December 5, 2014
The Yankees and the Toothless International Spending Limits
With the recent signing of 16-year-old Colombian outfielder Bryan Emery, the New York Yankees completed a Shermanesque raid of Baseball America’s international top prospects list, nabbing a staggering 10 out of the top 30 (and four of the top 10!) players available for the 2014-2015 signing period. And they did so while setting ablaze what’s left of Major League Baseball’s international spending rules, a system that was implemented when the CBA was redesigned in 2012 in part, however clumsily, to curb international spending and promote competitive balance.
Emery is, like most young international prospects, more project than finished product, with an expected big-league arrival time around the midpoint of Giancarlo’s Stanton’s 13-year contract extension, and that’s if everything goes right. As Ben Badler describes, “there’s breakout potential given the swing and tool package, but it may take him time for his game skills to catch up.”
More interesting than Emery, who was apparently targeted for the Padres prior to Josh Byrnes’ dismissal as general manager in June, is the Yankees’ international strategy in general, which essentially boils down to “sign everyone.” It’s a strategy New York has used in major-league free agency a time or two, but one they’ve generally neglected in the international realm, perhaps because major investments in young foreign talent take time to pay dividends, something that hasn’t always fit the Yankees’ win-now-at-all-costs blueprint.
Part of the goal of the 2012-2016 CBA was to limit spending on amateur players, with soft spending caps instituted in both the Rule 4 amateur draft and the international amateur market. While most general managers, scouts, and baseball executives (and anyone else with a say in the matter) opposed the spending restrictions, team owners generally welcomed the prospect of writing smaller checks to unproven talent. The players’ union, for all of its strength, is historically flimsy when the bargaining rights of non-union players are concerned.
Under the current rules, teams are assigned international signing bonus pools based on records in the previous season. In the 2014-2015 signing period, for instance, the international bonus pools range from just over $5 million (Houston Astros) on the high end to $1.87 million (St. Louis Cardinals) on the low end. Each team receives four slot values ranging from No. 1 to No. 120 plus a $700,000 base, allowing clubs to trade bonus pool dollars for other players or slot values. The Cubs and Braves, for example, recently completed a trade that netted the Braves an additional $800,000 in international bonus pool flexibility.
Then there are the penalties for going over the bonus pool, which have changed a few times since 2012, and currently look something like this:
· 0-5% in excess of Pool—100% tax on all of the Pool overage.
· 5-10% in excess of Pool—100% tax on all of the Pool overage and loss of right to provide more than one player in the next succeeding signing period with a bonus in excess of $500,000.
· 10-15% in excess of Pool—100% tax on all of the Pool overage and loss of right to provide any player in the next succeeding signing period with a bonus in excess of $300,000.
· 15% or greater in excess of Pool—100% tax on all of the Pool overage and loss of right to provide any player in the next two succeeding signing periods with a bonus in excess of $300,000.
Finally, all players that reside in a foreign country are subject to counting against a team’s international bonus pool, except:
· Players who previously contracted with a Major or Minor League Club.
· Players who are least 23 years of age and have played as a professional in a league recognized by the Commissioner’s Office for a minimum of five seasons. During the 2012-2013 and 2013-2014 signing periods, Cuban players who are at least 23 years of age and have played as a professional in a Cuban professional league for a minimum of three seasons will be covered by this exemption. In all signing periods following the 2013-2014 signing period, Cuban players only will be exempt if they are 23 years of age and have played as a professional in a Cuban professional league for a minimum of five seasons.
Back to the Yankees, who this year treated their ~$2.2 million spending limit much like some teams treated “slot recommendations” in previous iterations of the stateside amateur draft, blowing past it on July 2nd in a long-anticipated flexing of financial muscle.
The Yankees have already signed at least 28 international amateur free agents in the 2014-2015 signing period in total, and there’s still six months before the June 15th deadline, although all of the high profile players—excluding Cuban defectors—have already inked deals. New York focused much of its efforts on the Dominican Republic and on positions players—of the 28 players signed per McDaniel’s article, 16 are from the DR and 22 are position players—to quickly replenish the lower rungs of a middling farm system with a horde of high-upside talent.
On the positive side of this ultra-aggressive strategy, the Yankees get all of these kids into the farm system right away, rather than adding three or four major pieces a year for the next three years, and there’s time value in that. Further, by blowing past their international bonus pool allotment, the Yankees were able to add an estimated $15.575 million in international talent so far this signing period. If they played it year-by-year and abided by their international bonus pool, assuming they were allotted with same $2.2 million they got this year in the next two signing periods, they would only be able to spend $6.6 million on international amateur free agents from the 2014-2015 signing period through the 2016-2017 signing period.
On the flip side, the Yankees are going to end up paying closer to $30 million for these players, thanks to the recently instituted spending rules. If they stop spending now, the Yankees will have gone over their bonus pool by approximately $13.4 million, meaning they’ll have to pay an additional $13.4 million in taxes, which, when added to the $15-plus million they’ve already spent on players, comes out to a total just shy of $29 million.
Essentially, after they signed third basemen Nelson Gomez for $2.25 million, every additional move the Yankees made cost them double. It might be a burden well within New York’s budget, but it makes it that much tougher to receive a positive return on investment, especially when you’re dealing with primarily 16-year-olds who come prepackaged with a high attrition rate.
The Yankees also lose the ability to sign any player for more than $300,000 in the next two signing periods, forcing them to the sidelines if a can’t-miss prospect arrives on the scene in that time period. New York does, however, get to spend as much of their bonus pool as they’d like over that period, allowing them to stack up on $300,000-and-under flyers (like the Rays did in 2013) or—more likely—trade some of their excess bonus pool money for major leaguers or prospects.
If it were just the Yankees wreaking havoc on these new international rules, we’d probably just chalk it up to the Yankee Way—the same guiding mindset (and accompanying financial clout) that’s allowed New York to gain almost exclusive real estate above the major-league payroll luxury tax threshold. Let them blow apart the rules, serve their two-year penalty, and then do it again if they’d like, we might say. Problem: It’s not just the Yankees following this practice, as teams ranging from the small-market Rays to the free-spending Red Sox have done the same, without quite the flamboyance of the Yanks. Here’s a table with all of the teams that have received the maximum penalty since the 2012 CBA was enacted:
*The 2012-2013 actual spending figure for the Rays is exact, the 2013-2014 figures are from Baseball America’s calendar year international spending for 2013, and the current signing period figures are to-date estimates from various reports.
**The Cubs and 2014-2015 Rays both added money to their bonus pools via trades.
The Rays were the first team to go over their bonus pool, when each team received a $2.9 million international budget in 2012. They served their one-year penalty and then they did it again this year. Note, however, that the Rays exceeded their bonus pools by the smallest margins of any team on the list, and this year they actually traded for additional international dollars not to prevent them from going over their bonus pool, but simply to reduce the amount of taxes they’ll have to pay.
Both the Cubs and Rangers—a notorious high spender in recent years—took advantage of the rules in going over their bonus pool last year, since it was the last year that teams received only a one-year spending reduction for going over by 15-plus percent. This year’s seen the largest amount of teams spending over their bonus pool, highlighted by the previously discussed Yankees’ historical spending spree. The Angels have also blown away their figure, mostly to reel in 20-year-old Cuban second basemen Roberto Baldoquin for $8 million. The Red Sox nabbed Baseball America’s 4th- and 11th-ranked international prospects, though the fact that they’ve only spent around double their bonus pool could lead to additional moves before this signing period ends.
Enter Yoan Moncada, a 19-year-old five-tool Cuban phenom who might just put the final nail in the current international spending system’s coffin. Moncada is the sort of player who makes scouting look easy. A six-foot, 210-pound switch-hitting infielder, he provides plus power and off-the-charts speed in a package that could stick in the middle infield but more likely will profile at third base or center field.
How good is Moncada? According to BA’s Ben Badler, this good:
<blockquote>He has more upside than Cuban outfielder Rusney Castillo, who just reached a $72.5 million deal with the Red Sox. He’s better than Cuban outfielder Yasmany Tomas, who’s in the Dominican Republic but is still likely several months away from free agency. If Moncada were eligible for the 2015 draft, he would be in the mix to be the No. 1 overall pick. Gourriel and Despaigne would be safer bets, but there’s no player in Cuba with Moncada’s combination of youth, tools and hitting ability.</blockquote>
Moncada’s contract almost certainly won’t reach the $70-ish million mark that seems to be the sweet spot of late for big Cubans defectors—Yasmany Tomas recently signed a six-year, $68.5 million deal with the Diamondbacks, and both Castillo and Abreu were hooked near that price range. Moncada’s early projected signing bonus is in the $30 million-$40 million range, restrained not because of his talent or age— though his relative greenness might have something do to with it—but because, as an international player who isn’t 23 years old and hasn’t spent five years in a recognized professional league, he’s eligible to count against his new team’s international signing bonus pool.
Whichever team signs Moncada will have to pay a 100 percent tax (or close to one) on his signing bonus, making the total expected payment in the $60 million-$80 million range. And, remember, that’s just for the right to sign Moncada—if he makes the majors, they’ll also have to pay him for his first six years of club control, a minuscule amount if he lives up to the hype, but another non-trivial piece of the overall investment.
Moncada has been declared a free agent by MLB, but he hasn’t received clearance from the Office of Foreign Assets Control. He’s expected to become available well before the end of this international signing period (June 15th, 2015), but there’s an outside chance the process could be delayed. The latest report says that he’s living in Florida with his agent, but that he remains uncleared by OFAC.
The obvious question: how the heck is Moncada, a 19-year-old who has spent the past two years in Cuba’s professional league, Serie Nacional, lumped into the same bin with 16-year-olds who are often better known for showcases than actual in-game performance? It’s another shortcoming of the latest CBA, and it makes Moncada the second player—with Boldoquin being the first—in the new international spending landscape who is going to completely destroy the entire concept of the bonus pool system, forcing any team—whether they are the Astros or Cardinals—to obliterate their bonus pool if they want to add him to the organization.
There’s another issue being brought to the forefront with Moncada. Since, according to Kiley McDaniel, many teams come to agreements with international players upwards of a year before the next signing period opens, if a team busts its international cap by splurging on Moncada now, that team might have to nix all of those already-made handshake deals for the 2015-2016 signing period. That leaves 16-year-old Dominican or Venezuelan players out in the cold, left to scramble to find another deal with a team that has room left in the budget, perhaps having to settle for less money or a less desirable situation.
Handicapping the Moncada race is somewhat simple. If he’s available and signs prior to June 15th, 2015, the Rangers and Cubs, both of which are serving one-year spending restrictions for going over their bonus pool last year, are ineligible to sign him. If he doesn’t become available until the 2015-2016 signing period, which is unlikely but possible, the Yankees, Red Sox, Angels, Rays, and any other team that goes significantly over its pool this year would be ineligible to sign him, while the Rangers and Cubs would be back in the mix.
Assuming he becomes available in this signing period, the Yankees, Red Sox, and Angels are the likely clear favorites to sign Moncada, both because they are large-market teams and also because they have already busted their spending caps, leaving them without the burden of having to figure in the opportunity cost of losing the right to sign any $300,000-plus international players for the next two years into their calculation. Other large-market teams like the Dodgers, Tigers, and Giants could all emerge as contenders, as well. The Padres, who recently lost out on free agents Pablo Sandoval and Yasmany Tomas and hired internationally-renowned A.J. Preller as general manager in August, could be an outside threat.
Moncada isn’t the only Cuban import who could be cleared this signing period. Yoan Lopez, a 6-foot-4 right-handed pitcher, is also expected to become available, and there’s a seemingly endless list of potential defectors behind him.
At this point, you might be wondering why Major League Baseball adopted a system with so many easy-to-spot flaws; a system that very clearly doesn’t have the teeth to stop the big spenders from busting their bonus pools and a system that has lumped (somewhat) experienced Cuban imports in with 16-year-old projects.
Despite the flaws, has the new system—by luck or design—accomplished either goal of (1) promoting competitive balance by limiting the gap between the big and small international spenders or (2) reducing overall international spending?
First, let’s examine how teams spent internationally before the new spending rules were put into place. Baseball America has data for both 2010 and 2011 calendar year spending, so I combined these two years and compared it to each team’s payroll to get an idea of how teams were spending internationally prior to 2012. Both the international spending and payroll numbers are provided below as an index, with 100 being league-average and, say, 150 being 50 percent above average. The graph:
There’s very little, if any, correlation between major-league payroll and international spending in 2010 and 2011. (In fact, technically, there’s a slight inverse correlation between the two numbers.) Here’s a table that shows the top 10 spending teams on international amateur free agents in 2010-2011, and how they ranked in major-league spending:
*Market Size Rating was derived simply by taking the average between the attendance market and the TV/Media market from Nate Silver’s old market size study, with No. 1 being the biggest market and No. 30 being the smallest market.
As you can see, the list of top international spending teams from 2010-2011 is dominated by small-payroll, small-market teams. In fact, the teams with the lowest four payroll averages from 2010-2011—the Indians, Royals, Padres, and Pirates—are all represented, as well as three other below-average teams. And half of the top 10 is made up of teams in the bottom third of the league in market size, if we use Nate Silver’s estimates. Simply put, like in the amateur draft, small-market teams were plenty capable of competing internationally with their large-market foes prior to the new CBA and its accompanying rule changes.
It’s plausible that the changes are actually going to end up increasing the gap between small- and large-market teams’ international spending. Once a team goes over its international bonus pool, it probably makes the most sense for that team to add as much premium talent as possible, since they won’t be able to sign that type of highly coveted international player for two years. As the Yankees have shown this year, one way to beef up a farm system with high-upside talent is to simply buy it all. Unfortunately, for the smaller market teams like the Rays that dabble in this strategy, being taxed $5 million to $10 million dollars—or more, if they went in on a Moncada-type player—might not fit the budget.
Imagine if the rules were reverted back to pre-2012: Would the Yankees, even if they were planning to make a big splash this year, really have spent $15-plus million on international teenagers? It’s certainly possible, but maybe they would have stopped at $8 million or $10 million, knowing they could add more premium talent in the following signing period. There are already rumors that the Cubs are planning to blow past their bonus pool when the 2015-2016 signing period opens, and the free-spending Rangers could be back at it again as well. There’s also little doubt that other large-market clubs, like the Dodgers, Giants, Tigers, and Phillies, will eventually try their hand at a pool-busting strategy, creating an environment where every year some group of high-rolling teams will be set to gobble up premium international talent.
Meanwhile, some of the big spenders of the pre-2012 days—the Royals and Pirates, for instance—have thus far stuck to their bonus pool limitations, hoping good luck and good scouting will land them future impact talent. The Pirates, who were fifth in international spending in 2010 and 2011, spent just $2.58 million in 2013 (20th in the league), as they were allotted just $2.4 million for the 2013-’14 signing period. This year they’ve failed to sign any of Baseball America’s top 30, and the highest bonus they’ve been linked to is $400,000 for Dominican outfielder Yondry Contreras. The Royals did spend $3.61 on foreign amateurs in 2013—seventh most in the league—but their bonus pool shrunk to just over $2.1 million for the 2014-2015 signing period, allowing them to ink just one top 30 prospect, 17th-ranked Dominican shortstop Ricky Arancena for $850,000.
The reality is that these new spending rules were probably put in place more with an eye toward limiting overall spending on foreign amateurs than promoting competitive balance. It’s hard to judge if they’ve succeeded there, as we’ve only had two full signing periods complete, and in 2012 each team received a $2.9 million bonus pool and only the Rays surpassed it. In 2013, according to Baseball America, teams spent $98.6 million on international amateurs. That figure is higher than both 2010 ($75.5) and 2011 ($89.8), but of course we also have to figure in baseball inflation. This year, the four teams that have gone over their bonus pool have already spent over $30 million alone, which means it’s likely that 2014 calendar year spending should easily surpass $100 million, and that’s before considering Yoan Moncada and other potential Cubans defectors.
While it’s tough to gauge overall, spending probably has been curtailed somewhat, if only because 85 percent of the teams are incentivized to keep bonus figure as low as possible, to allow them to stay out of the penalty zone. However, teams like the Yankees and Rangers, which have blown past their bonus pools with little regard for the oncoming penalties, have certainly mitigated some of the overall cost savings that were expected.
While the current international amateur free agent system is largely broken, it could get even worse. Imagine that next year four more teams go over their bonus pool—that would leave eight teams in total unable to spend $300,000-plus on a single player during the 2016-2017 signing period. Now you’ve got a situation where only 22 teams are bidding on major international talent, shrinking the market and artificially driving prices down further. Though it may be unlikely, there are scenarios where premium players could go unsigned not because they aren’t coveted or are asking for sky-high bonuses, but simply because there aren’t enough teams with the budget or interest in signing them.
We haven’t mentioned it yet, but the inevitable—an international draft—could be right around the corner. An entire article could be written about the merits of an international draft (and many have been), but before enacting one, MLB would need to confront a whole slew of difficult-to-answer questions: How many rounds would it go? Which countries would be involved? How would signing bonuses work? What about Cuba?
Besides the many logistical issues that an international draft poses, the consensus seems to be that it would drastically shift the international landscape in a negative way, not only for players (and buscones) in foreign countries who might face reduced bonuses and less opportunities, but also for scouts that work the Latin American/international beat. The questions are so complex and entangled that, even though the current system won’t last without significant reform, an international draft isn’t necessarily coming anytime soon.
Per the CBA, an international talent committee was formed as part of the 2012-2016 CBA to discuss the potential issues surrounding an international draft, and MLB and the players’ union can enact an international draft in any year under the current CBA. So far, they’ve yet to come to an agreement on how to implement one. (As an aside, all of that tax money from teams going over their bonus pools goes to the commissioner’s office to “offset the cost of international reforms” and “to further the development of international baseball.”)
Regardless of the potential implementation of an international draft, the current system is in need of reform. Unlike the changes that were made to the domestic amateur draft, the teeth of this system aren’t sharp enough to discourage teams from blowing up their international budgets, creating a system where plenty of money is still flying around, most of it coming out of the coffers of large-market organizations in search of every last crevice where they can capitalize on their financial might.
Bryan Emery will likely start his professional career as a member of the Gulf Coast League Yankees next season, where he’ll attempt to convert his raw ability into baseball skills, hopefully creeping his way into Yankees’ prospect lists while climbing the minor league ladder. But there’s a good chance, if you aren’t on the look-out, that you will never hear from him again. Even if his talent never translates on the diamond, his name will forever be attached to an international class that broke a flawed spending system and, in all likelihood, helped change the future of international baseball.
Dustin Palmateer once played division III junior college baseball, finishing with a career batting average below the Mendoza Line. He now writes about the game at PadresPublic.com. You can reach him via email.