Increased Bonus Pools Make More Sense Than International Draft

No matter what the international signing rules are in the upcoming Collective Bargaining Agreement, it’s not going to be a perfect system. Clearly, the system that Major League Baseball has now is far from ideal, in part because MLB has its priorities misplaced.

One of the major flaws of the current system is that the bonus pools are too small. In an effort to help owners keep more money by limiting signing bonuses, MLB implemented the bonus pools in 2012, but by making the pools so restrictive, MLB ended up incentivizing teams to go over their pools.

The current CBA expires on Dec. 1. Cost containment is going to be a driving force behind anything the owners want on the international market. What MLB should do, if they are serious about creating a system that achieves true competitive balance, one in which all 30 teams have access to the best players, one that treats players fairly, incentivizes amateur player development and growth in new markets and even provides owners with a level of cost containment, is significantly raise the international bonus pool allotments. Raising the bonus pools instead of pushing for an international draft would even turn the tables for MLB in the collective bargaining negotiations. But before we get there, we should start by dispelling some common myths about the international market.

Competitive Imbalance

The current international signing system, by its design, is competitive imbalance. The team with the top international bonus pool this year, the Phillies, had a $5.6 million pool, while teams at the bottom like the Cardinals, Pirates, Cubs and Royals each had $2 million. It would be illogical to call that an even playing field when one team gets more than twice the pool allotment of another team.

An international draft is another mechanism that creates an uneven playing field by offering certain teams a competitive advantage. If we were to take the 2016-17 international bonus pools and turn them into a draft order instead, the Phillies would have the No. 1 overall pick while the Pirates pick 29th overall, effectively blocking the Pirates from having access to any of the 28 players picked ahead of them. If there were international draft bonus pools set up with an analogous system to the current draft pools, the Pirates would also have less money to spend overall than the Phillies. An international draft would save owners money, but it doesn’t help small-market teams. It provides competitive advantage to bad teams.

The idea that only big-market teams can afford the best players is fiction. International talent predominantly comes from the Dominican Republic and Venezuela, where players can sign at 16. The top international bonuses ever for 16-year-olds came from the Rangers (Nomar Mazara, who has the record at $4.95 million, and Ronald Guzman), Athletics, Braves, Phillies, Padres, Twins (Wander Javier and Miguel Sano), Blue Jays, Nationals and Brewers.

Signing Jason Heyward to an eight-year, $184 million contract like the Cubs did a year ago is out of the question for many teams. Even some that might consider it would end up severely handcuffed if Heyward’s 2016 performance is the start of a steep decline. On the international amateur side, every team has the financial resources to afford the No. 1 prospect on the 2015 international market, Vladimir Guerrero Jr., who signed with the Blue Jays for $3.9 million. If Guerrero turns into a star, the Blue Jays could have a franchise player at a massive bargain. If he never plays a day in the majors, the Blue Jays are out the same price the Royals just paid for two years of Drew Butera.

Since the bonus pools went in place in 2012, 18 teams have broken past their pools into the penalty range. These are teams from all market sizes, including the Cubs and the Rays twice each. Yes, the Yankees and the Dodgers went on big international spending sprees, but this year the teams over their pools are the Padres, Braves, Cardinals, Astros, Nationals, Reds and Athletics. The Padres have spent more than the Cubs and Yankees did when they went over, and they still have another seven months in the signing period.

It’s not that small-market teams can’t compete under the current rules, but there’s no question the international signing system needs reform. Having a handful of teams blow out their bonus pools one year—regardless of whether it’s the Dodgers and Cubs or the Padres and Braves—then face signing restrictions for two years is a silly system. It’s not good for the players either when there are 10 teams that can’t sign anyone for more than $300,000.

Too Many Restrictions

One of the main problems with the current system is that the pool allotments are too small, which is why so many teams have gone over their bonus pools. The 2016 draft bonus pools for all 30 teams combined totaled $229 million. The 2016-17 international bonus pools were just $87 million. The draft and international bonus pools don’t need to be equal, but why is MLB saying international players should be worth 38 percent of the value of players in the draft?

In the draft, the slot value of the No. 17 overall pick this year was $2,504,200, which is more money than half the teams in baseball had in their ENTIRE international bonus pool. The Cardinals’ total international bonus pool was about the same as the slot value of the No. 29 overall pick in the draft.

When your bonus pool is $2 million, it’s rational to exceed your pool. During the 2014-15 signing period, the Yankees spent $18 million in bonuses, scooping up what they considered several years’ worth of top talent in one shot. Had they stayed within their pool, they would have only been able to spend a little more than $6 million in bonuses over a three-year period. And when your pool is $2 million, how many premium prospects would you sign for more than $300,000 anyway? One, maybe two?

Smaller revenue teams are blasting through their pools as well. The Rays did it twice, mostly recently during the 2014-15 signing period. With a bonus pool just shy of $2 million, the Rays spent around $6.5 million in bonuses. Between signing bonuses and overage taxes, the total tab for their 2014-15 signing period was nearly $11 million. Or take the A’s, who went over their $3.8 million bonus pool this year with around $7 million and counting committed to bonuses, meaning their final international bill will be at least $10 million.

These teams can all afford to fill out a $10 million budget for international amateur players. The problem is that not all of that money is going to bonuses to help the teams procure more talent. Of that near $11 million the Rays invested in the international market in 2014-15, more than $4 million went to the commissioner’s office in tax money, not bonuses that would help them sign more players.

Paying money to MLB instead of to players hurts the Rays and the A’s. The Rays can afford to pay Dominican shortstop Adrian Rondon $2.95 million and the A’s gave Cuban outfielder Lazaro Armenteros $3 million. However, it’s probably not a smart idea for them to try to replicate what the Dodgers spent in 2015-16 or what the Padres are spending this signing period.

Raise The Pools

So how can MLB create a system that achieves the following objectives?

• Promotes true competitive balance
• Gives every team equal access to players
• Provides a cost-containment mechanism that owners desire
• Provides opportunities and leverage to players who want to choose their employer
• Rewards teams that want to invest internationally

An international draft would provide strict cost control, but on the other four points, it would fail. MLB would be better off giving every team the same bonus pool and raising the bonus pools significantly. Taking the Rays and A’s examples and adjusting upward for increasing revenues in the game, let’s say MLB gave every team a $12 million bonus pool.

Giving every team the same bonus pool puts clubs on an even playing field, allows equal access to players and gives players freedom to negotiate with 30 teams instead of one. It also makes it less likely that teams will exceed their bonus pools. If a team knows it will have a $12 million bonus pool every year (it would probably be smart to increase the pools each year to account for growing industry revenues, but let’s just keep it simple for now), that’s $36 million in bonuses it could award over a three-year period. So to make it truly worthwhile for a team to exceed its bonus pool, it would have to commit more than $36 million in one signing period. So far, only the Dodgers have truly blown past that mark, while Red Sox went slightly over (by spending that much primarily on one player, Yoan Moncada) and the Padres are approaching that neighborhood.

Raising the bonus pools to $12 million each creates a bigger opportunity cost for teams that exceed their pool. If you break your pool under this scenario, that’s two years where you lose out on the ability to tap into a $12 million pool rather than a $2-3 million pool for most teams in the current system. The Yankees could spend $18 million on bonuses again, but why do that when they could spread out $12 million per year over three years?

To further dissuade teams from going over their pools, MLB could increase the penalties for teams that go over. A higher overage tax, decreasing the bonus limit for the following two signing periods from $300,000 to $100,000 and limiting their total pool allotment in those two periods from $12 million to $2 million would all create stronger deterrents. These are just a few ideas—MLB could start from scratch and re-think the penalties altogether.

Now if the Rays want to invest $11 million on international players, they can do it and have more of that money go into signing bonuses to help them get prospects instead of going to the commissioner’s office. It also won’t handcuff them for two years for trying to compete at the top level of the international market.

If a team like the Padres or Dodgers decides they still want to go over their pool, now they face a greater opportunity cost. Other teams should be happy to have competitors like them knocked out of the market for top talent for two years. The current bonus pools weren’t created with the influx of Cuban players in mind, and because of the laws in Cuba and the United States, the flow of Cuban talent becoming available to major league teams isn’t as predictable compared to Dominican and Venezuelan players. Just three Cuban players have commanded bonuses of more than $12 million, but if another elite young Cuban prospect becomes eligible, teams would still have the opportunity to go past their pool to sign him if they determine it’s worth what would now be a more severe penalty.

As one international director pointed out to me, raising the bonus pools might even have the impact of making the top Cuban players more affordable. When Moncada was available in early 2015, the Red Sox and Yankees were already over their 2014-15 bonus pools, while the Cubs, Dodgers and others were already planning to go over theirs later that year when the 2015-16 pools kicked in on July 2. That’s a lot of leverage for Moncada’s camp to use. Or when the Dodgers signed Yadier Alvarez for $16 million on July 2, 2015, the Alvarez camp had the same type of leverage options to them. However, if players no longer have 10 teams over their bonus pool or willing to go over their pool at once, that leverage dissipates. If no teams are willing to go over their bonus pool or only one team is willing to go over, it’s hard to drive the price much past $12 million, though a special talent like Moncada would probably be an exception.

Increasing the bonus pools would also help in markets like Asia and Europe, where scouts are concerned about the dwindling signings in the bonus pool era. Teams put most of their limited bonus pool allotments into Latin American signings, not wanting to pay higher prices to sign a player from Taiwan or South Korea who has the additional leverage of turning pro in another league or going to college. MLB could even take Puerto Rico out of the draft and put it into the international bonus pools to spur development in Puerto Rico, though in that case the bonus pools should be raised further to account for their inclusion.

Giving teams bigger bonus pools also rewards the clubs that want to invest in international players. If Orioles ownership is content with its lack of investment into signing Latin American players, then the Orioles shouldn’t be forced to pay more money toward international bonuses. If teams like the Rays, Royals, Braves or anyone else wants to invest in their international scouting staff and player development people, put personnel on the ground every day in countries throughout the world to try to beat other teams by identifying and developing the best talent and putting up the bonus money to inject their farm system with international prospects, that team shouldn’t be penalized just because they want to spend more than $2-3 million in bonuses.

And when MLB sits down with the union to negotiate the CBA, this strategy puts MLB in a powerful position. In exchange for MLB wanting to implement an international draft, the players’ association would want major concessions in return. Instead, by offering to raise the international bonus pools, MLB would reverse the bargaining positions. By not pushing for an international draft, not only would MLB have one fewer item it is asking for from the union, but by raising the bonus pools, it’s even offering to give the union something additional. This part gets complicated by the fact that international amateur players aren’t in the union (even though the union is negotiating on their behalf), but taking an international draft off the table certainly means one less large-scale concession the owners would have to make to the union in return.

There isn’t a perfect international signing system that will make everyone happy, but it’s clear that the current system is a mess. The next international signing system should work toward creating a level playing field for all teams, provide fair opportunities for players and reward teams that want to put resources into the international market. It should strive to spur investment and player development in countries throughout the world to help grow the game globally, both in current markets where baseball is already popular as well as newer ones where the sport can expand. Raising the international bonus pools and making them equal for all teams would be a start toward achieving those goals.