The International Spending Limits Are Not Limits At All

Major League Baseball’s signing period for international prospects kicked off on Wednesday and will continue until June 15, 2015. Teams may sign players residing outside the United States, Canada and Puerto Rico who have or will turn 16 by September 1 of this year. Just a few years ago, teams were allowed to spend as much as they wanted to develop and sign international prospects. That all changed with the current collective bargaining agreement, which went into effect in 2012.

The CBA imposes bonus pool limits on international signings. The team with the worst winning percentage in the prior year receives the largest bonus pool for the next year. The team with the best winning percentage receives the smallest. The remaining 28 teams fall in between, again according to their winning percentage from the prior season. International players who are 23 years of age or older, and have played professional baseball for five or more years, are exempt from the bonus pool limits. Click here for the list of bonus pools by team, with the Houston Astros on top with $5,015,400 and the St. Louis Cardinals at the bottom with $1,866,300.

In additional to the bonus pools, MLB also assigns slot values for international prospects, even though there is no international draft. But the slot values are tradeable, and are therefore valuable for teams looking to spend more on international prospects than their assigned bonus pool would allow. A team can trade for up to 50% of its bonus pool, but it must trade for a specific slot value. For example, a team with a $4 million bonus pool can trade for up to $2 million in pool space, but it must receive in return specific slot values that add up to $2 million, or less. Click here for the list of 120 slot values assigned to each team. The Astros have the top slot value of $3,300,900 and the Cardinals have the lowest at $137,600.

Where there are bonus pools and slot values there are also penalties, which purport to incentivize teams to spend within their allotment. This year, teams face the following penalties:

1. Any spending over the bonus pool allotment is taxed at 100%.
2. A team that exceeds its bonus pool by more than 5% but less than 10% is prohibited from signing any international player the following year for more than $500,000.
3. A team that exceeds its bonus pool by more than 10% but less than 15% percent is prohibited from signing any international player the following year for more than $300,000.
4. A team that exceeds its bonus pool by more than 15% is prohibited from signing any international player for the following two years for more than $300,000.

Last year, the Chicago Cubs and the Texas Rangers spent more than $8 million on international amateur players, and thus exceeded their bonus pools by more than 15%.  During the current signing period, those teams will be prohibited from signing any player for more than $250,000 (the penalty imposed in 2013). But both teams still have their bonus pools and slot values for this year and can trade any slot value that exceeds $250,000.  The Cubs have slot values at $2,288,700, $458,000, $309,300, and $206,700. The Rangers have slot values at $543,000, $366,600, $247,600, and $158,300. That $2,288,700 Cubs slot value is going to be very difficult to trade, as only the Astros and the Marlins could add that much value to their bonus pools. The Rangers are in a much better position to trade their slot values.

Several teams are reportedly planning to spend well beyond their bonus pools during the current signing period. The New York Yankees, in particular, haven’t been shy about their plan to spend between $10 million and $12 million on international amateur talent between now and next June 15. With the 100% tax on any spending beyond their bonus pool of $2,193,100, the Yankees look prepared to spend up to $25 million this signing period. Baseball America reported in May (subscription req’d) that the Boston Red Sox, Tampa Bay Rays and Milwaukee Brewers also are expected to spend big money in the international market this year.

That report bore fruit on Wednesday. Ben Badler of Baseball America tweeted that the Red Sox had inked deals with two top prospects.

Red Sox will pay penalties, but they get the No. 1 pitcher available (Anderson Espinoza) and the top Dominican pitcher (Christopher Acosta).

— Ben Badler (@BenBadler) July 2, 2014

  Two hours later, the Red Sox had exceeded their bonus pool.

Red Sox are already well over their bonus pool, add a Dominican shortstop for $300,000 (via @DPLBaseball): http://t.co/sKbZR70vcx — Ben Badler (@BenBadler) July 2, 2014

For big-market, well-financed teams like the Yankees and Red Sox, spending $20 million or so in the international amateur market looks like a smart investment, even if it restrains them from spending big in the next two years. A $20 million investment in future talent that would be under team control for a long time is a drop in the bucket for franchises valued at more than $2 billion. It’s certainly less than those teams pay annually for top free agents.

Even for the smaller-market teams like the Rays and the Brewers, the plan can make sense. Maybe those teams’ scouts view this year’s 16-year-old international talent as exceptional, and more likely to yield eventual major league players than the younger players who will be available in 2015 and 2016. But even if the talent pool gets better — even if the Yankees, Red Sox, Rays and Brewers miss out on an incredible talent next year — they’ll have stockpiled a lot of young talent.

In fact, once a team decides to exceed its bonus pool by more than 15%, there’s no reason other than the 100% overage tax not to spend and spend. The maximum penalty — no slot values greater than $300,000 for the next two seasons — has already been triggered. Might as well get as much good young talent as you can while you can. Just like the good ol’ days before 2012.