MLB’s Other Shohei Otani Problem

When MLB and the Player’s Association agreed to the terms of a new CBA, the most substantial changes came in the rules governing the acquisition of players from other countries. The replacement of the bonus pools with a hard cap on bonus allocations was the big story, but, pretty quickly, people realized that a smaller change — raising the age of players exempt from the bonus pool system from 23 to 25 — could have a major impact on one of the world’s best players.

You probably know about Shohei Otani, the two-way superstar who has become Japan’s best player even though he’s just 22-years-old. Before the new CBA was agreed to, it was fairly widely assumed that Hokkaido would post him after next year, allowing him to come over to play against the best players in the world in Major League Baseball. Because he turns 23 next summer, he’d be free of the bonus pool restrictions, and could negotiate with any team that paid the $20 million posting fee, likely landing a contract between $200 and $300 million when all was said and done.

Now, though, with the age of players included in the bonus pool system raised by two years, Otani has two more years where he would be subject to those rules, dramatically cutting the amount he’d be paid. Under the new rules, the largest bonus pool any team will be allocated is $5.75 million; a team can trade for additional signing bonus allocations, up to 60% of their original pool, so the most any team can spend on international free agents in any given year is $9.2 million. That’s the max Otani could receive, and that’s only if he signed with a team that received a “competitive balance” draft pick, so that would limit him to smaller market franchises. If he wanted to sign with one of the major market teams, he’d top out at $7.6 million.

$250 million or $7-$9 million in guaranteed money? It seems like the obvious move is that Otani will stay in Japan for two more years, then come over when he’s 25 and free to sign for whatever he wants again. By then, he might be worth $350 million. The clear decision, if financially motivated, is to wait.

But since the CBA was signed, there have been some comments made indicating that Otani may not make a financial decision.

Hideki Kuriyama, Otani’s manager in Japan, said Thursday, he still expects him to go in 2018 on minor league deal because it’s about game.

— Jim Allen (@JballAllen) December 8, 2016

Otani wasn’t quite that direct in his own comments, but reports suggest that perhaps he has already reached an agreement with his NPB team to be posted after next season.

“We settled in a way that my wishes were given priority,” Otani said after the talks. “I am grateful for the club’s support.”

Now, it’s not so easy to see Otani passing up the kinds of guaranteed money he’d get as a free agent to take something like an $8 million signing bonus plus whatever he’d make through the arbitration system for his first six years of MLB service. Even if we make the most aggressive assumptions possible about his potential arbitration payouts, he’d probably be looking at something south of $50 million in salaries before he became a true free agent for the first time, following his age-29 season.

But let’s just go along with the hypothetical for a second. Let’s say that Otani doesn’t mind leaving a couple hundred million in guaranteed money on the table, and he really is willing to come over after next season and go through the bonus pool system. In talking with people with knowledge of the language that will go into the actual contract that the league and the MLBPA will sign, I’ve confirmed that teams will not be allowed to circumvent the bonus rules to treat Otani differently. They can’t give Otani a shorter-term contract with free agency at the end of the deal, like other Japanese veteran free agents often receive. Anything that was seen by MLB as an agreement made to side step the bonus pool limitations would be disallowed.

But it brings up an interesting question; for how long must Otani and the MLB team that signed him stick with the standard pre-arb contract? At what point could the league no longer argue that a long-term extension was a pre-arranged deal designed to circumvent the rules? Because it is no longer unusual for players to sign long-term extensions very early in their careers.

Let’s say, for instance, that Otani’s major league debut went as well as you could possibly imagine; he throws some kind of complete-game shutout, strikes out 15 guys, and launches a home run or two as a batter just for good measure. Minus the home runs, we actually saw something not too different from that when Stephen Strasburg made his MLB debut on June 8th, 2010; he went 7 IP, allowed just 4 hits, didn’t walk anyone, and struck out 14. If the Nationals had started negotiating a new long-term deal with Strasburg immediately after that start, the league wouldn’t have had any leg to stand on to say “nope, you can’t do that.”

So if Otani has some kind of spectacular debut, could the league really say that the team couldn’t have altered their risk assessment, and thought their best move was to give him a long-term deal before his price for an extension went up even more? Would owners really go for the league telling them just how long Otani has to play in the big leagues before a long-term extension would no longer be considered a circumvention of the bonus pools, when that restriction wouldn’t apply to any other player? If the Astros can sign Jon Singleton to an extension before he’s ever played in an MLB game, how could the league forbid whoever signed Otani from giving him a new long-term deal after he’s shown what he can do against MLB talent?

The structure of the deal would have to follow other pre-arb extensions, with Otani continuing to be vastly underpaid for the first few years of his MLB service, with all the real money tacked on at the end of the deal in free agent years bought out. But I don’t know that it would be that hard to structure an offer in a way that gave Otani a large financial guarantee while also following in the footsteps of other pre-arb extensions.

For instance, let’s say a team estimates that Otani will make something like $50 million in his three arbitration years — assuming he’s an exceptional talent who creates value on both sides of the ball — so they spread that money out over the first six years of the contract, giving him salaries that go something like $1M, $4M, $8M, $10M, $12M, $15M. Then, the question becomes how much do you value his free agent years at? Given his talent level and the league’s economic situation, I don’t think it’s crazy to put a $50 million valuation on those years; the top free agents now are getting $35M per year, and that’s for older and worse players who only hit or pitch, plus there’s another six years of inflation to account for.

Of course, the team would have to be able to argue that they got enough of a savings to justify the commitment, so maybe you actually pay out those four years at $45 million apiece. That adds another $180 million in cost to the deal, bringing the total for 10 years to $230 million. Toss in the $8 million or so he gets in a signing bonus, and now, Otani’s been guaranteed something not too terribly different than what the expectation of he would get if he weren’t subject to the bonus pools.

And I just don’t know how the league would police something like this. No one is going to be dumb enough to write any of this down, but it seems pretty easy for the team executives and Otani’s representatives to just talk in hypotheticals about what kind of value they might see in a long-term extension after Otani has proven what he can do in MLB. The league will do whatever they can to make sure there’s no actual guarantee in place, but as long as there’s nothing actually promised, I don’t know what the league could really do.

Of course, in this scenario, Otani’s taking some risk. If he gets to the Majors and isn’t good, then the team wouldn’t have any kind of cover to announce a $230 million extension with a guy struggling through his rookie year. Or, more troubling, if his arm starts hurting, it’s going to be wildly obvious that there was a pre-arranged deal in place if the team announces a long-term extension with a guy who is fighting elbow or shoulder problems. So, Otani would be betting on himself to play well and stay healthy, and if neither of those things happened, the “hypothetical” extension might not come to fruition. It wouldn’t be exactly the same as getting guaranteed money up front for him.

But if Otani doesn’t want to wait two more years, and is confident that he’ll play well and stay healthy enough to make at least a few good starts in the big leagues, I don’t know how MLB can tell him or the team he signs with that they can’t do a long-term extension after he’s shown that he’s going to live up to the hype. Otani can’t be the only player in MLB not allowed to sign a long-term extension. The “circumvention of the rules” clause has to have an expiration date, and it’s not clear to me how that date would be able to carry past his first MLB start, or at least past his first few starts.

And if a team can realistically argue that MLB can’t police the “circumvention of the rules” clause past Otani’s debut, then I don’t know how you keep teams from casually mentioning the kinds of figures they’d be comfortable talking about down the line in negotiations. And it’s hard to imagine that wouldn’t influence Otani’s choice in where to sign, given that everyone is going to be offering essentially the same up-front signing bonus.

Of course, all of this is speculative. We don’t know when Otani is going to come over. We don’t know that he’ll even make it through the 2017 season healthy, since he is a pitcher and all. But if Otani does want to come over after next season, I don’t know how MLB is going to prevent a sign-and-extend-in-a-few-months situation. They can definitely stop it from being a legally binding agreement in the actual contract, but given how prevalent early-career extensions have become, Otani might just be able to arrive in MLB in 2018 and still get a pretty large guaranteed contract not that long after. And while it might look like whoever got him circumvented the signing bonus rules with the extension, I don’t know you that the league could really stop a team from signing a player to a long-term deal once they’re already performing in the big leagues.