Teams Dig For Ways Around New International Rules

Whenever Major League Baseball changes the rules, people throughout the industry learn how to adjust.

As soon as MLB announced the new Collective Bargaining Agreement in November that will limit each team to a $2.9 million international bonus pool from July 2, 2012, through June 15, 2013, people in the international baseball community got started thinking of ways to game the system.

“There are going to be loopholes everywhere,” said one international director. “It’s my biggest fear working in this arena. You’re doing all this work to get it right, but in this arena, guys find loopholes and it just turns into a dumpster fire.”

Team officials say that some of these methods aren’t necessarily cheating, just creative ways to develop an advantage within the language of the rules. In many of these cases, however, MLB disagrees.

A senior MLB official who spoke with Baseball America said that because the league now has to protect the integrity of its signing bonus pool, it’s incumbent upon the commissioner’s office to give clubs confidence that the new rules have teeth. If MLB catches any team attempting to circumvent the bonus rules or doing anything else that the league considers to be cheating, officials say those teams will receive severe penalties.

Punishment is one thing, but catching teams is another, as is defining what constitutes cheating in a system where there’s already confusion about what’s allowed and what isn’t.

Some things are obvious, such as helping a player manipulate his paperwork. Obviously that would violate not only MLB rules but the federal laws of pretty much every country. All international amateurs are required to sign the minor league uniform player contract, so giving a player a major league deal or easily attainable performance bonus clauses would also be out of the question.

But teams will be mostly working in shades of gray, murkier areas where some teams and player representatives think they should be able to find an advantage.

“It just puts the microscope on the rules even more so,” said a second international scouting director. “It might be a situation where you’re put under pressure to sign these players, then all of a sudden you’re out of funds and you’ve got to find a way to get the player signed. There certainly are creative ways, and the more creative you are, the harder it is to find out.”

After speaking with officials from MLB, teams and player representatives, here are some of the ways teams and players might try to get around the $2.9 million limit, and how MLB would view these ideas.

• Sign players before July 2 as an advance payment

While the new international rules kick in on July 2, before then a team can sign currently eligible players—pretty much anyone 17 or older—and not have the money count against its signing bonus pool.

If a trainer has an outfielder who previously might have commanded $3 million in an unrestricted market, he could still get his $3 million by agreeing to a package deal with a team. Before July 2, the team will reach an oral agreement to sign the trainer’s outfielder when he becomes eligible, say for $2.2 million, and to sign a couple of 17-year-old players from the same trainer before July 2 for a total of $800,000, regardless of how much those 17-year-old players are truly worth.

In the end, the team gets the outfielder it values at $3 million, and the trainer gets his commission on $3 million. While the star outfield prospect may get shortchanged, the trainer could work out an arrangement with his players to pass some of their money to the outfielder, since the 17-year-olds would know he’s the only reason they’re getting inflated bonuses.

Because teams technically are not allowed to negotiate with a player who isn’t eligible to sign until July 2, this maneuver is a violation of rules, even though agreeing to a deal in advance of July 2 is common practice, just as it is in the draft (where it’s also prohibited).

An MLB official said the scenario would be considered illegal because the league would view it as a club acting improperly in an attempt to circumvent the rules. Proving it, however, would seem to be difficult.

“If I sign a guy tomorrow for $600,000,” asked a third international director, “how are they going to tell me that I don’t view him as being worth $600,000? They can’t prove that. That’s my scouting department’s opinion. So there’s no way they can stop that loophole.”

The league can study signing bonuses to see if anything seems out of line or if there are any patterns of teams trying to funnel money
toward a certain agent or trainer. Any signing since the CBA was agree to in December could be viewed as an advance payment for a July 2 player. Some of the savvier teams may have even figured out the new rules were coming before then and planned accordingly.

And well before the bonus pool came into effect, teams have often made a habit of signing multiple players from the same trainer. Just last year, the Rangers signed three Dominican players from Ivan Noboa: outfielder Nomar Mazara for $4.95 million, righthander Pedro Payano for $650,000 and shortstop Crisford Adames for $200,000. The Blue Jays last year spent $1.3 million on outfielder Wuilmer Becerra, $700,000 on outfielder Jesus Gonzalez and $250,000 on righthander Jesus Tinoco, all Venezuelans who trained with Ciro Barrios. The league approved all of those contracts, so what would it take for the commissioner’s office to decide it saw nefarious intent in a group of signings?

Beyond that, it wouldn’t be difficult for trainers to mask where the money is going. While there is competition among trainers for players, there are also networks of trainers and agents who are friendly and collaborate. Tracing all the money isn’t always so simple.

• Overpay a released player

Under the new rules, if a team signs an international player “who previously contracted with a major or minor league club,” any bonus that
player receives is exempt from the international bonus pool. The rule parallels draft rules, where a player who signed out of the draft process (including nondrafted free agents) and got released won’t have his new contract count against a team’s draft bonus pool.

Just as they could by signing older players, teams could try to manipulate this rule to save money against the bonus pool. If there’s a shortstop whose market value is $400,000, a team could go to the trainer and offer him $320,000, then sign a released player the trainer represents and sign him for $80,000. The trainer
gets his percentage of $400,000 and the team saves $80,000 on its budget.

The math could even work with a smaller bonus for a released player. If a
trainer has a 25 percent cut in the shortstop, the team just needs to find a way to get the trainer $100,000, which could be done by giving the shortstop a $320,000 bonus ($80,000 for the trainer) and as little as $20,000 for the released player if the player is willing to give the trainer his full bonus to get another opportunity to play. A more daring
team could potentially sign a released player to an even bigger bonus as part of a similar package deal.

MLB would clearly view this as cheating. Again teams will have plausible deniability, though, because It’s not outlandish that a released player could end up still being a prospect. Righthander Rhiner Cruz signed with the Tigers in 2003, was released in 2006 at 19, signed with the Mets in 2007 and is now in the big league bullpen for the Astros after becoming the top pick in the Rule 5 draft in December. Mets righthander Manny Acosta signed with the Yankees in 1998, was released in 2003, signed later that week with the Braves and is now in his sixth big league season.

What if a team signed a Triple-A player who had been released and gave him a major league deal? Most Latin American players had a trainer at one point, or at least would have the network to know a trainer or agent and theoretically could funnel money back to a trainer of an amateur prospect. It would cost a team a 40-man roster spot, at least until the team
designates the player for assignment, but it might also be tricky to catch.

• Sign a suspended player

Like the released player package plan, this method would stem from the rule that bonuses paid to “players who previously contracted with a major or minor league club” will be exempt from a team’s signing bonus pool. There are several players who have signed contracts with a team, only for MLB to end up ruling that the player had misrepresented his age
or identity and will not be allowed to sign for a year. Dominican righthander Juan Carlos Paniagua, a former Diamondbacks pitcher known as
Juan Carlos Collado, signed with the Yankees for $1.1 million in 2010, only to have MLB declare him ineligible to sign for a year, a penalty that ends on July 19. Then there are players who sign contracts that don’t get approved because they test positive for steroids, such as Dominican lefthander Erick Hurtado, who had signed with the Cardinals but is now a free agent subject to a 50-game suspension if and when he ever signs.

So, since those players technically did previously sign contracts with major league teams, would their bonuses be exempt from the signing bonus
pool? MLB’s answer is that those types of cases would all count against
a team’s bonus pool. Those cases are different, according to MLB, because those players never had their contracts approved and thus those players were never officially contracted with a major league team. In other words, this plan would not work.


• Pay agents and trainers under the table

Paying players, their families, agents or trainers on the side is against baseball rules, but people throughout the industry say the practice is common, sometimes in conjunction with a kickback going to team officials. Even if a kickback isn’t involved, paying someone on the side is a way for a team to direct more money into the hands of the person controlling a negotiation.

The methods for hiding or laundering the money are as varied as the imagination. Hire a player’s family member as a scout. Pay the trainer as a consultant. Make a donation or other payment to another business run by or friendly with the trainer. Buy him expensive cars, appliances, even a home, either to keep or sell. If a team owner has a second business, he can pay make a payment through that business.

“It’s a tall task for MLB,” said the second international scouting director. “I’d hate to be in their shoes trying to police it because you just don’t know how far a team is going to go to get a player done. It’s one of those things where, I’m sure you can get access to a team’s financial records and try to find out that way, but teams are so entrenched, especially in the Dominican Republic, that it’s hard to track down money like that. I’m sure they can, it’s just going to take a lot of work to do it. We’ve had cases where we lost a player and we thought another team put some money under the table, but how do you prove it?”

While these tactics were already against the rules, at least in an open market teams had more freedom to outspend the competition on a player’s bonus. The new system, some teams fear, will reward cheaters. MLB’s department of investigations already has its hands full trying to catch players who are lying about their ages and identities, so cracking down on side deals makes their job that much harder. Still, trying to pull off this maneuver comes with risk.

“I don’t know why teams would do that, give money under the table,” said a Latin American director. “Why? Just to get the player? Yeah, but then every time you sign a player now, that person is going to expect money under the table from that club that’s giving out the money. Eventually somebody’s going to get caught. Somebody will talk, somebody will, either from the trainer side or the player side or even the team side. Someone is going to end up giving up information. They’re going to find out.”

• Divert a player to the Mexican League

One of the first ideas people suggested was using the Mexican League to save money against the signing budget. When a team signs a player out of the Mexican League, as the Blue Jays did last year with a $1.5 million payment for Mexico City righthander Roberto Osuna or the Pirates did in 2010 for Veracruz righthander Luis Heredia ($2.6 million), that money technically is not a signing bonus. Even though Osuna and Heredia were just 16 at the time of the deals, they were professional players whose rights the Blue Jays and Pirates were purchasing from their respective Mexican League teams. The team takes a cut, usually 75 percent, and the player gets the rest.

So the obvious loophole: Could a team purchase the rights to a Mexican League player like Heredia or Osuna without having any of it count against their signing bonus pool? And if so, what’s to stop trainers from other countries from shuttling their players to the Mexican League?

A group of Colombians even went as far as to buy a defunct Mexican League team, the Carmen City Dolphins, to bring back to the league this year. The team hired Hugo Catrain, one of the premier agents in Latin America who has represented players from the Dominican Republic, Venezuela and Colombia, as its president, although according to multiple sources with knowledge of that group, Catrain is no longer involved with the team.

But MLB would view bringing in a foreign player to the Mexican League for the purposes of selling his rights to a major league team on July 2 as an attempt to circumvent the bonus pool limits. Even a foreign player who establishes legal Mexican residency would likely be viewed that way. So if a team signs a 16-year-old Dominican player out of the Mexican League for $1 million, the team will be on the hook for the full amount.

According to an MLB official, however, if a major league team signs a Mexican player out of the league, MLB will count only the amount the player receives toward the bonus pool. So if a team signs a Mexican player for $1 million, under a typical arrangement only $250,000 will count against its bonus pool. The team will have to pay market price for the player, but it will get a discount for the pool.

About 15 players were signed out of Mexico in each of the last two years, including a few who signed as amateurs without going through the Mexican League, like Phillies catcher Sebastian Valle. MLB doesn’t want to make it more difficult for teams to sign Mexican players, so for the time being this is a viable way to save money against the bonus pool.

• Hide a player in the United States

To avoid being subject to the international signing rules, a trainer (possibly in conjunction with a team) could bring his player to the United States, Canada or Puerto Rico and establish residency, which would make him subject to the draft. In the case of players who have one parent in a foreign country and another in the United States, doing so would not be difficult. Instead of going through the traditional draft showcase process, the player would hold private workouts and the trainer would hope he would go undrafted. That would free the player to sign with any team and not have his bonus count against a team’s international pool.

The player would be able to execute the scheme legally, but it probably wouldn’t be worth the hassle. A draft-eligible player who goes undrafted is allowed to sign with any team, but MLB now has a rule that the maximum bonus a player drafted after the 10th round (including nondrafted free agents) can sign for without the money counting toward a team’s draft bonus pool is $100,000. To go through all that trouble for $100,000 just doesn’t seem worth the risk, unless a team or an agent figures out some other loophole.

Rest assured, they’re probably already working on it.

International | #2012 #International Affairs

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