Rule Changes In The International Market
With the July 2 implementation of the new international spending budgets that were agreed upon in the most recent Collective Bargaining Agreement beginning today, much of the baseball world is attempting to wrap their heads around the potential impact the new rules may have in terms of spending and disbursement of players.
Until today, organizations across Major League Baseball were free to open their wallets and spend whatever they felt was necessary to lure top international talent into their farm system. Some organizations have jumped into the deep end in the past, while other teams have largely chosen to barely dip their toes into the water and have spent frugally on international talent. The Texas Rangers doled out $12.83 million on international bonuses in 2011, the most in all of baseball. On the other end of the spectrum, the Los Angeles Dodgers spent $177,000 on the international market last year.
With that massive range in expenditures in mind, teams will no longer be able to spend wildly without repercussions. Each team will have a $2.9 million budget in international signing bonuses for the 2012-13 signing period. If the budget is exceeded, various penalties would be assessed:
| Over Budget | Penalty |
|---|---|
| 0-5% | Pay a 75% tax on the overage. |
| 5-10% | Pay a 75% tax on the overage & forfeit ability to sign any player for a bonus of more than $500K in the 2013-14 signing period. |
| 10-15% | Pay a 100% tax on the overage & forfeit ability to sign any player for a bonus of more than $500K in the 2013-14 signing period. |
| 15%+ | Pay a 100% tax on the overage & forfeit ability to sign any player for a bonus of more than $250K in the 2013-14 signing period. |
The new restrictions on international spending are designed for two specific purposes: (1) to simply curb overall spending on the international market, and (2) to lessen the spending disparity between teams on international talent.
Major League Baseball’s desire to decrease spending on amateur talent has been no secret in recent years. The recent CBA enacted significant changes to the financial rules in both the amateur draft and the international market. In the amateur draft, the restrictions resulted in college seniors being drafted inordinately early due to their supreme signability, rather than talent.
The ultimate impact of the financial restrictions placed upon the international free agent market, however, may not be as significant as many immediately assume.
Bonuses to the top international prospects will not continue to climb as dramatically as they have in the past couple of seasons. The twelve highest signing bonuses for international players have all come in the last four years. No more $4.95 million bonuses to Nomar Mazara without significant penalties. No more $4.25 million bonuses to Michael Ynoa without significant penalties. Major League Baseball desired to bring this number back down to what it considers reasonable levels, and that will absolutely be accomplished by limiting teams to a $2.9 million budget.
The new budgets will not affect the vast majority of major league organizations, though. Only nine of 30 teams spent more than $2.9 million in 2010. That number jumped to eleven of 30 in 2011, but again, we’re talking about less than half the teams in the league. The majority of major league clubs will simply treat this summer as “business as usual,” rather than a fundamental shift in how they sign talent from the international market.
(To view the estimated amateur signing bonuses per team in 2010 and 2011, click here and here.)
The biggest assumption people make is that the bottom-feeders on the international market — such as the Dodgers, White Sox, Nationals, and Angels — will suddenly spend more money because a handful of teams will no longer be able to corner the market. Those teams, however, will not be forced to spend $2.9 million. Perhaps those organizations systematically avoid the international market due to a belief that the rewards doesn’t justify the extreme monetary risk of signing raw, 16-year-olds, or perhaps those organizations have not established and maintained relationships with the buscones (trainers) in the Latin American market, which would naturally limit the number of players “available” to them.
Whatever the reason, every team across baseball will not suddenly spend $2.9 million this summer. Teams that have traditionally dished out high signing bonuses in the past will likely continue to be the ones netting the top international prospects this summer (such as Toronto netting two of the top ten international prospects on Monday morning), while teams that have traditionally sat out the international free-for-all will likely continue to sit on the sidelines.
The only thing that will assuredly change is the total amount of money flowing to the international markets, and for that, Major League Baseball and the owners will wear a smile of a job well done.
No, a low-revenue team’s chances of catching up in talent with the big boys by spending heavily on international players will also be gone.
Bud Selig, the richest teams and the player’s association will wear a smile of a dirty deed done dirt cheap.
Uhm … the high revenue teams were the ones who could spend the most internationally. That hasn’t been the case every year, but was in most.
Let me try to explain it in terms simple enough for you to understand.
The poorer teams cannot compete with the richer for Major League FA’s, but they can try to compete by spending in the amatuer draft or international FA market. For less money than it costs to sign Albert Pujols, they can sign many, many prospects, and build from within.
Therefore, the richer teams, the Major League players and Selig colluded in imposing really low spending limits on the amatuer and international markets to make sure that the poor teams have to spend their money on Major League FA’s.
In one dirty deed, the poor teams were deprived of a less expensive way to try to compete with the richies and the Major League FA market is inflated. Both the rich teams and the rich players benefit.
The poor teams and the poor players suffer. (That’s “poor” as in little money not as in bad.)
@Baltar -
Your condescension is amusing, especially since you’re the one who doesn’t understand the relatively obvious truth that high revenue teams are ALSO able to spend quite a bit more in the international market than low revenue teams in addition to spending more on free agents. How can you not understand that? High revenue doesn’t mean “only able to be spent on free agents.” Good grief.
Reprehensible. This is truly reprehensible.
Let me see if I understand. A bunch of American billionaires have just colluded, to prevent poor teenagers from Latin American from selling their labor to the top bidder on the free market. True capitalists, these owners.
This is beyond disgusting. Many of these prospects come from impoverished backgrounds, and on an open market, even a 16 or 17 year old can fetch genuinely life-changing signing bonuses. But let’s stop all of that, because American billionaires just can’t bear to pay those sums.
I can’t stand that sports writers give us endless moralizing on PEDs, and ignore this infinitely greater injustice.
The MLB owners and players union should be deeply ashamed of themselves.
“Reprehensible,” “disgusting,” and an “injustice“? Really? Are you preparing to found Occupy MLB? Look, without major league baseball those kids you refer to wouldn’t have the opportunity to make anything. Those owners have no moral responsibility to provide the most money possible just because they have a team. The explosion of international signing bonuses is a relatively recent phenomenon, and it’s only fair that a spending cap on draft-eligible players should be matched by a spending cap on those outside the draft. If you’re opposed to caps in any form then so be it, but ranting about injustice is way over the top, and saying that reducing signing bonuses is more of a problem than PED abuse is offensive.
“Look, without major league baseball those kids you refer to wouldn’t have the opportunity to make anything.”
This is obviously true, but so what? So what, they should be happy with anything over $0?
Owners are making a bundle. This isn’t some act of charity by which they employ ball players. Owners only pay players because those players generate profits.
The the only reason owners have been willing to shell out multi-million dollar signing bonuses, is because the prospects may go on to make a ton of money for the owners. If these bonuses were a bad deal for owners, they’d stop handing them out. But the owners (along with the Union’s consent) have agreed to limit their costs. This way, they will still reap the profits, without having to pay a fair market-rate to the laborers.
Remember, for the most part, we’re talking about kids from the countries like the Dominican Republic, a nation with a per capita GDP of less than $9,000. Luckily, a small number of youngsters there are highly skilled, such that under a free market, their services are worth hundreds of thousands, even millions of dollars.
For many of these prospects, this may their best, or even only way out of serious poverty. But MLB has agreed to undercut the market, all to give some American billionaires a better deal.
This actually hurts young, potentially very poor, teenagers in the developing world, who may not have many strong alternatives to getting ahead in life. And we’re hurting these teenagers TO GIVE AMERICAN BILLIONAIRES a better deal than the MARKET would dictate.
If you think PEDs are a bigger moral problem than screwing over poor teenagers in the developing world, please think harder.
I really can’t overstate how much I agree with JP here. In my mind, this aspect of the new CBA is even more egregious than limiting bonuses in the draft. In that case, we’re talking about high school players that can either tell baseball to screw off and play another sport, or college players who at least should have the benefit of a college education to fall back on. We’re talking about massively wealthy people driving down the market for young, largely impoverished kids that have no other options.
Is there a place to go where the laws of playing, aging, scouting, spending, selecting, and acquiring are set out to show the differences between being, say, a 16-21 year old super prospect looking to become a pro, while residing in America, Canada, Mexico, Japan, the Caribbean, Cuba, Netherlands, etc…
This system is so blindly prejudice and convoluted, It drives me crazy. Just get all of these guys to register with the MLB Scouting Bureau and stick them in one big amateur pool for drafting each year.
sorry, “…looking to become a professional in America, while residing…”
@jp -
“So what, they should be happy with anything over $0?”
Yes, they should. Let’s put this in a different context. Microsoft brings in promising intellects from places like India, and obviously they could afford to pay those individuals millions of dollars instead of whatever they currently get. But no business ever has any moral obligation to pay the maximum they can afford. The very idea is ludicrous, and a perfect example of the pampered entitlement so many youths have today. Just because someone else has money, they’re somehow obligated to give as much of it away as possible. That’s nonsense.
“Owners are making a bundle. This isn’t some act of charity by which they employ ball players. Owners only pay players because those players generate profits.
Yeah, this is just hilariously false and naive. Professional sports around the world are prestige businesses where the owners often actually lose money. Major League Baseball isn’t as bad as some others in that respect, but it still certainly has owners who do lose money operating their franchise. The object in MLB is obviously not to maximize profits, it’s to win games. Moreover, a guy getting paid $150k to sign instead of $1 million is still making $150k more than he would have without those owners. It’s not exploitation, it’s actually doing them a pretty huge favor by paying them in advance on the premise that they might someday produce value for the team, and if that comes to reality then they will be provided much larger compensation at that point. It is flat out absurd to insist that not paying a 16 year old 4+ million dollars is somehow exploiting them and an injustice.
Remember, for the most part, we’re talking about kids from the countries like the Dominican Republic, a nation with a per capita GDP of less than $9,000.
That’s precisely why I pointed out that getting $150k to sign with a major league team is a huge benefit to them. The idea that they’re being “exploited” is asinine. Without major league baseball they would be doomed to a life of poverty. MLB is providing opportunities and deserves credit for doing so, but you want to pretend like it’s an injustice because you think those players should get even more money. Your thinking is warped.
“And we’re hurting these teenagers TO GIVE AMERICAN BILLIONAIRES a better deal than the MARKET would dictate.”
Giving a signing bonus of 10 to 250 times the average yearly earning is not “hurting” anyone. It’s helping them, and quite substantially. I honestly don’t get you and other like-minded lefties who portray successful people as evil incarnate who have some moral obligation to give away all their money. Major League Baseball provides opportunities for young people in the Caribbean. Just because you have some bizarre notion that MLB should be shelling out even more money doesn’t change the fact that MLB is a huge benefit to that area by spending as much as they do.
“If you think PEDs are a bigger moral problem than screwing over poor teenagers in the developing world, please think harder.”
No one who gets hundreds of thousands of dollars to play a game is getting screwed over by anyone, especially when you already admitted that it’s vastly more than the average person makes in those countries. And of course PED abuse is a bigger moral problem. PEDs have serious health effects, unlike whether or not a guy can buy a third car because he didn’t get another $1 million. Use your brain.
I for one am delighted that thirty billionaires will now be even better off. This is much more important than impoverished kids getting more money, and will clearly result in better baseball.
“True capitalists, these owners.”
Actually, what’s more capitalistic then the rich preying on the poor?
@jdbolick
I like your Microsoft analogy. The wages for workers coming from India is SET BY THE MARKET. A highly talented software engineer will earn a strong salary thanks to the laws of supply and demand. Microsoft has to compete to attract talent. If it chooses to low ball potential employees, they’ll take jobs with other firms. MLB used to work that way with international prospects.
I am not arguing that any employer should be obligated to pay above market rates. I am not arguing that owners should pay exorbitant salaries out of the goodness of their hearts.
I am just arguing that we should allow the wages for international prospects to be set by the free market, and the law of supply and demand (this makes me a “leftist”????)
No one is talking about entitlement here. No one is talking about charity. All I am saying is that these prospects deserve a salary as determined by the free market. No more, no less.
And yes, even under this new system, many prospects still will get nice signing bonuses, and many lives will still be improved. So what?? The issue isn’t whether they’d be better off than having no income at all. It’s whether they’d be better off than if they could utilize the free market.
And while a $150,000 signing bonus sounds awfully nice, that may not be enough to support a family over the long haul, whereas a $1-2 million bonus would have. Plus with caps, some prospects who may have received nice bonuses before, may be left with smaller bonuses, or even nothing at all. So yes, there is real hardship being inflicted here.
It is “hilariously naive” to argue that owners only pay players to make a profit? Uhm. No, outside of a few exceptions here or there, owners are in it to make money. Yes, owners want winning teams, because winning teams draw more fans, and get better ratings (i.e. more revenue). Even to the extent that owners sign players purely for the joy of winning, then fine, they should STILL have to pay fair market prices for those players that help them win.
Finally, you write, “And of course PED abuse is a bigger moral problem. PEDs have serious health effects.”
Hmmm. We know that PED use has been quite rampant over the last 15-20 years in MLB, and in sports generally. Since PED’s have “serious health effects” I’m sure you can point to the numerous pro baseball players who have died, or suffered serious health effects from their PED use. Right?
You arguments imply that we should allow any behavior, even anti-competitive behavior, by employers, so long as the resulting jobs are “better than nothing” for the employees. Absurd, and blatantly anti-capitalist.
“And while a $150,000 signing bonus sounds awfully nice, that may not be enough to support a family over the long haul, whereas a $1-2 million bonus would have. ”
======================================
wait you think MLB should also support the families of these players?
How much of the family? Parents? Siblings? Grandparents? Cousins? How about aunts and uncles? What about second cousins? And close friends?
are you kidding me?
30% of their signing bonus goes to agents, and with a lot of clubs, more than goes to kickbacks for organizational scouts and buscones who supply them. By limiting the signing bonuses, it is an effort to curtail the corruption in the process as well.
I wholeheartly agree with the comment above, it is sad how the MLB and MLBPA turn a blind eye to corruption and collusion on a poor country and teenagers.
However, playing the devil’s advocate a little here, this is similar to the reduction and implementation of hard penalties for going over the draft slot. The MLBPA has no obligation with amateur players, be it future draftees or international amateurs, and combined with the owners to reduce spending in both fronts, thus (theoretically) freeing more money for current MLB players and free agents.
Posting again (sorry), but I would like to see a league-wide fund with contributions from all teams (maybe tied to revenue, or a percentage of team payroll) directed to the development of amateur baseball in latin america.
I sense an international draft is unavoidable, and this kids have zero leverage, they can be signed for way under slot when drafted. This fund should finance some sort of MLB baseball academy, with health/housing care and education for the children and their families, or something. With a draft, no team will invest themselves, since they’ll most likely develop a kid to be drafted by another organazation.
Aren’t (almost) all of Toronto’s prospects international technically?
I know you’re trying to be funny, but for baseball’s purposes “international” means “amateurs outside of the US, Canada, and Puerto Rico”.
As impoverished as they are… wouldn’t being handed a six-figure check be a life changing deal anyways? And then they” collect five-figures while they are in the minors and IF they earn it, they’ll get their big payday in the majors.
How many 16 year old American kids are getting more than that from major league teams…?
Sure, but the MLB is now saying that international amateurs do not have the same profitability as American/Canadian amateurs. International amateurs can however turn pro at an earlier age for some reason. They can also become a pro at any time after becoming first eligible while the Americans/Canadians have very specific windows of eligibility beyond initially becoming eligible.
Now, can you still lure an international professional (Darvish, Cespedes) with as much money as you want? or do all international players fall into this $2.9M pool (in addition to the usual Ynoa, Soler, Puig)? If there is a distinction between the two, what are the specific characteristics that allow International players to sign a MLB contract while not being restricted by the International Free Agent bonus pool? When can you offer a MLB contract to an International player?
Unless I’m missing something, why couldn’t teams just sign international players to larger front-loaded contracts to compensate for reduced bonuses?
Don’t think more than standard minor league rates are allowed. That’s why the signing bonus is so big of a deal–with no chance for a higher annual salary, the signing bonus is possibly their one payday.
They could pay more, but it would have to be a major league deal with the roster and option issues that come with those, for a 16 year old.
This is also forbidden by this collusion of rich teams and players.
smart lawyers = ways around anything… maybe the signing bonus goes below slot but the guaranteed years go from 3-10 to make the overall contract the same value (i.e. like the Cubs appear to have done with Soler). btw – does anyone know if these minor league/international contracts are guaranteed like they are in the bigs?
“Those owners have no moral responsibility to provide the most money possible just because they have a team.”
To extend their dictates beyond US borders and force the market to bend to their group interest is a travesty of open market transactions. Anyone who doesn’t see the real cause for “concern” ie., US team ownership not wanting the market to operate freely given the explosive potential inherent in obtaining talent internationally, is far off course.
Allow the free market to operate. For those concerned about the players safety, MLB can and should invest in the few countries that produce the vast quantity and quality flowing into MLB: The Dominican Republic and Venezuela. Other places can have smaller operations or have their talent developed in one of the two main tributary nations above.
If you want “the free market to operate,” then I guess you’re against luxury tax limits on payroll and revenue sharing too, right? Major League Baseball is one business with 30 franchises. Nothing is preventing anyone from starting up a competing league in the Caribbean that could pay whatever you deem sufficient.
I wonder if a team with extensive international scouting already in place will have the guts to approach a team like the Dodgers once they’ve used up their own $2.9 million budget.
“Hey Dodgers, we’ll trade your our top 200 A ball prospect if you sign this 16 year old and send him our way.”
If you were the Dodgers, why not? You had no plans of using the money anyway. Why not get yourself a prospect by trading the money away?
This is also forbidden by the colluders.
I don’t think you could classify it as collusion. They’re trading an asset for an asset. Perhaps it’s expressly forbidden in the agreement, but I don’t think it sounds like collusion at all:
Yankees: Hey Dodgers, we have someone we’d like to sign for $500k, but we’re out of money. No we won’t tell you who it is until we agree on a deal. How do you like prospect A? Would you do a sign and trade for prospect A?
Since the Dodgers have no one scouted and no idea who the Yankees like, they’re best bet is to agree to a sign and trade, right?
I don’t see collusion, but I could see Selig wanting to expressly prohibit it for some weird reason.
It’s collusion… certainly deceitful to the system, but maybe open to interpretation as to how legitimate it would be.
Teams are allowed to trade some of their international budget under the new CBA rules, so I don’t even think this step is needed.
The only issue is I think teams are limited as to how much they can trade away (I’m fairly sure they can’t trade away all their budget)
do you know where in the CBA you found that?
I believe the restriction is that teams can no more then double their original spending pool for any given season. This season each team has that same fixed 2.9 million dollar spending limit. Next year the team with the worst record this year will have a international spending limit of something like 5 million dollars while the Team with the best record will only be allotted something like 1.9 million. The 30th ranked team will have more to spend then the 29th ranked team which will have more to spend then the 28th ranked team etc. etc..
Thanks @tom. @baty it sounds like MLB doesn’t think it’s collusion! They even made it more convenient than I suggested.
There are likely some ways around the cap. Ben Badler at BA wrote an interesting article about some of them recently.
Meant to state: “explosive costs potential”
This is eeriely similar to how all those Fast Food giants collude to keep all those poor american teenagers down….
So I assume all the folks against an international “cap” are also against a payroll luxury tax and any form of salary spending? (since we are supposed to be in a “free” market).
By the way… it’s also not a real limit or cap… if you are willing to pay a tax, spend whatever you want… the following year you are then limited to 500K (or 250K) contracts (but again can make as many of those as you want).
It’s a cap and a limit if it restricts your selection process the next season. Facing the luxury tax wouldn’t be the end of the world, but they basically take away the opportunity to sign a “top” International prospect, similar to loosing a first round pick in the June Amateur Draft. To organizations that are trying to build from within that could be a major setback.
@Tom
Yes, it’s not a hard limit, but if teams go over, they forfeit the right to sign prospects over a certain dollar amount in future years. This is definitely going to reduce dollars flowing to international prospects.
It’s true that the concerns with an international draft, or caps on bonuses for international prospects have analogues with luxury taxes, salary caps, domestic draft, etc. (Not so much with luxury taxes, because to the extent that they are accompanied by spending floors, they don’t decrease the aggregate amount paid in salaries, they just change which teams are paying them).
But let’s remember the context here. It’s one thing to limit the potential earnings of a pro-athlete who is already a multi-millionaire, or of a domestic prospect, who grew up in a rich developed nation, and who likely has a full scholarship offer to a 4 year college.
It’s another to limit the earnings for a possibly very poor teenager growing up in a developing nation, who almost certainly does not have the same alternate long term career options as an American teenager with a full scholarship.
Do I get upset that an NBA superstar can only make $20 million per year, when the free market might provide him with $30 million? Not really.
Do I get upset thinking of a 16 year old whose family lives below the poverty line, making $60,000 instead of $300,000? Does it upset me to think of a kid who might have earned $60,000 getting nothing at all? Yes, that upsets me.
@jp, it’s nothing to get upset about. MLB is exercising its monopoly power. That’s what monopolies do. It’s also what causes monopolies to end.
These prospects are free to play in Japan instead. And I expect as time goes on there will be more professional leagues worth considering.
So sometime in the future MLB’s caps will cause prospects to choose another league to play in. When that happens one would hope MLB wises up and eliminates the cap.
Same applies to the draft.
For now, you can’t expect a monopoly to behave in any way other than this. In time they’ll regret there actions. But probably not for a while.
Japan would be smart to start competing for these prospects immediately.
It is likely that the increase in bonuses from 2010 to 2011 was a response to expected spending limits. Additionally, the lack of presence in Latin America from Washington is because of the recent bonus scandal from the Jim Bowden regime.
If you look at how much teams are willing to pay prospects like Soler and Puig who end up as free agents, it probably makes sense (at least in a game-theory sense) for a team just to go out and sign everybody they possibly can, pay the tax and take the penalty of not being able to sign big ticket guys the next year.