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.