Baseball America On CBA Loopholes

The guys over at Baseball America have been killing it for the last few weeks, but since we try not to link to content that requires a subscription to read, I’ve held off on linking to several of their better recent stories. Today, though, Ben Badler has a fantastic read on how teams may attempt to exploit some potential loopholes in the new CBA, and it’s free for everyone to read. I’ll just quote the first loophole that he mentions, but you should click through and read the entire piece. It’s worth your time.

While the new international rules kick in on July 2, before then a team can sign currently eligible players—pretty much anyone 17 or older—and and not have the money count against its signing bonus pool.

If a trainer has an outfielder who previously might have commanded $3 million in an unrestricted market, he could still get his $3 million by agreeing to a package deal with a team. Before July 2, the team will reach an oral agreement to sign the trainer’s outfielder when he becomes eligible, say for $2.2 million, and to sign a couple of 17-year-old players from the same trainer before July 2 for a total of $800,000, regardless of how much those 17-year-old players are truly worth.

In the end, the team gets the outfielder it values at $3 million, and the trainer gets his commission on $3 million. While the star outfield prospect may get shortchanged, the trainer could work out an arrangement with his players to pass some of their money to the outfielder, since the 17-year-olds would know he’s the only reason they’re getting inflated bonuses.

It’s worth noting that this scenario – like all of the ones Badler presents – are speculative and he’s not suggesting that any of this loophole tampering has taken place, but he is showing that it may be difficult for MLB to enforce the policies they’ve put in place in order to constrain spending on international free agents.

We’ve actually seen similar cause-and-effect scenarios take place in the NBA and NFL after they implemented salary caps for their respective rosters. In both sports, teams began to hire specialists that were often referred to as “capologists”, and in many cases, their primary duty was to become experts on the nuances of the salary cap and find exploitable loopholes to allow their franchises to circumvent the rules. While those loopholes were often more straightforward than what Badler is discussing here, and were based more on strategy than outright deception, the financial marketplace of both sports adapted to the new rules in order to help teams get around the cap as often as possible.

If Major League Baseball thinks that their teams aren’t going to react in the same way and take advantage of the loopholes in their CBA in order to exploit competitive advantages, they’re likely in for a rude awakening. These clubs have too much at stake to not attempt to maximize the return they can get on their allocated budgets, and history suggests that the incentives for manipulating the rules far outweigh the potential costs of getting caught. As Badler notes, MLB is going to have to show that their new rules have some teeth to avoid widespread exploitation of these loopholes, but it’s not obvious how they’re going to be able to enforce these rules when there are so many areas that are open to interpretation.