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New Signing Limits Put Free Spending Rays in Their Place

Last summer, Major League teams had to operate under the new rules imposed on amateur signings put in place by the CBA last winter. While international free agents had previously signed for whatever the market would grant, MLB imposed a $2.9 million spending cap on each Major League team. As Ben Badler noted over at Baseball America today, however, the Rays exceeded the limit and are going to face some significant penalties for doing so:

The CBA limited every team to a $2.9 million bonus pool for the 2012-13 international signing period that began on July 2. The strongest penalty in the CBA is that any team that exceeds its international bonus pool by 15 percent or more will pay a 100 percent tax on the overage and won’t be able to sign a player for more than $250,000 during the 2013-14 signing period. Since July 2, the Rays already have spent more than $3.7 million (not counting players signed for $50,000 or less, since there are exemptions for those players), which is 28 percent beyond their international pool.

As a result, the Rays won’t be able to sign anyone next year for more than $250,000 and probably won’t make any major international splashes until July 2 either because of the tax. Going well beyond the bonus pool is a curious move, but the Rays did pull in a considerable amount of talent, including arguably the two best 16-year-old pitchers on the market. Given that their 90-win season last year will give them one of the lower bonus pools for the 2013-14 signing period, which many scouts believe is shaping up to be a down year for international talent, perhaps it will be a worthwhile gambit.

The 100% tax means that the Rays will owe the league an extra $800,000, which isn’t a huge penalty, but the inability to sign any player for more than $250,000 next summer is a significant issue, and continues to show why the current international limits simply don’t work to promote competitive balance.

The main issue here is that a team’s future spending allowance is tied to its previous season Major League record. As Badler notes, MLB is going to a sliding scale beginning this summer, with losing teams receiving much larger pools for international free agency than winning teams. The idea is to have this system model the domestic amateur draft, where the bonus pools are tied to overall sections, and teams with the highest picks — due to having losing records during the prior year — getting the largest bonus pools.

This penalty for the Ryas shows why that system sets up some faulty incentives, however. Because win-loss record is used as the baseline for the pool allotments, the low-revenue Rays were classified as a team that needed to have their international spending constrained, theoretically in order to promote competitive balance. Meanwhile, some of the largest bonus pools this summer are going to go to the Red Sox, Mets, and Cubs, each of whom put losing teams on the field last year despite their significant revenue advantages.

The Rays are essentially being punished for their success, while large payroll failures get rewarded with extra opportunities to load up on their farm system because they mismanaged their big league roster for so long. Instead of promoting competitive balance, this system puts a ceiling on how much money a low-revenue team can invest while placing a net underneath large revenue clubs who have squandered their financial advantage.

The idea of sliding scale pools for international spending — and the draft, as well — is a good one. Tying the baseline to the team’s prior year winning percentage is the heart of the problem. If the goal is to reduce the revenue advantages of large market clubs, then the sliding scales should be based on revenue, not on wins and losses. Allow the clubs that can’t keep up with the largest Major League payrolls to have an advantage in prospect development, so that they can offset (to some degree) the payroll disparities that exist at the Major League level. Instead of tying the pool amounts to previous season win-loss record, simply tie them to some kind of proxy for financial advantage. MLB already calculates these kinds of formulas for revenue sharing purposes, so they already have instruments that would allow them to scale the bonus pools based on each team’s financial resources.

That kind of system would actually serve to give the lower revenue clubs an actual advantage in player development. Right now, teams like the Rays are forced to choose between winning and development, and tying the bonus pools to a team’s record forces them to make decisions like the one the Rays made last summer. That’s not in the best interests of competitive balance, and it’s a relatively easy fix. Major League Baseball has done a lot of good things to help smaller market clubs compete; they shouldn’t keep this system in place any longer than they need to.