Structure: 50 Rounds. 1 pick per team per round until team choose to "pass" and thus eliminating any further selections. Compensatory picks awarded between 1st and 2nd round, and 3rd and 4th round.
Order: Reverse order of previous season's record. If tie, the year prior to previous is used as tiebreaker
Eligibility: Resident of United States, Canada, Puerto Rico and other United States territories, or anyone enrolled in a United States high school or college. Have never signed major or minor league contract
Signability: Team retains rights until 11:59 August 15th or if player returns or enters a four-year college full-time. If not signed, player can be drafted again another year if eligible. Unless agreed upon by player, team can not draft player in subsequent year. The notable exception is college seniors, who may sign at any time during the year until the next draft.
Free Agents: Players who were not chosen in draft can sign up until a week before next draft. Players from other countries can sign with teams at any time.
Compensatory: Teams receive Type A or Type B picks based on value of free agent players that were signed by other teams if they signed before the arbitration date or were offered salary arbitration by team and signed with another. Teams who lost Class A players, get the new team's first pick and a Compensatory pick between rounds 1 and 2 ordered by previous year's rank. Teams who lost Class B players, get an additional pick between the 1st and 2nd round, that is again ordered by previous year's rank after all Class A picks. A team can not lose its 1st round pick if it is in the top half of the draft, nor can it lose any compensatory picks. If a team owes two compensatory picks, the team that signed the player with the highest score, gets the first pick. If a team has two compensatory picks of the same caliber, their subsequent pick will occur after all the other teams have used their compensatory pick, using the same order as the first picks. If team does not sign first round pick, they get the a first round pick the following year in a spot one above the year before. If a team does not sign a third round pick, they get a compensatory pick in between the 3rd and 4th round. No compensation is awarded the following year, if team does not sign one of their compensatory pick players.
Draft History: During the early years of Major League Baseball, amateur players were essentially free agents straight out of high school. In other words, players were free to sign with any team that offered them a contract. Players signed to a team could not leave their respective teams however, since this was before free agency exsited. As a result, big market teams like the New York Yankees had an enormous advantage over their smaller payroll brethren in stockpiling talented players, which in that era consisted almost wholly of young talent.
Amid accusations of communism, MLB attempted to increase league parity by instituting the Bonus Rule in 1947. The Bonus Rule was a restriction on teams sending their young talent to the minors. The rule stipulated that when an MLB team signed a player to a contract in excess of $4,000, the team was required to keep that player on the 40-man roster for two full-seasons. Any team that failed to comply with the rule lost the rights to that player's contract and the player was then exposed to the waiver wire. If the player did remain with the team for two-seasons, the team could then send that player down to the minor leagues without consequence.
This rule created some interesting situations for teams, who were forced to keep young talent straight out of high school on their major league roster for two seasons. This worked out quite well for a few players, called Bonus Babies during this era, like Al Kaline and Sandy Koufax who never served time in the minors. On the whole, it was a rule that forced teams to carry raw players that weighed down the roster in order to develop stars later.
Due to this new rule, teams like the Yankees already had the talent but didn't want to use roster slots on these players, so they often used a subtle tactic in which they paid other teams to stash the players on their roster, then traded for these players after two seasons. In addition, teams were rumored to be feeding their prospects big bonuses under the table. Basically these clubs were exploiting loopholes in the rule as a way to get around it.
As a result, MLB instituted the amateur draft in 1965. However, it was hardly in the form it is in now. There were three separate drafts in 1965: the June draft (for graduating high school and college players), the January draft (for those players graduating in winter), and the August draft (for players participating in amateur summer leagues like Legion ball). As one can imagine, this was an incredibly complicated system that needed reform. The August draft was only held a few years, though the January draft continued until 1986. After that time, the Rule 4 Draft has stood alone as the only first-year player draft.
Rule 5 Draft: A MLB player draft that occurs each year during the Winter Meetings of General Managers. The Rule 5 draft aims to prevent teams from stockpiling too many young players on their minor league affiliate teams when other teams would be willing to have them play in the majors. The order is based on teams' win-loss records. If a team does not have a spot available on their 40 man roster, they can not participate. Players may be drafted at a cost of $50,000. Players chosen in the Rule 5 draft must remain on that team’s 25-man roster for one full season or be offered back to the previous team for half-price, or $25,000. A player can be traded with its draft restrictions, but if the receiving team does not keep the player on its roster for the whole season, it has to be offered back to the team that they received the player from. A team can also draft a player from AA or lower to player for their AAA affiliates at $12,000, as well a player from single A to play for their double AA affiliate at $4,000. The Rule 5 draft offers an opportunity for young players to prove themselves at the highest level. Recent notable Rule 5 draftees include Johan Santana of the New York Mets, Shane Victorino of the Philadelphia Phillies, Joakim Soria of the Kansas City Royals, Dan Uggla of the Florida Marlins and Josh Hamilton of the Texas Rangers.