The CBA’s Impact on the IFA Market
For those who have known me awhile, my writing or talking about fairness in baseball is nothing new. From player salaries, to amateur and international signings, I’ve always been a strong proponent of minimum/maximum spending limits in all aspects of baseball to promote competitive balance. This line of thinking has even carried over to fantasy baseball as commissioners frequently become frustrated with me for pointing out loopholes and asking they be fixed.
Label me a baseball socialist — or idealistic dreamer, for that matter — but the idea of the New York Yankees spending $200+ million on the top end of the spectrum, while the Miami Marlins spend a tenth of that shopping the bargain basement is decidedly frustrating for me.
The beauty of the National Football League is that while it’s an imperfect system for players, each fan know that his team will be spending, at the very least, about 90% of what the highest-spending team is paying. Success or failure is based on talent and not simply a team’s capacity to outspend the market.
Major League Baseball is simply unable to make that argument as millions of baseball fans anticipate spring training simply hoping their favorite team doesn’t finish so far from the playoffs that the season at least remains interesting through June.
At first glance, the CBA cliff notes didn’t seem as dire as initial reports made it seem. Yes, caps on amateur and international spending would drastically alter signing bonuses and limit the strategy some small market (and larger market) teams utilize of spending heavily on amateurs and developing those players internally in lieu of aggressively pursuing free agents. And while that does force a change in strategy, it didn’t seem to be completely eliminated based on the least successful organizations being awarded the most money to spend on draft picks – even if on a smaller scale.
In reading further, my initial reaction to the $2.9 million each organization would have to spend on the international market in 2012 appeared to be a grace period for teams lagging behind in Latin America or the Pacific Rim to build the scouting infrastructure to maximize the opportunity to sign players once the sliding scale for international signing bonus budgets takes effect.
Then, I read where international budgets could be traded, and… sigh.
Yes, the amount organizations can up their budgets through trade is limited, but it really does create a “have your cake and eat it too” scenario which worries me much more than changes to the amateur draft. With the ability to now trade international budgets, the motivation for each organization to build an even stronger infrastructure internationally to offset the inability too outspend opponents via the amateur draft seems to be mitigated. Should an organization deem expanding their international operations too costly to be truly effective, that money can be flipped to the highest bidder for the most part.
And in all seriousness, what’s a few hundred thousand in international budget worth anyway when a top-50 prospect is worth millions on average? To the team trading their budget, probably not that much. But to an organization like the New York Yankees, which has arguably made the deepest inroads of any organization internationally, their ability to leverage that money and maximize every plum nickel has the chance to become an enormous tactical advantage.
A half million in additional international budget could net another five to ten prospects with upside. So much upside, one contact told me how depressed he was to return to the states after a trip to Latin America scouting talent due to the abundance of quality arms there. When asked to compare what was there to what he had scouted in the United States, it was no contest.
For every Michael Ynoa who signs for millions and struggles, a $20,000 diamond is uncovered who provides many millions in excess value. Unlike the United States where most high profile amateur players receive a ton of exposure through the high school tournament circuit, the international market is still a place where great value can be gained from having the best boots on the ground assessing talent. Instead of Major League Baseball pushing for each organization to have an equally strong presence internationally to level that playing field, they instead provided an easy out which I found to be extremely disappointing.
Mike Newman is the Owner/Managing Editor ofROTOscouting, a subscription site focused on baseball scouting, baseball prospects and fantasy baseball. Follow me onTwitter. Likeus on Facebook.Subscribeto my YouTube Channel.
I get your point but essentially, you’re arguing that each team should be forced to spend. They are businessmen who should look at investments and assess whether the payoff is greater than the initial cost. If they are too stupid to realize that the investment is worth the risk, that’s their fault and that’s a major reason why their team will continue to fail. Baseball is definitely not a capitalistic market but you’re essentially arguing that all competitive advantages for ANY team be taken away because other teams aren’t smart enough to employ similar tactics. There’s a reason that the original ideas of Moneyball do not directly apply anymore because every team follows them. Eventually, these have to learn that the international market bears fruits. Your argument is just arguing to take away every competitive advantage a team could possibly create in order to create parity. Might as well make better players use twigs for bats so at least they can’t hit better than Nick Punto. I know I might be overreacting but I just don’t feel that EVERY competitive advantage needs to be taken away. Baseball is a sport and in those ways, should have some competition. If owners don’t understand how investments work, it is their problem that their team sucks.
I agree with you. I’m not for taking away every competitive advantage, but developing ranges to further level the playing field. There’s a big difference there. The Yankees 2011 payroll was 4x as much as 5 other teams, 3x as much as 5 others and at least twice that of all but 8 other teams if you concede 105 million is close enough to half of 201 million to include in my numbers.
Why not push for a 50 million, or even 70 million spread between the highest and lowest payrolls instead of the 165 million difference between the Yankees and Royals?
In some ways it’s like poker. Give two top players $50 each and they will play competitive heads up matches. Give one a $60 to $40 edge and the odds become a little more weighted towards the player with more cash. Move that number up to $70 to $30 and what’s left is no longer a match, but the player with more money throwing his weight around with the ability to make many more mistakes and still cover.
However, focusing on the first paragraph or two takes away the focus of the piece. In the IFA market, an extra $500,000 goes MUCH further than in the U.S. What we will see are perceived bits of money dealt in “minor” deals which have the potential for a much bigger impact because it goes much further.
Yes. Make Dayton Moore spend more money in the FA pool to reach the minimum salary to be within $60 million of the Yankees! Hoooray competitive balance!
It’s quite useless to compare the NFL and MLB models when one has a farm system where your best player can make league minimum and the other farms their talent from the NCAA and they players, on average, last three years.
Dekker,
It doesn’t have to be done that way at all. Royals could sign Hosmer to a long term deal and buy out his arbitration years. Instead of dealing Greinke, they could have kept their franchise player. You are oversimplifying an argument which isn’t even the focus of the piece.
You’re entirely wrong, 28.
Mike is not arguing that every competitive advantage be eliminated, only that advantages that can easily be bought by the richest teams should be moderated.
The new CBA looks like a document written by the Yankees to ensure that the upstart Rays will never threaten their dominance again.
It still boggles my mind that limits were placed on the way poorer teams could invest in their team in a long-term fashion, but no limits were placed on the ability of the big spending teams to continue to widen the gap in MLB team payroll. At the very least, they should have increased the luxury tax ramifications.
Doesn’t boggle my mind at all. The owners were interested in cutting costs; they didn’t care where it came from. The players union wanted to make sure their members weren’t harmed; they didn’t care if owners cut costs elsewhere.
The result: amateur kids get screwed.
Excellent exchange. You both pretty much summed it up perfectly. The Union is really only responsible for taking care of its own.
I think the low budget teams that do a good job scouting the Internationals will be big winners. They will have a realistic shot at the best talent under the new rules.
You may be right, but some teams aren’t very active at all on the international market which boggles my mind.
But cap or no cap doesn’t really change that approach for those teams does it?
If anything it gives them a chance to outbid teams for the more known quantities which probably requires less infrastructure to uncover and scout. (assuming they have a losing record and have a higher cap)
I also don’t think the caps are as severe (if I read them properly) as the amateur draft – there is a financial impact of going way over cap (up to a 100% tax pretty quickly), but I thought the only other major restriction was the max deal you could offer the following year if you significantly exceed the cap (500k per player down to 250K/player if you exceed by a large amount).
If a team like the Yankees blows away the cap for a specific player (or players) it cost them more from a tax perspective but all it means is next year they are signing players 250K and less…. but can still do this to an unlimited extent so long as they are willing to pay a tax if they exceed their overall budget cap.
You could also use an every other year approach… blow away the cap one year… sign the low level deals the next year (and stay under the cap), then splurge again….
In short (or long?), I think the system still helps the team that invest heavily in infrastructure as those are the teams that are signing the 100K-200K guys and still easily can do this. What it does is hurt the winning teams that simply want to dabble in the Jose Iglesias, Aroldis Chapman type market and send some scouts to evaluate “known” prospects without really building up their international infrastructure (scouts, academies, etc)
Tom,
It’s not about the teams already down there and active – They will still be fine. When the amateur budgets are limited, teams who aren’t active Internationally should be pushed to develop a stronger presence to lessen the impact.
When you add the selling off of budget to the mix, the “out” provided by MLB may lead teams who don’t spend money to simply sell off whatever share of the money they can to keep costs low. It’s counterproductive IMO.
Doesn’t it largely depend on how much of their international budgets can be traded? I’d read somewhere that it’s up to 900K of the 2.9 mil budget. That’s not exactly going to throw the whole CBA restriction out of wack is it? So Team A has 3.8 to spend and Team B has 2. Right?
At face value, $900,000 isn’t a ton of money, but in the world of IFA, it goes much further than if it was spent in the states. Check out the piece below by Nick Piecoro. AZ DBacks Director of Int’l Scouting Carlos Gomez was kind enough to breakdown their top signings (1 player @ $250,000/The rest for $70,000 or less). Watch the videos… I’ve seen lesser talent stateside sign for 10x as much.
http://www.azcentral.com/members/Blog/NickPiecoro/146537
Mike… here’s the basic problem:
You find a prospect (or several prospects) you like that you can sign for 75K. You are currently at your cap, the choices are:
– Don’t sign him (them)
– Trade with someone to get 75K of budget relief (or more if you are talking multiple prospects)
– Sign them anyway and pay the extra 75K tax on each (if you are facing a max cap penalty)
Is the cap really a deterrent? Is it worth it to trade for budget to avoid the tax? The only aspect that seems to be a deterrent is the restriction the following year of a max 250K per player. But as you say, a lot of the signings are well under this level so the penalties on the cap means you have to take a year off from the big ticket guys but can continue to spend freely on the vast majority of IFA’s
The trade value of the budget I don’t think will be that big a deal… if it was amateur draft money where going over the cap means a loss of draft picks I could see some real value but given the IFA rules, the value of trading that budget is fairly limited.
If the talent is being signed for a lot less as you describe (than similar talent stateside), what difference does it make if you have to double that money (to pay tax)… it’s still a relative bargain.
Tom, in looking directly at the budget and rules, you aren’t taking into account the actual cost of infrastructure needed on the front end to maximize the budget organizations will receive.
Sorry. I’m not being clear… you’re making my point….
My point is trading budget isn’t that valuable… you’ve made it sound like it’s a decent commodity and somehow a significant factor in teams that don’t want to invest in infrastructure continuing to not invest (because heavy IFA spenders will somehow value it more)
For a team like NY or Boston, they will pay the tax long before trading anything of significant value for extra budget space. As they have already put so much money into infrastructure why would they trade anything of value rather than just pay the extra tax? It just means the price for prospects once they reach the cap has gone up (but are still tremendous values)
Similarly, I have a hard time believing that a team’s decision to invest or not invest is really going to be influenced on the ability to trade budget space. You made it sound like it would be another deterrent for teams to stay out of the market…. I think given the limited trade value of that budget, it is pretty much a non-factor in a team’s decision making process on investing in IFA infrastructure.
The tax is small. The limits on max bonus for a player the following year is big. That’s the deterrent, not the tax.
Tom, I also said in the piece that the the budget traded for would be much more valuable to the receiving team than the team actually dealing the budget.
You guys are really stretching to figure out how this CBA benefits the Yankees over anyone. Seriously.
In the past decade, the Yankees have typically spent over $5 million per year (and have been willing to go even higher) on international free agency.
The Yankees’ international budget has been cut in half, and yet somehow this benefits them because they can trade to eek out $500m more?
Yes, $500k is worth something internationally, but losing $3 million is worth even more. The Yankees will no longer be spending what they used to. That’s just a fact. Seems clear to me that means this deal hurts them.
If a team was completely inactive internationally before, than they are getting a new undeserved trade asset. How does that hurt them? It’s up to them what they do with it, but if they trade it, they’re still getting more than they previously got, which was zero.
I could have inserted a handful of teams into the mix, but used the Yankees because they are regarded as one of the first, if not the first organization to make DEEP inroads into the International market. Those connections allow them to tap contacts and sign talent for lower than just about anybody. My mentioning them directly is more of a compliment than anything else.
NFL is decidingly NOT a 10% difference in spending. Most years, it is closer to a $60 million difference between highest and lowest spenders. The highest spender spends ~75% more than the lowest. It used to be higher, before the new Glendale stadium (Cardinals). Often, the Cardinals would spend less than half the top spender.
Nate,
Most teams are running approximately a ?10% difference. In MLB, the majority of teams are running at less than half the Yankees or less. Huge, HUGE difference! Plus, a 60 million difference is half the cap approximately? Royals were at 36 million to the Yankees 200. That’s a much, MUCH bigger difference.
Right, but you’re coming to the conclusion that a cap with trade options only helps the Yankees, based on what, I don’t know.
I can come up with an exact opposite argument that to me makes a lot more sense:
Before the new CBA, teams that didn’t invest internationally perhaps wisely made the decision that they were too far behind to catch up to the Yankees, and their money was best spent elsewhere. With the market completely open, any team starting from scratch must have known in the back of their heads that if competition increased, the Yankees could simply double their annual dollars to $10 million and still dominate, thus completely wiping out any benefits of getting started at ground zero and wasting money that could have been spent elsewhere.
With the new rules in place, the Yankees and other teams heavy on the international front are prevented from simply crowding out the new competition. A team that has done nothing before might start small, and yes may even trade some dollars in the first couple of years, but now they can get a better feel for what their annual budget will be without the fear of the Yankees simply firing more bullets. And while they’re building up, if they’re afraid of making mistakes, they trade their dollars.
Sure, incumbent teams will have an advantage. They currently have an even larger advantage. But the new deal encourages teams that have ignored IFA to get started. If they do, over time the incumbent advantage will dissipate.
Seems like a win win to me.
Granted, I don’t know if any of what I said is true, but it makes a lot more sense than your argument that cutting the Yankees internation budget in half somehow helps the Yankees.
Actually, no. I only mention the Yankees as an example. I could have used a number of teams including the Mariners, Braves, etc. Organizations with deep inroads in Latin America are poised to take advantage with the teams with the BEST infrastructure benefiting the most.
For me the ignore the Yankees and act like they aren’t the “big men on campus” would be downright silly of me. It’s not a Yankees bias, it is just how it is.
From contacts and reading about the International market, signing bonuses are often relative to connections and the opportunity they afford. A player shopped to the Yankees for $500,000 might be shopped to the Nationals for 2 million because of familiarity with the Yankees organization and knowing their scouts properly assess value. This statement would probably hold true for the Mets, Mariners, Braves, or other organizations with deep connections.
In all honesty, I think people are trying to relate the IFA to the amateur market and it’s really completely different. It’s like one going from Wall Street to the Wild West. One team might pass on a guy for $150,000 who signs with another org. for $600,000 the following week. It’s a completely different animal from what fans are used to and I was really surprised to learn from contacts about what really went on down there.
Mike, thanks for your replies, but I still feel you are being selective with your focus.
On the one hand, you’re looking at the status quo and carrying that forward into perpetuity, i.e. there are currently a number of teams that have heavily invested in the IFA market that have an advantage in infrastructure and established relationships, essentially saying that it doesn’t matter what the Nationals will do. They’re screwed.
On the other hand, you’re saying this new system will change everything and since the screwed teams can simply trade their budget, they’re even more screwed and the incumbent teams are winning the lottery.
The only fair way to analyze the CBA is to compare it to today’s landscape. Currently, any team with no infrastructure in Latin America is woefully overmatched by the incumbents. Any inroads they make can be countered with simply heavier investment by the incumbents. Even worse, you posit that every dollar spent by an incumbent yields more return than a newcomer because of the established relationships.
So I ask you. Does the new deal make the current situation better or worse for newcomers? It seems 100% clear to me it’s a huge improvement for them in terms of the ability to compete.
Your article comes across as, “this CBA is a mistake and shouldn’t have been implemented.” Do you think the new deal is better or worse than the status quo?
If you think it’s better, than perhaps your article would be better positioned as, “They did some good work here, but I wish they went further.”
I see no way that you can argue the new system is even better for incumbents than the old system, but perhaps I’m missing something.
Really noseeum, my opinion on this issue isn’t nearly as strong as you think it is. The focus was to point out a scenario which might play out internationally that would not be a good thing for the whole of baseball.
You make excellent points and that scenario may very well play out as well.
If I wrote a second piece painting a “rosy” picture, I could envision a best case scenario where organizations use the 2.9 million budget equality to push heavily towards building infrastructure. In years two on, a team could sell a piece of its budget if it doesn’t perceive itself as ready to compete on a level field with other orgs. and shifts that sold player budget into further infrastructure.
It may wind up not being all doom and gloom, but this is what analysis of a document like this is for. At the time I sat down to right this, I reached out to a contact seeing if he wanted to chime in on my ideas off the record and he hadn’t even seen the full document yet.
I have more concern that the IFA spending caps may be set too low. And in that context, I think that trading of cap space can be beneficial in mitigating the problem.
The IFA spending caps probably will be successful in reducing overall spending on the international market. But I think it’s possible that the bonuses required for the premium prospects will still be relatively costly, in other words, the top prospects’ salaries won’t decline proportionate to overall budget decreases. I think the result could be that many of the lower level and more uncertain talents simply won’t have an opportunity to sign a contract. Teams may sign one or two top prospects and have little if any cap space left to sign lower level prospects. By trading IFA cap space, a team can give itself the ability to sign a greater number of the lessor prospects without giving up the opportunity to sign a premium prospect.
Also, the trading of cap space will reward teams that can identify a market inefficiency in the valuation of IFA cap space. If the IFA cap is overvalued, a smart small market team might carve out a niche of trading IFA cap space for good minor league prospects. Or if the IFA cap is undervalued, the same small market team can gain an advantage by asking other teams to throw IFA cap space into trades instead of a PTBNL.
CJ,
In all honesty, I can’t really envision that scenario due to the fact signing cheap Latin American talent is practiced by nearly every minor league organization to fill rosters. 20K is a life changing amount in the Dominican Republic where 20th round draft picks might scoff at that money. I’ve heard stories where guys signed for so little out of Latin America ($8,000 to be exact) that the organization felt guilty and threw the guy an extra $4,000. It’s a completely different mentality and MLB organizations have been signing the equivalent to cheap labor down there for years! That’s not about to change.
I also discuss your argument in the last paragraph and question what those hundreds of thousands would be worth? As I said in the piece, a top-50 prospect is worth 15 or so million in trade value based on previous studies. If that’s the case, then what kind of prospect do you get for 1/30th of that money? It seems like 500k is worth a C+ reliever in Double-A who might carve out a niche in a big league bullpen. I’m just not sure the value will be there.
Excellent comment on the whole though CJ. While I don’t quite agree with your assessment, it certainly moves the conversation forward and that’s what Fangraphs is all about!
Folks need to stop referring to this as a cap and trading cap space. Either that or we need to start talking about how baseball has currently been working under a salary cap for years now.
Any team can spend as much money as they want in any year… how is that in any sense of the word a cap? It is a suggestion and if you don’t follow it, you pay some extra taxes… this is pretty much the payroll luxury tax applied to the IFA market. (with the extra hook of a max signing value the following year, but again no aggregate cap on total spending)
Any team next year can spend 5 mil (or 50mil) if they want to, so long as they deem the 100% tax worth it. They also don’t need to trade with anyone to get the budget space to do this. Trading for budget space is pretty much mere tax avoidance.
And as Mike has commented on several times all but a few of the elite prospects sign for relative peanuts. As such, is doubling that cost really a significant issue for almost ANY team? I just don’t see acquiring a tax avoidance benefit to be all that valuable… people seem to be valuing it as if there is some sort of actual real (hard) cap now in play in the IFA market.
A 100% tax for going over the cap by 15% isn’t peanuts. And the team will be unable to spend more than $250 K on one player in the next season, which basically takes them out of the market for one of the premium prospects in the following year. It’s true that teams could take an alternating year approach to signing a high level IFA prospect, but for some teams that may be too slow an approach to replenishing their farm systems. My point is that teams will take different views to the value of the cap space.
Some teams may happily pay penaities and use alternate seasons to pay big bonuses. Other teams may view their cap space as closer to a hard cap and take a policy that they will never exceed the IFA cap. (There were teams that generally refused to go over slot in the rule 4 draft even without penalties.) Teams that need to replenish their farm quickly may put a higher value on the cap space because they want to go after the top IFA prospect every year. So, I think there is a decent possibility that the market could under or over value the cap at various points in time. A smart team should take advantage of it.
There’s a difference between teams treating it like a cap and it actually being a cap. You are confusing a teams budget with what it is allowed to do. Like you say, it’s the same as the draft… some teams were unwilling to go overslot but you should not confuse that with an actual cap or teams being RESTRICTED from going over it (I’m referring to the old draft rues obviously)
Mike has tried to express this but I don’t think people realize the distribution of contract values in the IFA market… The Chapman’s Iglesias’ and to a lesser extent the Montero’s get the pub as they are bigger deals and more known names… but they are generally the exception rather than a rule…. a 250K limit for 1 year with a team with significant infrastructure (and that really is the key) is not much of a deterrent And if you are signing players for 50K, do you give up signing them because the cost is now 100K with the tax (especially when spending on the amateur draft is now limited). I’d defer to Mike here, but if a team is under tight budget constraints they probably be better off not signing picks after the 15th round and using that money to go over the IFA cap (from a value proposition)…. again this is under the huge assumption that the team has the infrastructure in place to use that money reasonably well (and that is really the big differentiator, not simply raw spending which baseball is trying to nibble at).
The 100% tax is indeed peanuts for the vast majority of deals in the IFA space. The Yankees signed Aceves, Banuelos and 2 other players for 450K total in 2008… would it be worth it to do that for 900K?. Again I’d defer to Mike here but I imagine even something like a 1 in 10 or 1 in 20 type success rate on the IFA prospects is a massive value to a team (for the low level deals).
Joe and CJ,
Your comments are tremendously valuable. My favorite thing about writing for Fangraphs is that readers comments allow me to learn just as much, if not more than the people who read my work.
In this case. you are both correct as this issue will wind up having many wrinkles and no hardened rule.
However, what I would say on the whole is that the $250,000 limit on a single signing bonus is a very big deterrent IMO. Can teams work with that kind of cap? Sure, I posted a link to the Diamondbacks doing just that and signing some nice prospects.
However, every org. is going to want a shot at those impact talents and I doubt that just because the IFA signing period starts at 16, that most teams don’t have 13-15 year olds on their individual watch lists much like scouting high school talents stateside.
I’m trying to wrap my head around the arguments here, but all I can see with this CBA’s provision is that it benefits owners’ bottom lines at the expense of international amateur players.
Don’t even get me started on the draft cap. Let’s just say we should enjoy Bubba Starling, because we’re not going to see multi-sport athletes choose baseball any longer.
Thumbs down.
Yes, that’s a major issue in this CBA. For the record, I’m not a fan of it due to the example you mentioned, but I get it. Ultimately, it’s the job of the union reps to defend players already in the union.