Rule 5 Draft
The Rule 5 Draft was created as a way to prevent teams from hoarding minor league talent. Without the Rule 5 draft, teams could hold minor leaguers in their farm system indefinitely, where that player may have a legitimate shot of making the big club with a different organization.
Under the Rule, teams must protect (by adding them to the 40 man roster) minor league players within three or four years of signing them. Three years for players who are 19 on June 5 preceding the signing of their first contract. Four years for players who are 18 at the same time. If a team does not add a player to the 40 man roster within the prescribed time period, that player can be drafted by another team.
There is a catch however. In order to discourage teams from drafting minor leaguers arbitralily, the drafting team must keep that player on their major league roster for one complete season. If the drafting team does not meet this requirement, then the player must be offered back to thier original team at one half of the $50,000 drafting price. Because the minor league players selected in the Rule 5 draft are usually marginal prospects or very raw, relatively few players are selected through the Rule 5 draft each year.
Minor League Phases
There are also two minor league phases to the Rule 5 draft: the AAA and AA phase. In addition to setting a 40-man roster, organizations are required to submit a AAA and AA roster of players eligible for the Rule 5 draft. Note that these rosters are larger than regular-season AAA and AA rosters and their composition during this phase is determined by the organizations evaluation of a player, not the player's current level; the organization will place players they value more highly on the AAA roster.
After the Major League phase, the AAA phase takes place, in which other organizations can pluck players on other teams' AA rosters. During the AA phase, organizations can take Rule 5-eligible players on neither roster. The minor league Rule 5 draft is primarily a roster-filling exercise and players taken rarely reach the major leagues, not to mention establish themselves as big-league players. Unlike the Major League phase, players drafted in the AAA phase are not required to play at AAA, nor are AA draftees required to play in AA. It costs $12,000 to select a player in the AAA phase and $4,000 in the AA phase.