Signing July 2nd Players Has Gotten Even More Complicated

The 2015 international signing class is seen as above average, both at the top end and in depth. Check out the sortable board, introduction to the board and international article archives for more details. Even with multiple teams blowing past their pools, there appear to be more seven figure talents than they are seven-figure bonuses to hand out, which makes for an interesting game of musical chairs among the international prospects.

Early Deals Muddy the Waters

Some seven-figure-caliber players like Venezuelans RHP Alvaro Seijas and CF Miguel Aparicio allegedly turned down low seven-figure offers early in the process but then held out too long, looking for even more money, and were forced to settle for a six-figure bonus.  In talking to international scouting directors in the past weeks, there seems to be a consensus that the best strategy this year for a team staying under its bonus pool was to wait until late and scoop up multiple middle-tier prospects at lower prices than to lock up one middle-tier player early in the process for seven figures, even if this means the market dictates which players you’ll end up signing.

I’ve written about this a few times but MLB’s effort to control international bonuses has caused a number of unintended consequences. By putting in bonus pools that the majority of teams treat like hard caps, you put a limit on what a team can spend and the main way they can get better than average value is to lock players up earlier and earlier, often over a year before a player can even sign the contract, commonly when he’s 14 years old. That’s now been happening for years and the culture of July 2nd is that of early deals. Now that it’s the norm, the majority of the big bonuses are handed out before the spring rolls around, so if a prospect improves late in the process or held out for a bigger bonus, all your suitors could be out of money when it’s the optimum time for you to strike your deal.

This means that agents are even more incentivized to get deals done early than ever, since the downside of turning down $1.5 million when you think you’ll get $2 million is settling for $500,000. Kids are signing for big bonuses earlier in the process than ever, but teams and kids have been regretting these deals as July 2nd gets closer when it’s clear one side did much better than the other.

Teams now are paying a premium to lock a kid up early and have him shut down his workouts, taking him completely off the market, as opposed to getting a discount for doing this in past years. In past years, only some top players got very early deals — providing, in those cases, a sense of security for the family in exchange for a discount on the bonus. Now, early deals are the norm so there’s no discount for added financial security and teams have to pay a premium for a kid to shut down his workouts and lose the chance to draw a higher bid. Some kids get early deals, but not enough to take them off the market, giving them a chance to strike new deal if they improve or if another team suddenly has money available — think of it like a soft verbal commit to a college for a basketball or football player — but these deals are rarer than the “off the market” verbal deal that most teams negotiate.

This means that international scouting directors are often making big bets on career-defining players when the kids are 14, with little-to-no wiggle room to get out of them if things go south, but a chance to get a great deal if things go north. The Yankees were fined by MLB for pulling out of a multi-million dollar verbal deal with Mariners prospect SS Chris Torres last summer, when his trainer could produce proof of a verbal agreement via digital communications.

Even negotiating with a team before July 2 is nominally against the rules, but MLB apparently dislikes teams taking money out of the pockets of kids in third-world countries more than enforcing a rule that shouldn’t exist. While teams see negotiating an early deal, or even wiggling out of one, akin to speeding on the freeway, MLB has now proven they will hand out tickets if there’s a smoking gun. By doing this, MLB acknowledges that early deals happen and word should be binding, but they’ve openly said they don’t like early deals happening.

MLB is transparently and unilaterally changing international rules to make early deals less prevalent, by essentially limiting how much teams can scout the players before January of their signing year. That rule was put into effect for this year’s signing period, but over a dozen players were already locked up by the time the rule took effect and most teams already had formed opinions on top players from the now-illegal trips that some kids took to their academies.

The Package Deal

A new development in this market is the package deal. It’s existed for a long time but now is being used in a different way, as a another tool for a trainer who turned down big money and is trying to save face. Say a trainer turns down a $1.5 million offer for a player in whom he owns a 20% stake and then that player’s market value drops to around $750,000, with multiple teams interested at that number. That trainer can go to the relevant teams and make this first player available for $400,000 in a package deal worth $900,000, where the other $500,000 goes to a few players worth far less than that number.

One finds this sort of arrangement when a trainer has a full 35% stake in the contract of those lesser players, having trained them for awhile, but has bought the marquee player from another trainer in the last year or two, giving him a smaller cut of the best player in the group. The numbers vary in real life, but this way, the trainer gets about 80% of the commission he turned down, but would’ve taken home 50% if he just took market value for the single player.

This also allows teams in the penalty zone to sign a seven-figure talent if things break just right. There’s a team that will be in the penalty in 2016 (players who can sign 12 months from now) that has a verbal deal with a trainer to sign three players for $300,000 each (the maximum bonus allowed to the team). The one good prospect from that group is good enough that teams not in the penalty next year may top that offer with a seven-figure bonus for only the top player, but if the team in the penalty gives another of the trainer’s players a $300,000 bonus, they can essentially keep upping their offer and give the trainer a better commission than a straight $1.2 million bonus from a team not in the penalty.

The bonus money doesn’t automatically get redistributed among the kids according to their talent; in some cases it does, and in others it doesn’t. Scouts from a rival team tell me that some families in package deals expected to be made official later this week are worried that the other, lesser prospects involved in their package deal, who are even poorer than they are, may not share the bonus as they agreed to do.

A top prospect from a third-world country likely to get only one pay day in his life could end up getting a fraction of his market value due to a greedy trainer that turned down a good offer, then gave this kid’s bonus to other, less deserving players to cover for his mistake. It’s dubious morally to get involved in a deal like this, but many teams have proven they’ll do it. At some point, when your job (from which you could get fired any day) is to sign good players, this will happen to the kid whether you sign him or not. What scout would walk away from the deal?

In most cases, the trainers who are pulling deals like this are the bigger, regional guys that buy percentages of players from smaller trainers, hence the differing percentages. In most cases, the trainer performing one of these package deals isn’t a struggling guy looking for money to stay afloat; he’s a guy that has notable players every year, while the kid is the one likely getting paid once in his life. There’s actually a player in this year’s class who’s getting overpaid in a package deal because the team wanted to get a couple players from a trainer and the trainer happened to have a higher percentage of the best player in the package.

In many cases, if a player’s projected bonus and rank on the sortable board don’t match up, there’s some sort of deal like this that explains it. That said, some cases are due to a really early verbal deal and the kid regressed/improved a bit, or he comes from an area that isn’t scouted as much, which these days is how you describe the complete political disaster that is Venezuela (another article altogether).

Looking at the Big Picture

Many scouts are now complaining to me that signing top players on July 2nd isn’t even about baseball in many cases. It’s more about who has the guts to pull the trigger on a deal with a 14-year-old for the number he’d get in an optimistic outcome when he’s 16 years old, which means courting the family when the kid is 13. It’s more about who can negotiate package deals, wiggle out of verbal deals when players regress, or lean on an MLB manager or star player to make a phone call to help seal the deal. It’s more about getting background checks done early or building contingencies into verbal deals if the kid fails a steroid test. It’s more about finding the loopholes in MLB’s rules so you can get private game looks (a completely legal way to do business until this year) on a kid to decide if you want to offer him a deal, since you know the other teams are looking for the same loopholes to steal the kid from you.

It’s more about strategically turning a team into MLB whom you saw break the rules (even though you’ve seen the other 28 teams break the rules, too), if they’re competing with you for the same player and you aren’t sure you can close the deal. It’s more about relationships with a family, so when you offer $3 million to a kid roughly 14 months before he can sign, and then another team offer $4 million a few months later, that the family sticks with you. It’s more about having a scout or two hang around that kid’s house for up to a year to make sure other teams don’t try to get workouts with him on the sly and win over the family in the same way you just did. It’s more about selling ownership on your plan to bust past the spending limits 18-24 months in advance, so you have the money before any top players are locked up, because getting the money 12 months early means the guys you want aren’t even on the market anymore.

And why did all of these issues rise to prominence for teams in the last few years? MLB tried to limit spending by instituting bonus pools and didn’t give enough thought to what unintended consequences would spring up as a result.

Mexico’s Role

Another perceived injustice that peeves some scouts is the accepted practice of Mexican teams taking 75% of the bonus of their players who sign with MLB teams. The Mexican professional teams get the same percentage from every player, even if they’ve had the kid for a few months or many years and they openly call it “selling” a player. MLB seems to sanction this act, since the percentages are now well known (they used to vary by situation) and multiple sources told me that only 25% of the bonus, the amount that the kid receives, counts towards your bonus pool. This is another way that teams in the penalty can get a seven-figure talent, though Mexico only has players of that caliber every few years. It sounds like the Padres will sign the best Mexican player in this year’s market for around $1 million and two teams in the penalty told me they were all over this kid from the early stages, recognizing the opportunity they had, but the Padres simply beat them to the punch.

People in the industry seem to agree that for a buscon to train a kid from ages 12 to 16 and cover baseball instruction, equipment, lodging and food, that the standard 35% cut is a fair price, particularly in the low-income environment of the Dominican. To get more than double that price for only baseball instruction and some exposure, no matter how long the team did this for the player, is getting close to abuse. Mexican kids are often pressured by the local team to sign up at a young age, but the pressure comes particularly if the team thinks there’s a payday coming soon.

A Warning to MLB

One more issue to which scouts have been gravitating is the case of Bahamas SS Lucius Fox and the inflation of a draft prospect thrown into the July 2nd pool. You can read my scouting report of Fox here or my last article about it here, but his case shows an inefficiency in the amateur markets. As of last summer, Fox was in the draft pool and would have gotten $3 million at best in this month’s MLB Draft, likely around $2 million. Now that he’s in the international pool, he’s likely getting about triple that, for a variety of reasons.

Since he’s now being compared to kids that are 15/16 and have competed only against their peers, Fox is more of a sure thing, having performed well against 17- and 18-year-olds in the States and having only improved tools-wise since that time. With the open-market aspect of the July 2 space and the prices based on little certainty about polish, we see that the July 2 bonuses are inflated relative to what these players would get in the draft, the only other amateur market that’s close to comparable.

This shows how futile it would be for MLB to make a combined draft of international and domestic players, where domestic scouts versed in the draft would be crosschecking the international players, making an even wider gap due to the unfamiliarity with the type of player being scouted. It may not mean other domestic prospects will try to do what Fox did, since he was in a special circumstance and MLB has proven this is very difficult to pull off, but it shines a light on why the draft and July 2 player pools should never be combined.

MLB has said they are considering doing just this for the next CBA and coming international draft, mirroring the NBA and NHL drafts that have international players mixed in. The fundamental differences between the two situations are age and a lack of leverage. In the NBA/NHL drafts, these players are in foreign leagues that pay them, so they can turn down the money from the NHL/NBA and in the MLB Draft, players have school to fall back on for leverage in the same way.

Dominican players have neither of these and, as mentioned above, the scouting process itself is stacked against them. Changing the signing age to 18 wouldn’t solve any problems because then the trainers have no incentive to train kids at 12 years old once the payday pushed back two years. In that case, the general talent level of the island would likely regress, though I don’t think the pool of players would constrict, due to the aforementioned lack of career choices. Since the player’s union doesn’t represent amateur players, but negotiates on their behalf in the CBA regarding rules for the draft and July 2nd, if the owners/MLB want some rule changes in these markets, it almost automatically happens. The looming international draft could be a huge mistake, but there are ways to mitigate the damage.

Kiley McDaniel has worked as an executive and scout, most recently for the Atlanta Braves, also for the New York Yankees, Baltimore Orioles and Pittsburgh Pirates. He's written for ESPN, Fox Sports and Baseball Prospectus. Follow him on twitter.

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7 years ago

So what do you propose is a better solution that’s fair to all teams (need some sort of spending cap) and fair to the players?

7 years ago
Reply to  Impossibles

Why do you need a spending cap?

Before the international pool it wasn’t the big market teams spending a lot, it was teams like the Pirates.