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May 10, 2009

The LatinTalent Market

The Basics

by Kiley McDaniel

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There's a disease of "more" in baseball prospect coverage, and it has seeped all the way down to the growing interest in the Latin American market of 16-year-old amateurs. While this might seem borderline creepy and of dubious importance, there are many layers to this emerging foreign market. Before I start into a full sprint with scouting reports, rumors, and rankings of talent from south of the border, I want to take a page out of Kevin Goldstein's playbook, when he kicked off his prospect coverage here at BP with a series on scouting theory and lingo by catching everyone up on how business is done in Latin America.

The Aim

Latin insiders, agents, scouts, and executives take part in a number of behind-the-scenes conversations about this market, and how to scout and sign these players most effectively. Most of those conversations would be fascinating to any baseball fan, but they aren't discussed by a media that, for the most part, surveys the Latin American amateur landscape and covers it in one of three ways:

  1. "This system is a cesspool for corruption, MLB is doing little to nothing, and it's a shame."
  2. "Look at this poor country, these great young players, and this soft-focus lens."
  3. "Bonus amount, quote from scout—what else could you possibly want?"

These three storylines give us some insight, but they also get stale quickly when you wonder how legitimate business is done in a market that now has all 30 clubs eagerly spending millions per year. Given the relative guesswork on scouting the players, I prefer to focus more (but not exclusively) on the hows and whys of the grownups involved. We can't agree on MLB fantasy or amateur draft rankings of players in their 20s and 30s, so consider how futile it is to write long-form around the abilities of 16-year-olds, coming through a frequently corrupt foreign system with little to no game competition.

That said, it's still fun to play signing handicapper and collect scouting gossip, so there's some of that at the end of this article. I'll be doing much more of that in subsequent articles in this series, with full scouting reports and first-hand accounts from a trip to the Dominican later this month, but first I want to get all of us on the same page.

The Industry

As you may already know, the Latin American amateur market has exploded in the last few years. More and higher seven-figure bonuses have been awarded recently, and as a result more clubs are in the bidding for the elite talent, moving the top of the market upward. The poster boy for the rising market is current bonus record-holder, A's right-hander Michael Ynoa, who received a $4.25 million bonus last July 2nd, and that after reportedly turning down multiple last-minute $5 million offers. As interest in this market has increased, the media, MLB, and the FBI have all focused on how the sausage is made in Latin America, primarily in the talent-rich Dominican Republic, focusing on falsified identities and bonus-skimming scandals. Recent features from USA Today and ESPN the Magazine have touched on these ongoing issues.

There are some rules. Players not subject to the draft—anywhere other than the US and Puerto Rico—are eligible to sign with big-league clubs as 16-year-olds in a period from July 2nd to August 31st. This is why many people refer to signing Latin players with the "July 2nd" as short-hand. If a player turns 16 during this period, they are eligible to sign on their birthdays, while at 17 or older, a player can sign at any time. Typically, any player worth signing at all will sign as a 16-year-old, looking for his payday as soon as possible, though some will wait. There are some late bloomers that are fringy talents at 16, or elect to wait, and let their skills develop and sign for more as 18- or 19-year-olds. Some of these players even get six-figure bonuses, but it doesn't happen often. There are just a handful of notable bonuses given to players over 16 or after the traditional signing period.

The majority of players signed on July 2nd are from the Dominican Republic, with Venezuela a clear second. Most elite prospects (those who sign bonuses for over $500,000) come from those two nations, but Central American countries like Panama and Nicaragua frequently have notable players, as do Caribbean nations like Curacao, as well as emerging South American markets in Brazil and Colombia. Nearly every Latin country has organized baseball like America, usually affiliated with a school. The Dominican has a more capitalistic approach that is predicated on early involvement from agents (known as buscones), so I'll cover that process in the next section about agents.

This year in particular, club officials agree that the elite talent is heavily concentrated in hitters from the Dominican Republic, who figure to make up most if not all of the seven-figure bonuses come July 2nd. Normally Dominicans don't account for all of the seven-figure bonuses, so either this year will be an outlier or, more realistically, a Venezuelan player or two will emerge late in the process; certainly a few intriguing candidates from Venezuela have emerged recently with impressive workouts.

Mexico is noticeably absent from this list as their players are rarely signed as amateurs. Mexico has a strong national baseball league similar to the Japanese baseball leagues or European soccer leagues that sign talent as early as 13 years old, and typically only let them leave the league when a club can get a huge sum from a major league team in return for a fully-developed talent, and Mexico definitely has some major league talent. The Yankees signed the rare amateur prospect in lefty Manny Banuelos, who looks promising early on. The Bombers also rushed signed righty Alfredo Aceves through the minors, just as the Padres did with righty Walter Silva, both of them Mexican League veterans.

I've also left out Puerto Rico and Cuba. Puerto Rico has been subject to the amateur draft since 1989 (another contentious and complicated issue, and one for another article), while Cuba has been closed for years unless players defect, though that situation may be changing soon. Stay tuned for next week's article for an update on US-Cuban relations, and how they pertain to baseball.

The Agents

In the Dominican, there are little leagues organized by churches and communities serving kids through about 12 years old. At that point, the best players are identified by "trainers" who coach these teams. The trainers recommend their kids to a buscone (agent) who then trains and markets the players until they are eligible to sign at 16. These buscones cover all training expenses for years, and in return get a cut of the player's signing bonus, normally of 30-35 percent, though one top prospect this year is giving up 40 percent. In today's high-stakes climate, nearly every player pegged for a bonus north of $500,000 will also have an American agent (such as Adam Katz working for Michael Ynoa, or Scott Boras for Carlos Triunfel and Angel Villalona). These American agents work for their domestic take of 3-5 percent, and typically represent the player in their subsequent stateside careers. The trainer who originally identified the player will normally get five percent. Some players, such as one top prospect in this year's crop, have a fourth representative getting a cut of his bonus. Add it all up, and it's not unusual for 50 percent of a player's bonus to be paid out to his representation.

You may be asking yourself, "Is this unique development plan the reason that the Dominican is such a fertile source of talent?" Well, you probably wouldn't speak that formally to yourself, but maybe you wonder, like I did, if the buscone system made the island more talented. While the buscones may grease the wheels, it turns out that buscones sprang up as an entrepreneurial response to the nation's talent level, so the causation actually goes the other way 'round.

You might also have some humanitarian alarms going off in your head at this point. Questions of fairness and exploitation are routinely raised about this process (see the first two stock storylines that I mentioned earlier). I'll cover this issue in (possibly nauseating) detail in another article, but want to get a few things out of the way first. When you read that 50 percent of that first check could be gone before the ink dries, in a completely legal and accepted practice no less, you must be wondering how that could possibly be fair to the player.

The relative poverty and big commissions immediately spark the "fair" part of your brain, no doubt, but developing baseball players isn't really fair to anyone financially, anywhere in the world. While domestic amateur bonuses are big and growing, it's still a relatively small group that gets the big bucks, and nearly every minor leaguer below Triple-A doesn't crack five figures in annual salary. Nearly every staff member working for a minor league club, amateur team, or in an MLB front office isn't making big money either. The scale of fair goes all the way up to an "unfair" big-league rookie's six-figure salary, but that's just how free-market capitalism works.

If anything, the poorer families in the Dominican benefit more from this process than the average American family, with more to gain and less spent. A Dominican family can't pay for travel teams, equipment, lessons, and showcases, so, in effect, they let entrepreneurs take 35-50 percent of their first check to subsidize their opportunity to strike it rich and possibly pull their family out of poverty. That sounds like a pretty good deal to me.

Major League Baseball and the Dominican Republic are interested in ways to regulate this growing market, to remove the truly exploitive acts that happen, but baseball is resistant to any change in general. In addition to that, every team has a chance to compete in the international market as it stands today, and regulating the Dominican side of this equation is an uphill battle, to say the least.

The Complex

Given that the Dominican is the predominant source of quality and quantity of Latin talent, clubs have agreed that it's therefore the best place to centralize a Latin department, as 29 teams (excepting the Brewers) either have their own complex or share a complex on the island. Milwaukee still signs Latin players, sending them stateside immediately, though the Brewers are now looking to share a complex with another club.

Complexes (also called academies) vary in size and run anywhere from the low seven figures to $11 million, but most new academies these days cost $5-7 million. There is typically room for 8-15 tryout players for 30-day, unpaid stints to impress the staff. There is also living space for players in the Dominican Summer League (DSL), who have signed with the organization but aren't ready to play in the American minor leagues yet. These DSL players reside at the complex about nine months out of the year, where yearly costs to operate an academy can be $500,000.

That number sounded outlandish when I first heard it, but clubs see academies as the cost of doing business. They sign dozens of players for below the domestic market price, and it takes just one big-league starter, developed from a club's Latin program to "pay" for the department for years (thus it stings that much more if you trade that guy.

There were four new complexes built this year, all of them around the "baseball capital" of Boca Chica. The moniker refers only to the collection of academies in the city, not the local baseball talent. The actual capital is Santo Domingo (which boasts alums Adrian Beltre, Aramis Ramirez, and David Ortiz), and the other notable hotbed of talent is the justly famous San Pedro de Macoris (also known as San Pedro, with Sammy Sosa, Alfonso Soriano, and Robinson Cano among its more recent alums). San Pedro, Santo Domingo, and their surrounding areas are responsible for about 75 percent of signees. (I've created a map to help those of you who are visual learners.)

There are a handful of teams with complexes in Venezuela, which is less popular as an organization option nowadays for a number of reasons. Scouts and executives don't like flying all the way to Venezuela, there's less talent there than in the Dominican, and of course the political situation is less than ideal. Top prospects for signing come July 2nd who are from Venezuela will travel to the Dominican and the US for workouts to increase their exposure.

On the cutting edge, the Rays recently became the first MLB club to build a complex in Brazil, a move applauded by many Latin American insiders. The athletes in Brazil overwhelmingly play one sport (soccer) despite only a few spots on the national team. A handful of Brazilians are already in the minor leagues, though, and there are many athletic youngsters there, ready to have the gospel of baseball—and opportunity—preached to them.

The fact that the Rays need to find high-return projects on which to spend their limited capital helped them roll the dice in Brazil just like current Rays special assistant Andres Reiner already did as the first scout to really go into Venezuela back in the late 1980s for the Astros. The Rays recently opened their own Dominican academy as well.

Low-revenue teams are increasingly taking the plunge in Latin America to realize cost savings in player procurement down the road, but not in the traditional way of signing 20 tiny-bonus players a year in a lottery-ticket approach. Multiple low-revenue teams that haven't been players in the Latin market are rumored to be chasing seven-figure talents this year. This could serve to push the top of the market even higher.

The Information Flow

Whether anyone is covering this market journalistically or not, rumors will fly and people will use the grapevine to their own ends, just as it's done domestically. It's often hard to see through the many interests and cut through the garbage to find useful information.

For example, there was a rumor making the rounds in early April that one of the top prospects in this year's crop, Dominican center fielder Guillermo Pimentel, had agreed in principle to a deal with the Texas Rangers. Not only that, but the bonus was allegedly for just under $2 million, and Pimentel was being sequestered (already, in April!) in the Rangers' Dominican complex. After digging on this one with multiple sources for weeks, I still don't know exactly what did and didn't happen, but I do know that we won't get confirmation either way until July 2nd. What I do know is that Texas is definitely interested in Pimentel, as that's impossible to deny at this point. I also know that he worked out for Rangers brass in the US at their Arizona complex, that he impressed them with a three-homer game at their Dominican complex, that he's not sequestered currently, and that both sides say there is not a deal in place. Say what you will, but the July 2nd process is anything but boring.

I'll be back next week with a breakdown of how deals get done, how the recession might affect bonuses, and the buckets of fun to be had with falsified identities.

Kiley McDaniel is a contributor to Baseball Prospectus. You can contact Kiley by clicking here.

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