Often mistakenly called the "Rule V Draft", the Rule 5 Draft is a player draft conducted each year at Major League Baseball's winter meetings, which usually take place in early December. Designed to add a competitive balance to the major league franchises, the draft takes place in reverse order of league standing from the previous year (worst picks first). Eligibility rules dictate which players can be selected in the Rule 5 Draft.

A player is eligible for the Rule 5 Draft if:

That player is NOT on a team's Major League 40-man roster.

AND

That player was 18 years of age or younger when he first signed a professional contract and this is the fourth Rule 5 Draft to take place since he was signed.

OR

That player was 19 years of age or older when he first signed a professional contract and this is the third Rule 5 Draft to take place since he was signed

As you can see from the rules above, the Rule 5 Draft protects major leaguers and young minor league talent, but exposes players who have taken longer to develop. But it's not just an up-for-grabs for teams looking for talent. Any player drafted onto a Major League team must remain on the team's 25-man active roster for the entire season. They can't be demoted to the minors or released without first offering the player back to his original team for $25,000 (there are exceptions to this).

There are three separate phases of the draft: AA, AAA, and Major League. During each phase, only players from a lower may be drafted. For example, in the AA draft, only players that are not yet on a AA roster may be drafted. Compensation must also be awarded to the player's original club. For a AA player, compensation is $4,000. For AAA and Major League, compensation is $12,000 and $50,000, respectively.

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