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Did a Steinbrenner Write the New CBA?

While baseball fans have been able to celebrate the fact that their sport is enjoying a long run of labor peace, and the negotiation of the new Collective Bargaining Agreement hasn’t threatened any on-the-field action or turned acrimonious in any way, the release of details of the new CBA show that this labor peace does not come without significant cost to fans of teams in markets other than New York.

The details of the new regulations on the draft and international free agents were first reported by Jeff Passan on Twitter. As laid out by Passan, the league is now going to enforce the following changes:

International Free Agents

$2.9 million cap on total spending for all 30 teams for 2012.

Beginning in 2013, pool of money available to sign talent will be determined based on Major League team’s winning percentage. Passan notes that spread will be something like $5 million for worst team, $1.8 million for best team.

Also beginning in 2013, teams will be able to “trade” money from their allocations, with no team allowed to acquire more than 50% of their original total. So, while it will be possible to slightly expand your international signing budget, it will require surrendering talent in order to get money from another team’s allocation.

Domestic Draft

Tax on over-slot signings – 75% tax on up signings up to 5% over recommendation, 75% tax and loss of first round pick for signings from 5.1% to 10% over recommendation, 100% tax and loss of first and second round picks for signing 10.1 to 15% over recommendation, and finally, a 100% tax and loss of two first round picks for signing of greater than 15% over recommendation. These penalties are so severe that they essentially eliminate any benefit a team would get from signing a player for more than the slot recommendation, so they equate to de facto hard slotting. Teams no longer have the ability to spend heavily to convince players who were strongly committed to colleges (or other sports) to forego those options and begin a career as a professional.

The institution of a competitive balance lottery that will assign six picks between 1st and 2nd round to teams with 10 lowest revenues and in smallest markets – the odds of receiving a pick will be based on a team’s winning percentage. A similar lottery takes place after the 2nd round, but all teams are eligible except those who received a pick in the first lottery.

The Effects

While the lottery for extra picks is designed to give teams with smaller payrolls an extra draft pick each year, the value of that pick pales in comparison to those teams prior ability to compete for young players by allocating their resources more heavily to those areas. Here’s the list of team spending on the draft in 2011 – you’ll notice the Pirates ($17 million), Nationals ($15 million), Royals ($14 million) at the top, followed closely by the Diamondbacks ($12 million), and then the Rays, Mariners, Padres, and Blue Jays who all spent $11 million. Thanks to hard slotting, this strategy is no longer viable, and these low-revenue teams who had been focusing heavily on acquiring talent through the draft will now have to find another way to add talent to their organizations.

Likewise, the competitive advantage of scouting internationally has essentially been demolished. If you look at the list of top international bonuses paid out over the years, you’ll notice a lot of smaller revenue clubs investing heavily in these markets. While the Yankees have enjoyed significant benefits from higher Major League payrolls over the years, they haven’t been as big of spenders internationally, and small-to-mid-market teams have been able to increase their talent bases by pursuing the top 16-year-olds available in foreign countries.

With a flat cap for the upcoming year, any advantage these teams have has been completely removed, and teams will now all be submitting remarkably similar offers to the best international talents, causing these players to choose which organization to join based on factors beyond signing bonus. No longer will teams be able to create systematic advantages in international scouting, as they simply won’t have the resources available to bring in more than one or two additional significant talents per year.

Overall, these new rules will work to dramatically decrease the overall spending levels of teams on new talent, but will do so at the cost of allowing small to mid market teams to pursue strategies that focus on developing talent internally. The lotteries simply won’t make up for the inability to increase spending on talent acquisition, flattening the differences between organizations and making winning at the Major League level more about acquiring veterans and less about acquiring amateurs.

These rules are fantastic for big market teams who can maximize the advantage of their revenue streams by spending on Major League talent. These rules are absolutely terrible for teams who cannot afford to build teams by paying the market rate for those same players.

Congratulations, Major League Baseball, you just screwed every team that doesn’t have the capability of running out a $100+ million payroll, and you just made winning a lot more about Major League payroll size than anything else. In the name of cost reduction, you just made it even less likely that teams like Tampa Bay or Oakland will be able to build long term winners. This agreement will set competitive balance back significantly, and now the best hope is that the damage is so obvious that these changes get repealed as quickly as possible.