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This is indeed how the game is designed; to ensure some prospects don't pan out, the game subjects them to instantaneous, often debilitating, Potential hits. It is not a bug. Of course, many users have complained that this is unrealistic- for what possible reason could the player's Potential have changed so suddenly and so drastically? I certainly think this would feel more realistic if the decline in Potential was gradual, not immediate.
Still, that's how the game works, and these Potential hits are common and severe; as Nutlaw points out, half of the first round of a draft class should not make it to the Majors, so many hits are needed. As Nutlaw points out, hits are more common when players are overmatched, so adding a Rookie level might help. Otherwise, you have at least minimal control in Game Setup- you can lower the 'Talent Change Randomness', which will mean that hits happen less often, though they will be just as harsh. There are other Player Development settings, but I don't think they will address the issue.
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