Held each December, the Rule 5 Draft allows clubs without a full 40-man roster to select certain non-40-man roster players from other clubs. Clubs draft in reverse order of the standings from the previous season. Players signed at age 18 or younger need to be added to their club's 40-Man roster within five seasons or they become eligible for the Rule 5 Draft. Players who signed at age 19 or older need to be protected within four seasons.
Not every club will make a selection, but those that do pick a player must pay $100,000 to the club from which said player was selected. Rule 5 Draft picks are assigned directly to the drafting club's 26-man roster and must be placed on outright waivers in order to be removed from the 26-man roster in the subsequent season. Should the player clear waivers, he must be offered back to his previous team for $50,000 and can be outrighted to the Minors only if his original club does not wish to reacquire him. A Rule 5 Draft pick can be placed on the Major League injured list, but he must be active for a minimum of 90 days to avoid being subject to the aforementioned roster restrictions in the next campaign.
Clubs may trade a player selected in the Rule 5 Draft, but the same restrictions apply to the player's new organization. However, a club may also work out a trade with the Rule 5 pick's original club to acquire his full rights, thereby allowing him to be optioned to the Minors under traditional circumstances.
History of the rule
Prior to the 2017-21 Collective Bargaining Agreement, clubs that selected a player in the Rule 5 Draft were required to pay $50,000 to that player's previous team. If the player was placed on outright waivers during the subsequent season and went unclaimed, he would be offered back to his previous team for $25,000.
Read a complete history of the Rule 5 Draft here.