The day I had waited 18 years for had come, yet instead of excitement, I felt this wave of unknowns.
You know, that feeling you get when a big moment is on the horizon but you also realize the stakes are as high as possible.
That was me on draft morning in 2009. Now look, I would say I had a better education on the MLB draft than most potential draftees and I still felt that way.
I had three high school coaches who were 10-year big leaguers with one, Andy Benes, having been the first overall pick in the MLB draft.
You would think with that stable of knowledge I would feel prepared.
Yet the reality was far different.
In this blog, I will talk about all the elements future MLB draftees should know or say more simply, all the stuff I wish I had known when I got drafted.
MLB Draft
The MLB draft dates back to 1965 and serves as the main avenue for amateur baseball players to begin their professional careers.
Over the years, the MLB draft has ebbed and flowed with the number of rounds but in 2024 the MLB draft consists of 20 rounds.
Teams are awarded their draft slot through a lottery unless the team made the playoffs in the previous year. If a team makes the playoffs, they are slotted into the draft based on their finish.
While the draft order a team receives is important, perhaps more important is the financial ramifications of their picks. You see each MLB team receives a bonus pool determined by their order of MLB draft picks.
In 2024 the bonus pools range from $18,334,000 for the Cleveland Indians down to just $5,914,700 for the Houston Astros. The total draft pool for teams is $334,375,000 up nearly $27,000,000 from 2023.
The bonus pools work like this:
Rounds 1-10 have assigned slot values
Rounds 11-20 have no assigned slot values
The first pick in 2024 has a slot value of $10,750,600.
Players after round 10 can sign for up to $150,000 or additional pool money
Teams that exceed more than 5% of their bonus pools lose future draft picks
In short, this structure incentivizes teams to try to save money on their top picks (biggest slot values) and try to reallocate that money towards lower picks as more incentive to sign.
***A recent example of this was the Texas Rangers in 2022. They had the third overall pick which they used to sign Kumar Rocker. Rocker signed a deal for millions below slot which allowed the Rangers to sign the top high school pitching prospect in an above-slot deal.
To fully understand the MLB draft you need to understand the incentives of the teams.
Major League Baseball is a business first.
MLB Draft Contracts
The MLB draft reminds me of that famous line from Jerry Maguire, "Show me the money".
Unlike other professional sports, the MLB draft is unique in that the top talent often doesn't sign.
High school players in particular carry significant leverage when they enter the draft committed to a top college. NIL earning potential has only increased the leverage many players wield in the draft.
For many players (myself included) the stance is this is my dream but the money has to be right for me to do it now.
That my friends is a position of power for you as the player.
Now that we understand leverage, let's talk about how these contracts work.
In the MLB draft players sign a uniform minor league contract with teams that works like this:
5 years of team control if you sign at age 18
4 years of team control if you sign at age 19 or older
Teams can further control players by adding them to the 40-man roster
Example: A player drafted as an 18-year-old can be put on the 40-man roster after his fifth year. That player is then controlled by the team for up to six additional major league seasons before MLB free agency.
Professional baseball players face a barbell-earning ability. You can earn a lot of money early on (signing bonus) and a lot of money in the big leagues (MLB contracts). During the time in between players earn very little.
Current minor league salaries in 2024 look like this:
Rookie Ball = $19,800
Low A = $26,200
High A = $27,300
Double A = $30,250
Triple A = $35,800
This is why it is critical to understand both how draft contracts work and how you can maximize the signing bonus you receive.
The standard signing bonus for MLB draftees works like this ~ you receive half of the bonus in 30 days after signing your contract and the other half the following calendar year.
Example: You receive a signing bonus of $4,000,000. You would receive a check for $2,000,000 in 30 days and a check for $2,000,000 the following calendar year.
Keep reading to understand the planning opportunities that come with properly structuring your signing bonus
MLB Draft Timeline
It takes 18 or more years to get drafted and then within a span of 30 days you feel like your life is forever changed.
To say the draft timeline from draft day to signing to reporting to the team is a whirlwind might be the understatement of the century.
This was one of the most confusing parts of the MLB draft process for me so let's break down exactly how it works:
Step 1 - Get Drafted
Remember there is a laundry list of unknowns but my advice is simple, enjoy the day
Step 2 - Negotiate and Sign Your Contract
Most years players have around 30 days to negotiate before the signing deadline
Step 3 - Navigate Post Draft Media
For top players, this includes media requests and often a trip to the big league stadium
Step 4 - Make a Good First Impression
Remember this is a business, a business that just invested significant money in you
Step 5 - Report to Team or Spring Training Facility
Depending on usage and age players will be assigned to either a MiLB team or the team's spring training facility
All of the above can happen within 30 days of draft day. On top of that let's not forget all the texts, phone calls, and celebrations with family and friends.
Oh ya and don't forget that you are also a pro now which means you are getting paid.
I show you this because far too often I see families head into the draft ill-prepared for the whirlwind that is about to happen.
You get to do this once...maybe twice, my goal is that you enjoy it. To enjoy it fully you need to be prepared for what is about to come.
As specialists in athlete wealth management, our job for families is to make sure all of the above is in order so your focus can be on enjoying that once-in-a-lifetime moment.
MLB Draft Planning Opportunities
If you hear nothing else, hear this ~ You have one chance to do this right.
The odds of a player making it to the big leagues (as in one day) look like this:
~ 66% of 1st round picks
~ 50% of 2nd round picks
< 20% of every other pick
Don't be discouraged, you have already beaten the odds to be where you are at today.
Just understand that you need to plan for your MLB draft signing bonus as if it could be the last money you earn in professional baseball.
While there are countless things to think about, I want to discuss three key frameworks to understand.
Taxes
Taxes will be your single biggest expense. The good news? You can reduce them with proactive planning.
You will play both state income taxes (state of residence) and federal income taxes on your signing bonus.
***Below is an estimate of a player paying 37% in federal taxes, 5% in state taxes, and 5% in agent fees.
For a deeper dive into the role taxes play for professional athletes, check out my guide on tax planning for professional athletes.
***Note teams generally will withhold the minimum required amount on your paycheck (22%). You need to be proactively planning to set aside additional taxes that might be owed.
Contract Language
You want to be aware of exactly what your contract says. The vast majority of draft contracts and signing bonuses are structured as "true signing bonuses" but not all.
For a true signing bonus, there has to be no duty to fulfill any obligations. As in the day you sign your contract you are entitled to that money even if you quit in year one.
In legal terms, this is called the abandonment clause and should be a key consideration for every MLB draftee.
Not only does it provide you with more guarantees it also opens the door to future state tax planning as a true signing bonus is taxed in your state of residence not where you are assigned.
You will see a theme here ~ taxes. Our goal at Moment is to help our professional baseball players pay the lowest amount of tax possible.
You have worked hard to put yourself in this position, let us maximize what hits your bank account.
Payout Structure
Remember how earlier I said the standard contract structure is 50% in year one and 50% in year two?
Well, that is standard but it is not required. In fact, teams have the discretion to move these numbers around and often will for top players.
The reason this matters is twofold:
The value of money today is higher than the value of money tomorrow.
The amount of tax you pay can depend on how this money is paid out.
The key here is making sure your on-field team (agent) is working with your off-field team (financial team) to ensure the best possible outcome for you.
The MLB draft is as much about strategy as it is about talent. Teams are looking to accumulate the most talent at the lowest cost (dollars and draft capital) to acquire the best players.
Said more simply, they have done this a time or two.
I say that not to intimidate you but to open your eyes to how important it is to have a quality team around you.
That includes your agency which is running point on negotiations and a financial team specializing in athlete wealth management to ensure your money is being maximized.
If you are a family looking to better understand the MLB draft, schedule a call, and talk with a Moment founder.
Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
How many rounds are there in the MLB draft? In 2024, there are 20 rounds in the MLB draft.
How are signing bonuses paid in the MLB draft? The standard signing bonus is paid 50 percent in 30 days and 50 percent the following calendar year.
How are MLB signing bonuses taxed? MLB signing bonuses are taxed at both the federal and state levels. The majority of signing bonuses will be taxed in the player's state of residence.
What should players know about the money they receive in the MLB draft? Players should know that tax withheld on their paychecks may not be the correct amount. It is the player's responsibility to ensure proper tax payments and withholdings. We recommend players get tax projections done as their signing bonus comes in.
How does Moment Private Wealth help MLB draftees? Our role in the draft process is to educate families about the financial elements of the draft and work with the players to maximize their signing bonus. Having walked in the player's shoes we know how hard it is to earn significant money in sports and our goal is to help players make the most of that.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
