Should MLB Consider a One-Pool Approach to Spending?

On Tuesday, our friends over at NEIFI published a piece about one of the more interesting parts of MLB’s international spending market, building off reports that 16-year-old Lazaro Armenteros — Lazarito, as he is commonly referred to — is looking for a signing bonus in the range of $15-$20 million.

As mentioned, he’s expected to get a bonus in the $15-20 million range. Jim Bowden claims it could reach $25-30m. He’s 16 years old, has no performance record whatsoever. For all practical purposes, he’s in the same boat as any other international free agent his age. The record for largest signing bonus for an international free agent of this age is Nomar Mazara’s $4.95 million.

Sure, perhaps there’s inflation to consider. But are we really supposed to believe that Lazarito’s expected talent is roughly triple, or perhaps as much as six times higher, than the expected value of any other 16-year-old international player? Any 16-year-old international player ever?

That would be really hard to buy under any circumstances. But perhaps especially because no one even actually seems to be making that claim about Lazarito’s talent. People are certainly glowing about Lazarito, saying he has exceptional tools and blue-chip potential. Similar things were said about Miguel Sano, Wily Mo Pena, Michael Ynoa, and others. Similar things are said about one or two amateur free agents each season, or at least every couple of seasons. And yet no player in that age bracket has ever signed for more than $5m.

The piece goes on to discuss the history of Cuban free agent pricing, and how the contracts for guys like Yasiel Puig and Jorge Soler may have created an anchor for other players that followed them. And they make a compelling case that the prices we’re seeing for younger Cuban players are not rational, when compared to the price that teams are paying for similar talents from other countries. After all, they’re correct that Armenteros shouldn’t be viewed as a dramatically more valuable prospect than a guy like Mazara simply because he grew up on a different island in the Caribbean, and 16 year olds from other countries aren’t commanding these same prices.

For instance, take Kevin Maitan, who has been one of the more-heavily hyped prospects in recent history. Kiley McDaniel profiled him here back in September of 2014, when he was 14 years of age, and is the consensus best talent available for the upcoming July 2nd signing period. It’s widely understood within MLB that Maitan is going to be signing with the Braves, with some rumors suggesting that he’ll get around $5-$6 million, breaking Mazara’s non-Cuban record. I don’t know anyone who prefers Lazarito to Maitan, but it seems clear that he’s going to get more money, and it’s not like we can blame it on one organization going nuts; the Braves are also rumored to be in the mix for Lazarito, and might actually sign both.

But this weird market quirk isn’t really the crux of the piece. They use that setup to discuss the current reality MLB faces, which is that big-money teams have figured out that the most efficient way to flex their financial muscles is to dominate the international spending game.

Remember, structures have been designed for the exact purpose of limiting a team’s ability to dominate their competitors economically. Severe penalties are imposed on the Dodgers if they violate their threshold for MLB spending. Restrictions (with penalties) are placed on the Dodgers for draft spending. Penalties and restrictions exist for the Dodgers on international spending, as well.

Perhaps, then, the answer is just that we make the international restrictions even more burdensome, so that it’s not worth it for the Dodgers to “cheat” here. An international draft, perhaps, with restrictions that are in sum even more distasteful to the Dodgers than those in the domestic draft.

Well, that’s not going to work the way you want it to. First and foremost, because that will merely shift the location of the Dodgers’ excesses rather than eliminating them.

Just consider the sheer scope of their excesses this year. They were assigned $700k for their international signing bonus pool in 2015. They went over that cap just slightly, spending $44 million on international amateur free agents this year. Since they pay a 100% tax on the overages, the Dodgers actually paid $88m for these prospects. And we told them they were only allowed to spend 700k.

The Dodgers are going to attempt to economically dominate their opposition one way or another, and the only question as far as they’re concerned is where the penalties will be the least costly to them. They’ll apply their resources in whichever of the available channels seems least threatening to their interests. But the operating principle, to which the Dodgers have demonstrated their understanding most distinctly via spending a further combined $100m this year on the likes of Hector Olivera, Yasiel Sierra and Pablo Fernandez, who are neither prospects nor clearly decent MLB players, is this:

$100m, invested horrendously and imprudently, will still buy more talent and wins (present or future) than $100m not spent at all.

The Dodgers have a tremendous resource advantage over a lot of their competitors, and this assertion is entirely correct; you can constrain spending as many ways as you want, but there will always be a path of least resistance, and teams will figure out what that path is and keep exploiting the holes in the netting designed to keep them from leveraging their resource advantages. Whack-a-mole is an apt analogy, and for the last few CBAs, MLB has been patch-working systems of spending constraints. The luxury tax is a big one, and the restrictions put in place on the draft have also been designed to keep teams from putting their extra dollars into amateur talent acquisition. So MLB teams have pivoted internationally, and a market that used to give advantages to teams that poured their resources in scouting and development has become more about financial capability and strategizing.

Certainly, the next CBA is going to address this issue, and MLB’s answer is almost certainly going to be some kind of international draft. But as NEIFI’s piece begins to discuss potential solutions to the problem, they discuss something I’ve previously proposed should be on the table.

The mechanism to prevent the economic domination of the mega-market teams must involve shifting their incentives. Right now, it’s perfectly fine for them to set $100m on fire if it gets them just a bit of talent in return. Changing the nature of this incentive is the only long-term option for reining in their behavior.

Right now, amateur overages — of which the Dodgers alone have accrued scores of millions — go to an MLB fund for international baseball development. MLB likely never imagined this department would be so well funded. But those funds don’t work against the Dodgers interests, outside of the loss of capital (which they couldn’t spend very effectively elsewhere, either).

The way to shift this incentive is to send the Dodgers’ overages to their competitors. This way, the more the Dodgers spend, the more they subsidize their competition. Now, their spending will be bounded; it will only be rational to outspend their competitors to the extent that their spending produces more talent than their competitors will be able to procure with their new resources.

As for the mechanisms by which this may be achieved: rather than the tangled web of regulations and penalties (qualifying offers, bonus slot allotment, definitions of amateur player versus foreign professional, etc) which attempt to create balanced outcomes… what if, simply, all player spending (domestic, amateur, MLB) was lumped together, and teams who spent more than the average team had to be taxed on those overages of that average. And the tax proceeds were distributed to the teams who spent less than average.

This single-pool concept of spending is something I’ve advocated for before in different forms; most recently, I suggested that MLB think about tying total amateur signing pools to the the relative size of their MLB payroll. NEIFI’s approach is more straight forward, essentially extending the luxury tax threshold to all spending, with the tax going directly to the teams without the same resources. That way, the Dodgers aren’t just being fined, but they would be subsiding their competition.

The immediate pushback to this idea is always that paying a team to spend less money incentivizes non-competitive business strategies. No one wants to have more teams doing what the Marlins have done in the past, cashing their revenue-sharing checks while running minimal payrolls. And this idea is one of the reasons I believe we’ve seen a “tanking” narrative being pushed this winter, as big-market ownerships are signaling to their less-wealthy counterparts that they aren’t interested in expanding revenue sharing only to see those teams not invest in their products.

This is a legitimate concern, and I don’t think anyone wants the Dodgers or Yankees just cutting checks to owners who aren’t trying to compete. But the single-pool idea has a lot of merit, and I don’t like walking away from the suggestion simply because the incentive structure could be abused by the teams receiving distributions. So, I’d like to add a suggestion to their suggestion that might help make the idea a little more viable.

Instead of simply distributing the tax from overage-spending directly to teams that spend less, perhaps the distributions could work in the form of a rebate? Say, for example, there is $150 million in the overage-tax bin on an annual basis; the lower-revenue teams could access their portion of that fund only by applying for a rebate on a signed contract. So, for instance, if we had 10 lower-revenue teams splitting that $150 million in taxes, each team could apply for their $15 million cash-back bonus once they’ve submitted a qualifying contract signed during that tax year. The money couldn’t be used to pay existing contracts or raises for players under team control; it would only apply to new signings.

Of course, this still isn’t foolproof; a team that wanted to game the system could always just use the rebate to sign new players, creating constant turnover as they traded away arbitration-eligible players as they got too expensive. But it would perhaps make it slightly more difficult to just take the revenue sharing checks and put them in the bank, since it would require constantly making transactions, rather than doing nothing but counting money.

There is no perfect system, and it’s unlikely that something like this will get real consideration from either side in the CBA negotiations. But I think the guys at NEIFI are correct; MLB would be better off with something like a single-pool spending system than constantly trying to constrain teams from spending resources they have available.





Dave is the Managing Editor of FanGraphs.

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cowdisciplemember
8 years ago

Wouldn’t this exert tremendous downward pressure on total spending? Why would the Players Union go for it?

jianadaren
8 years ago
Reply to  cowdisciple

Depends on the numbers. It would only exert downward pressure compared to the status quo if the penalties for exceeding the pool are sufficiently harsh. A huge global pool with moderate penalties could very well be an improvement on the current system from the players’ perspective.