and for the few lucky ones, a CWS experience is hard to put a price tag on. 

THIS. 

If you are interested in a career in Baseball as a coach, scout or front office person after your playing days are done, going pro seems to me a no-brainer.   An exception might be playing in college for a legendary coach and being able to learn first hand from him.

It's just such a personal decision, it's impossible to quantify because each person will weigh each variable differently.

Its a decision which chooses one path and burns the other path - sure, you can go to college at any age (I did as an older student), but going to play baseball in college is not possible. And college baseball is likely the last time a kid will play for a team he will care about for the rest of his life.

Most of my son's peers who were drafted out of HS didn't make MLB (7 - 9 years now), some are still chasing the dream, most are done. Of those done, most have tried to go to school; none so far have graduated; one kid actually got his degree while his was playing.

But, I don't know if the decision can be boiled down to economics.  Having gone through the decision once, in hindsight trying to come up with an economic rationale was not the right approach (though that was how we rationalized the - correct for us - decision). I don't know what is - probably because the decision is so personal and individual - but its somewhat analogous to a decision of high academic or baseball power school. You are giving up a lot, to gain what IMO, isn't very much of a head start.

In college, injuries cut players potential short more often then bad coaching. Bad coaching or a low visibility program may impact draft round, but if a kid has the chops, he will be found and advance in proball. In the overwhelming majority of cases, if a kid isn't pro material out of college, the kid really wasn't pro material out of HS.

(Continuing my unabashed promotion of the Ivy schools and Stanford [d1 only talking], graduates do actually go to Goldman and its peers on a regular basis.)

I would take top 2 rounds Money, you can still go to college with that Money if you fail plus you have played pro ball which is a cool Thing.

if you are a 9th rounder it would probably be smart to go to college because the Odds are stacked against you but I can still understand People chase their dream.

Consultant posted:

You have not configured "Uncle Sam" and the agents and the future of Wall Street.

Bob

Taxes are a distinct variable based on investment strategies and situation. And to refer to it as a variable is an understatement.

Future of WS: it's consistent regardless of the strategy, i.e., it doesn't vary by strategy as it is an outside factor that hits any strategy in the same manner.

Truman posted:

Before I retired from being a financial planner, this was the kind of analysis I did and advised my 2010 son on when he was drafted out of HS.  I came up with numbers and conclusions very similar.  One factor I had that's not here is the amount/value of the paid educational benefit that's typically in an Milb contract and looking at scenarios where the player never exercises the benefit (which is all ready accounted for here) and when the player does exercise the benefit taking 4 years of education after his Milb carrier that is 100% paid for.

 PS:  and as mentioned, taxes can be a big factor in looking to for a number.

You're right! That's a benefit that needs to be worked into the model!

BOF posted:

Also not in the equation is the experience of college. You can only be a college student once in your lifetime and the experience should not be discounted. Also playing for a winning program and going through conference tournaments, Regionals and for the few lucky ones, a CWS experience is hard to put a price tag on. 

$2MM or the chance to experience regionals+. That's part of the qualitative variables that are NOT a part of this quantitative analysis.

Modeling out allows you to quantify the cost of taking the chance to attend regionals vs. taking the money. A gross bonus of $2MM is over $15MM after 35 years. So you have to ask is it worthwhile to give up $15MM at the age of 55 for the chance to go to a regional?

Modeling future returns prevents blind decision making.

Goosegg posted:

 

But, I don't know if the decision can be boiled down to economics.  Having gone through the decision once, in hindsight trying to come up with an economic rationale was not the right approach (though that was how we rationalized the - correct for us - decision). 

(Continuing my unabashed promotion of the Ivy schools and Stanford [d1 only talking], graduates do actually go to Goldman and its peers on a regular basis.)

1) It's not strictly an economic decision, but you better have those quantitative answers at hand so that you can make a well-rounded decision.

2) No doubt. And you may even become the CEO of a presidential campaign.

Most college ball players dont experience Regionals. Not every program makes it there in a four year window. So I would not put Regionals into that equation. Also, not all players drafted in the first two rounds make it to the MLB. The only thing that is constant is the need to keep earning income. 

The bonus money in the first one and a half rounds of the draft is hard to replace, so I would not consider the draft out of high school unless we were sure of being selected in that window.  Hard to tell a kid and his family to turn down that money when the parents are only making 50k-60k per year. 

A few years ago a friend was facing the same quandry with his son entering the NBA draft right out of high school. He wanted the college life and all that goes with playing ball at the college level but the money was tough to turn down. Like baseball a significant number of first rounders wash out in basketball ( see Greg Oden and other college players of the year ) for various reasons.  Most  players are not scheduled to attend The Ivy League  or Stanford type academic school that would insure that upon graduation they would get high paying jobs.

Lots of factors go into making that decision. The gamble to chase the dream is a big one. Why not mitigate the risk with a nice big fat first round bonus check?  Or,  enjoy playing in college and the entire college experience and get a degree that will pay off the rest of your life. Tough decision either way.

My advice for my friends kid was not taken and he went to college and went on to play in the Final Four. A tremendous experience only had by a few. He graduated from school and went undrafted. Has bounced around and is still chasing the dream. 

Let's look at this from another angle. 

First, assume a player is not a "can't miss" 1st or 2nd round selection. (Those players have a chance to rocket through the system, and are handled a bit differently by organizations, when compared to most later picks.)

Compare the rest of the HS picks career trajectories to the highly drafted college junior.

Draft year (year 1): HS (18 yrs) player drafted and heads to complex ball; college player plays local ball in his summer before college.

Year 2: HS player (19) reports to ST, and is assigned to . . . complex ball;  college player as a fr gets some playing time and then heads off to Summer ball.

Year 3: HS (20) player has played in instructs during the fall and reports to ST. Gets assigned to SS - play begins in June. College player (now a rising junior) got significant season playing time and now off to Cape or Northwoods (where the feeding frenzy begins).

Year 4: HS player (21) heads off, most likely to SS though a few - if successful and having caught the eye of management - may head to full lesson low A. College player (now a junior) burnishes stats and is drafted. Assigned to SS (particularly true of pitchers who were ridden into the ground), then to instructs.

Year 5: HS player (22) to high A. College player low A with chance to be promoted to high A sometime during season.

From a career perspective (assume the players are equal in potential and current level): HS player is one level ahead, and has pocketed and begun using his bonus money (or mom and dad are paying the upkeep) for 5 years. Has no education but the right to draw upon the MLB college money at some defined point in the future - and which money is fully taxable (thereby diminishing its true value), while college costs has gone up (at least five years of increases, maybe more, further diminishes the MLB scholarship value). Gave up his last chance to be on a real baseball team which plays as a team to live alone in a world which treats him as a piece of meat.

The college player has two seasons of summer collegiate ball (combining the college season and summer leagues provide many with a free taste of the incredible grind of  proball; some don't like it); three seasons of being a "big man on campus", three years (for many, however, two years) of college credits, and three years of growth opportunity in the "half-way house" of college living (on your own, but not quite). The MLB scholarship fund is still available (though for only one year and the player will be short of credits and need to self-fund the shortage; but the MLB scholarship amount will be more to cover those increased college costs).

Certain scenarios are very suseptible to mathematic type analysis, such as which mortgage to take.  Here the money becomes a minor element - only in the fewest of cases of huge bonuses does it rise above that (IMO) - the other variables (maturity, desire, options foreclosed, etc) cannot be quantified but are far more important in trying to parse the future.

Pro ball is a life style choice; the players in those first years are meat, every day is stressful, it is lonely, it is dull and intellectually lifeless, players have no safety net, no escape, no identity except baseball, ruminating about that last bad start.  Please show me an equation which peers into the future and quantifies that. (Just reading this board demonstrates the incredible jump from HS to college and the bumps and dips experienced by great HS players; it is orders of magnitude more difficult in the HS to proball jump.)

Parhaps, a better question would be: will I make it to MLB if drafted out of HS and not make it if I wait and get drafted out of college. Those different results are stark. The issue should not be will I get a shot at proball; rather will I make it all the way? (Sort of like, if a kid should apply ED rather than RD because ED provides a tangible advantage.) 

In hindsight, I look at my economic analysis as done more for me, than for my son.  It was a framework to try to work through an issue which has so many facets that we needed to start somewhere. But, (jmo) the intangibles make any analysis based upon economics seem unreasonably exact and scientific.  I knew none of this while we went through it - I had no clue what HS draftees went though and what they gave up.

I have heard it said, and believe it, that a paycheck is a source of dissatisfaction, not satisfaction. In other words, if you don't like what you're doing, money doesn't make you enjoy it. A million dollar bonus is not going to make a kid mature who wasn't (think Matt Bush and his first spring training), is not going to make a kid use his mind by reading a book while everyone else are telling lies and swapping stories, is not going to make him happy because he has a fat bank account managed by a skilled asset manager. This life decision - and it is a life decision which absolutely forecloses options - cannot be boiled down to dollars and cents.

(Keep this in mind: the player needs to play a certain period of time to (a) not be forced to repay a portion of his bonus and (b) to be eligible for the MLB scholarship money. I know of many kids who - for personal reasons - quit before the time and forfeited all.)

I know someone who was drafted in the 3rd round.  Turned it down and had offers from every top program in the country.  Played 3 years and was drafted in the 2nd round.  He said that he was glad he did that for the experience and the maturity.  He said that if he would have been starting in the minors as an 18 year old he would have had a different mentality.  It also helped playing for team USA and all that experience.  He now is on a MLB roster for the past 3 years.  Last year the whole season. 

joemktg posted:

BOF posted:

Also not in the equation is the experience of college. You can only be a college student once in your lifetime and the experience should not be discounted. Also playing for a winning program and going through conference tournaments, Regionals and for the few lucky ones, a CWS experience is hard to put a price tag on. 

$2MM or the chance to experience regionals+. That's part of the qualitative variables that are NOT a part of this quantitative analysis.

Modeling out allows you to quantify the cost of taking the chance to attend regionals vs. taking the money. A gross bonus of $2MM is over $15MM after 35 years. So you have to ask is it worthwhile to give up $15MM at the age of 55 for the chance to go to a regional?

Modeling future returns prevents blind decision making.

I think the concept of having $15MM socked away 35 years down the line is not the best approach in making this decision.  For one thing, that $15MM will be worth a whole lot less than $15MM today.  Besides, any kid who gets a $2MM bonus is probably not going to simply set it aside and not touch a dime.  Not saying it gets blown, but a little nicer car (maybe a 2015 F150 instead of a 2005 Civic) and some nicer accommodations (maybe only 1 roommate instead of 3) early on and maybe some larger chunks later in life (maybe funds their kid's college tuition).  What I also don't see much of is the cost of attending college (cannot simply assume parents pick up the 50%+ not getting paid for with scholarship).  

I think this type of decision could benefit from some analysis at various time horizons and with some different outcomes.  The math is not that different, just need to put together each year's cash flows and get some ideas of how things look in year #3 (when you could potentially be draft eligible again or have 3 years MiLB experience), and then maybe years #5, #8 and #10 to really get some of the major milestones into the analysis.  Injury in college, and how the college responds when a player is injured, could have huge impacts on the analysis (for instance, non-baseball injury before arriving on campus and scholarship gets cut after freshman year).  Need some way to insert a level of uncertainty into future years - the further you go out the more uncertainty.

I've got a hypothetical figure in mind (unfortunately not going to happen) that I keep tossing around based on some prior posts here.  The number changes occassionally, but I can tell you there are many large and many small reasons that go into the calculation and the purely quantitative portion is probably around 25% of the overall calculation.  I think one of the biggest factors - that has been stressed on this board - is whether the kid is going keep at it and give 110% for the next 2-3 years just to get a sniff at the next level and enjoy the wonderful bus rides and dinners at 7-11.  Another big factor is whether the kid is even mature enough to last those 2-3 years and still be as good of a person if he were to fail.  A bank account with $100k+ and an unhappy, unemployed person is often not a good combination.  I would argue that there can be a downside to the decision and that it is not all simply on the upside.

Something else to consider...probabilities of making it to the bigs...

The trouble with the stats showing the percentage of draftees making it to mlb, is the result is binary for each individual. This isn't like applying to a dozen schools in the hopes that you'll get in to one; you either make it or not and cannot bail to another employer until that initial contract is over.

For some, its a great  decison to sign out of HS, for others it would be a poor and life altering moment.

Over the years, my thinking on this has become much less purely analytical and more based upon the individual player, his academic potential, his collegiate options, his maturity, his flaws and weaknesses (i.e., is he going to ne in an emvironment which accentuates his weaknesses), and his strengths. No one size or analysis fits every player. 

But, the  framework we are teasing out is worthwhile because its makes you focus on each issue and weigh it accordingly.

Dominik85 posted:

if you are a 9th rounder it would probably be smart to go to college because the Odds are stacked against you but I can still understand People chase their dream.

I suppose this is when someone points out the exceptions.  Such as:  Scooter Gennett.  Only 5'10", not a projectable body, not enough arm strength to stick at SS (which he played in high school), drafted in the 16th Round.   Decided to go pro, and has played 4 years of MLB so far.   Yep, yep I know, for every Scooter Gennett type there are a few hundred players who don't make it.  

That is why they call it "chasing your dreams".   It isn't "chasing a sure thing"