How MLB’s New International Rules Change The Game

Figuring out how a complicated labor agreement will affect an arena as complex as baseball’s international market isn’t exactly conducive to knee-jerk analysis. I certainly don’t have all the answers and I don’t know anybody who does when it comes to trying to put together a puzzle with this many pieces.

As of Friday night, teams and players are now aware of the parameters they will operate under when the 2017-18 international signing period begins on July 2. It’s a major overhaul of the current international system, one that was badly in need of reform and will have significant ramifications for the market.

What’s clear so far is that, under the new international system, these important things happened:

• Players won’t be subject to a draft
• Owners will save money with hard caps
• Scouts will be able to compete for the players they want to sign, with near-equal bonus pools

For Major League Baseball’s owners, cost containment was always a goal in its quest for a new international system. On the other side of the negotiating table, the players’ association listened to the requests of some of their members who didn’t want an international draft, though there never appeared to be any outright objection to some type of cost control mechanism for international amateur players. The players’ association knows it can use non-union players—both international and in the United States—as bargaining chips to gain leverage for their constituents, the players on 40-man rosters.

The reaction from people within the international world to the new rules depends in part on what their expectations were heading into the negotiation. Any reasonable forecast going in saw that the international amateur players were going to take a hit. The question was how much damage was headed their way.

In the end, top young Cuban prospects took the hardest punch. Overall, 16-year-old players in countries like the Dominican Republic and Venezuela came away with little more than a bloody nose. The new system even offers many of them an advantage over the previous one. In all, things could have been a lot worse for them, and for some, the new rules will be better. And for teams, the new system should help provide more balance than its broken predecessor.

Even-ish Playing Field

Most teams get a $4.75 million bonus pool. The six teams that get a “Competitive Balance Round A” pick in the draft will get a $5.25 million pool. Teams that get a “Competitive Balance Round B” pick get a $5.75 million pool, which most years should be 6-8 teams. So the bottom teams in terms of revenue or market size get extra pool space. The 2017-18 bonus pools for all 30 teams are available here.

That’s better than the previous bonus pool setup, where some teams had $2 million and others had $5 million. So some credit to MLB for at least making the bonus pools closer to equal, but it would have been better to give every team the same bonus pool, which would have created a truer equal playing field. In the broader context of the game, larger revenue teams have advantages, so owners of smaller revenue clubs push for these types of edges. So while MLB is giving an unnecessary competitive advantage to certain teams, at least it’s closer to even than before.

“I like the hard cap,” said one international director. “It’s good that nobody can go over. It at least makes it a fair competition.”

Some team officials were disappointed that they no longer have the freedom to exceed their bonus pool, but many international personnel from both big and small revenue teams seemed pleased with the new rules compared to the old ones.

“I think it’s very fair and very justified,” said another international scout. “I like this better (than the previous system), even though we’ve gone over our bonus pool. I think you can do a lot of damage at $5 million.”

Trading Pool Space

Teams are also allowed to trade pool money. They can acquire up to 75 percent of their original pool and they can trade away as much of their pool as they want. So a team with a $4.75 million pool can trade for up to $8.3 million while a team with $5.75 million can trade for up to just over $10 million. The stipulation is that they have to wait until the signing period opens on July 2 to trade pool space from that period.

It’s good to allow teams to trade for more pool space. The Orioles are typically one of the most frugal teams in Latin America. If the Orioles don’t see the international market as a good return on investment but the Rangers or Rays do, that pool space at least has a chance to go to another team so that money can go to players.

There is some concern among team officials that trading bonus pool money will be tricky. Having to wait until July 2 to execute a trade does add a layer of difficulty when decisions on signing players are being made well in advance of that date. But just last year there were 12 trades for international slot values in the first two months of the 2015-16 signing period, including one where the Phillies acquired $2.2 million and another where the Blue Jays added $1 million. That was also under a system in which many teams just blasted through their bonus pools and didn’t need to trade for more pool space. So even if the Orioles don’t want to spend $5 million, teams that want to be aggressive international spenders now have more incentives to trade for their pool space.

Cuban Players Lose Out

The party that takes the biggest hit are the top young Cuban players. Yoan Moncada is a special talent who got $31.5 million. That record will stand for a long time. Players like Yadier Alvarez ($16 million), Yusniel Diaz ($15.5 million) Adrian Morejon ($11 million), Jorge Ona ($7 million) and Alfredo Rodriguez ($7 million) under the new system would all probably have to take a haircut. A lot of the other recent young Cuban signings haven’t been getting bonuses north of $5 million. Still, word is that a whole slew of young Cuban players have left the country recently from their recent 15U national team, so the caps will certainly affect them.

In the short term, however, it’s possible that the value of young Cuban players who are out right now and eligible to sign could go up until the current 2016-17 signing period ends on June 15. Teams like the Padres and Cardinals who are already over their 2016-17 pools now know that they won’t be able to go past their bonus pool again in three years when their penalty ends. If there’s someone out there they like, the action could heat up.

MLB also raised the requirements to be exempt from the bonus pools so that players must be at least 25 with six or more years in a foreign professional league. Previously players were exempt if they were 23 with five years, so players like Lourdes Gurriel, Yasmany Tomas and Yaisel Sierra would have no longer been exempt from the pools. It gives MLB extra players to put underneath their cost containment system, so owners save more money.

It reality, it won’t have as big of an impact as it might initially seem. Aside from players who are too young to even sign, the talent pool in Cuba has been decimated. Most of the top players have already left. Among players age 25 and up, it’s 30-year-old slugger Alfredo Despaigne, some possible fringe role players and a whole bunch of minor league roster filler, at best. The players who would be affect by the age increase over the new CBA—those in the age 19-24 bracket, are mostly gone too, though 20-year-old outfielders Victor Mesa and Julio Pablo Martinez are the exceptions.

Shohei Otani Problem

The 23-and-5 rules are generally thought of as the Cuban rules, but they apply to all international players, including foreign professionals in Japan and South Korea. By raising the cutoff to 25, that means 22-year-old Shohei Otani won’t be exempt from the bonus pools until for three more years after the 2019 season.

So, that’s bad. There are reasons the Nippon-Ham Fighters might not have posted Otani next year anyway. He’s not eligible for international free agency until after the 2021 season, though reports out of Japan on Monday quoted Otani saying he wants to play in MLB in 2018. Otani knows what the new rules are. He knows that coming over when he’s 23 or 24 means he’s subject to the pools and would sacrifice 95 percent of his market value. By putting it out there now, he’s putting pressure on MLB. The league knows Otani is a global marketing sensation, one MLB can monetize in ways it can’t do with whoever might come out of Cuba next. So while MLB has informed teams there won’t be any exceptions to these rules, if the league comes up with a way to make Otani exempt before he’s 25, I would not be stunned.

Owners Save Money

Under the new CBA, MLB increased the size of the bonus pools significantly while simultaneously creating a system that will decrease what owners spend.

The total international bonus pools for every team this year are $87 million. The new bonus pools, beginning on July 2 next year, will be $153.5 million. So yes, the bonus pools grew.

Obviously, teams have blown past their bonus pools, so the pools themselves don’t reflect what teams have spent internationally. The 2016-17 signing period is still in progress. The 2015-16 signing period is a bit skewed because five teams—including the Red Sox and Yankees—were under the penalty for having gone over their pool the previous year and couldn’t sign anyone for more than $300,000.

In 2014-15, there were 28 teams that didn’t have signing restrictions (only the Rangers and Cubs were under the penalty). Five teams went over their pool, with the Yankees dropping around $18 million in bonuses, the Red Sox giving $31.5 million to Moncada, and the Rays, Diamondbacks and Angels joining them in blowing past their pool.

During the 2014-15 signing period, teams spent approximately $152 million on bonuses for players subject to the international bonus pools. That’s right in line with the aggregate bonus pool space in the new CBA.

So where do the owners save money? One, they effectively contain bonus growth. Second, the roughly $152 million is just what owners paid in signing bonuses. They also paid approximately $74 million in overage taxes, money that goes to the commissioner’s office (though where it goes exactly is still not clear), something they will no longer do in the new system.

It’s also likely that not every team will spend its full bonus pool. Teams like the Marlins and Orioles already don’t spend their full pool allotments. Teams that don’t spend their full pool could trade pool space to another team, but that’s not a given. And while it won’t be a problem in three years, several teams in 2017-18 and 2018-19 will still be penalized and unable to sign anyone for more than $300,000. They can still spend however much they want in total, but it’s hard to spend $5 million when you’re at a $300,000 limit per player.

For Players, Cap Has Advantages To Draft

Even with a hard cap, players are likely better off without an international draft. There are ways to make a draft player friendly, but that probably would not have been the design. The owners want cost containment, and a draft—especially with accompanying bonus pools, like the June draft—provides a rigid mechanism to give them that. Given MLB’s track record and all available evidence, the players are right to distrust a draft.

Under a draft, kids from the Dominican Republic and Venezuela would have been left with little leverage. A team could draft a player with a $1 million slot value, offer way below slot, and the player’s options would be to take it or go back home and wait another year. College isn’t an option and many players come from poor families who couldn’t take the risk of going back into the draft, only to be potentially faced with the same scenario a year later.

Even if protective mechanisms were put into place to help players under a draft, there are advantages to the current system. Players get to select their employer, for one. If the Rangers draft a player but his parents don’t want to send their son to live at their academy, their options are sign with the Rangers or sign with nobody. Now they have freedom. Money drives most signings, but having the freedom to pick your employer matters when that team could control your rights for the next 10-plus years.

Financially, the players are probably better off without a draft as well. Teams often have divergent projections on an individual 16-year-old amateur player in Latin America. Sometimes it’s only a handful of teams that love a player driving up his price. Even under a cap, if the Cubs and Red Sox love a player, there could be a bidding war. In a draft, if the Cubs and Red Sox are picking at the end of the draft and the teams picking at the top don’t like him as much, the player is out of luck in terms of negotiating power to get closer to his open market value.

“This is a lot better than the draft,” said one trainer. “The draft, it’s already a proven fact that in the U.S., people complain about it. In Puerto Rico, the history is, it didn’t work. I honestly thought it was going to be worse. They could have made it worse.”

For teams, the current system is more of a level playing field than a draft. The draft is designed to give competitive advantage to bad major league teams. If you have the 20th pick in the draft, you don’t have access to 19 players, then you have to sit back until your next pick comes and another 30 or so players are gone. Under the new rules, scouts have more freedom than a draft. A draft has its own strategy and tactics that some scouts—especially those with draft experience—would have welcomed. But for many scouts, especially those with a track record of international success, they’re happy to not have a draft forced on them.

“I was intrigued by the draft,” said another international director. “But I think it would have rewarded lazy teams. So I like this more than a draft. I think any time you have the ability to go to a field any day, any time, sign an eligible player, to still be aggressive on the July 2 class and not have to wait on a draft, it’s exciting.”

Said another international director: “I like the fact that it keeps it at the purest form of scouting in the industry. You can still go out and, if you like a guy, you can sign him. You don’t have to wait for a draft. You can’t really beat anybody to the punch in the purest form under the draft. You can beat the competition. The draft doesn’t allow you to beat anyone the same way.”

Impact On Latin American Market

We know the top Cuban prospects are going to sign for less money under a hard cap. We know that owners will pay less money, but a lot of that money wasn’t going to players in the first place anyway; it was tax money. The aggregate bonus money going to players won’t change too much from where it’s been, especially once all the teams are out from under the penalty.

The union certainly would have been justified to demand larger bonus pools. If teams are spending around $225 million including bonuses and tax money, that works out to $7.5 million per team. A pool of $8 million per team, with the ability to trade up to $14 million, would have been a reasonable request. Since international amateur players aren’t constituents of the union, however, that’s probably not a battle they were looking to fight. In that sense, the players lost out.

The majority of Dominican and Venezuelan players—even the top ones—probably won’t see many adverse effects. The general public perception might be different because the million-dollar deals make headlines, but most international players are not signing for big bonuses. The median signing bonus in 2015 was $30,000. Around 73 percent of them sign for less than $100,000. Giving every team around $5 million to spend shouldn’t hurt them.

What about the top players? Under the bonus pool era, the top bonuses for 16-year-old international players have generally been around $4 million. This year, Braves shortstop Kevin Maitan and Padres shortstop Luis Almanzar cracked that mark, while Nationals shortstop Yasel Antuna came in a tick under. A year ago, Phillies outfielder Jhailyn Ortiz, Twins shortstop Wander Javier and Blue Jays third baseman Vladimir Guerrero Jr. were right around there. That’s 2-3 players per year the last two years. All of those top-end bonuses could still fit under a team’s bonus pool, especially if a team trades for more pool space.

There is some concern that the $4 million bonuses will disappear, since that’s a huge chunk of a team’s bonus pool. Putting all your pool money in one player is a risky strategy, one many clubs would understandably hesitate to make, but we already have a track record of teams putting all their money into one player. The Twins did it with Javier. The Brewers did it with Gilbert Lara. The Blue Jays did it with Guerrero, who one year later has become the organization’s top prospect. If a bunch of teams are fighting it out over a star prospect, a club with a $5.75 million pool could come in and end the negotiation by offering $5.3 million.

That would break the $4.95 million bonus record for a 16-year-old set by Rangers outfielder Nomar Mazara in 2011, the last year of true unrestricted international free agency before the bonus pool era. That record might not fall this year (more on that later), but it’s coming. Under the new rules, the international bonus pools will now grow with industry revenue at the same rate as the draft bonus pools. From 2012-2016, draft bonus pools averaged 6.6 percent annual growth. If we’re more conservative and project 5 percent annual growth, then by 2020, every team could have a bonus pool of at least $5.5 million and some will have at least $6.5 million. If the growth rate is the same as the last four years, there could be teams with $7 million.

How about the next tier of players? In the 2015-16 signing period, there were 23 players age 16 who signed for at least $1 million. The other seven-figure players subject to the bonus pools last signing period included five Cuban players and one from South Korea. There were 46 players who signed for at least $500,000, including seven Cuban players.

What strategies teams take under the new system remain to be seen, but we’ve already seen what teams do under a bonus pool system when they stay under their pool. A few have occasionally put all their pool money into one player. Others prefer to spread their money around in different ways. Teams take different strategies in different years depending on their assessment of the talent pool and the market conditions.

One possible outcome is that there will be more players signing in the $1 million-plus and $500,000 and up brackets. In my experience, in most years there is a group of five or so players who are consensus top prospects. The recent track record of those players has been strong. Beyond them, opinions on players diverge, and especially beyond the top 20 or so players, opinions on players wildly differ. A player some team likes for $1 million is a $100,000 player for another club. It’s the nature of scouting kids who are 15 and 16 in these countries.

A benefit of the new CBA for players—at least by 2019—is that they can negotiate with 30 teams that won’t have a $300,000 spending limit on an individual player. In 2016-17, there are 10 teams—mostly aggressive international spenders like the Yankees, Cubs and Dodgers—that can’t offer a player more than $300,000. It’s bad for players when there’s an annual cycle in which one third of the league or more can’t make an offer above $300,000. Like I said earlier, sometimes it’s only takes a couple of teams to drive up a player’s price, but if those two teams can’t offer more than $300,000, the player’s out of luck.

Now that top young Cuban prospects have to fit within the bonus pools, that creates more competition among players for those finite pool dollars, so some in the game think those Cuban players will just take a bigger piece of the pie. However, the impact of the cap will have multiple ripple effects. The big one is that some teams were blowing past their pool to sign those Cuban players and as a result were unable to sign anyone for more than $300,000 for two years. That hurt players in the Dominican Republic and Venezuela. With the penalty eliminated, it’s possible more players will jump above the $500,000 mark and perhaps more start getting million-dollar deals as well.

Second, the aggregate pool space is based on spending from previous international signing periods, during which baseball experienced an unprecedented wave of young Cuban players leaving the island to sign with major league teams. It accounts for the $31.5 million bonus that went to Moncada in 2014-15, or the combined $31.5 million that the Dodgers paid Alvarez and Diaz the next period. When the next premier young Cuban prospect comes out, the most he could get now is $10 million. The remaining $21.5 million that went to one player in 2014-15 or $11.5 million to two players in 2015-2016 is now available in the aggregate pool space to be distributed to other players. This damages the earning potential of the top young Cuban player who will end up with a lower percentage of his free market value, but the benefit could go to a larger group of players.

“Now you have 30 teams that could sign a player for more than $4 million without going over the pool,” said another trainer. “Before it was realistically four or five and they would have to go over their pool. I love the system. Owners think they got not that high of a number, but if they’re happy with the amount of $150 million being spent every year, that’s going to escalate bonuses. It’s a lot easier to get $2-3 million. My odds of getting a $3 million player over the next five years just went up big time.”

From the team’s perspective, the new rules could benefit smaller revenue clubs that value international scouting and want to be aggressive in the market. When the Rays went over their pool in 2014-15, they spent around $6.5 million in bonuses. The 2016-17 signing period is still in progress, but their combined total pool space the in 2015-16 and 2016-17 was $5.2 million, so they might spend $11.7 million on bonuses total over that three-year period. Now over a three-year window, the Rays could spend around $16-17 million, maybe more with trades, and without facing two years of signing restrictions or paying millions in tax money that doesn’t go to players. Now players will have teams like them and the Royals available to them every year.

“I like it because if the class is really good, it gives you options,” said another international director. “You can go after a top guy. If you don’t want to, it gives you different ways to strategize and allocate your money. Ultimately, for me it’s about having access to most of the players in the market. If there’s a system in place that gives you access to players, I’m for it.

“I like competing. There are some really good scouts on this side, some teams I really respect what they’ve done. Now you’re going head to head with all these guys. Before, you had different teams in, different teams out. Now you’re going straight up with everyone. These are some of the best evaluators. We make a lot of mistakes because of the nature of it and how far away these guys are, but these are some really good scouts here. Now we can see how decisions play out when there are more teams in on the same guy.”

Let’s also not overlook the importance of the smallest fish in the pond, the players who sign for $10,000 or less. Those signings continue to be exempt from the bonus pools. On the surface, it doesn’t seem that important, but a little more than one third of all international amateur players sign for $10,000 or less. These players will continue to get opportunities and with exemptions that grant a team flexibility. If a club goes all-in for one player or maxes out its bonus pool, it can still sign these players to fill out its DSL roster(s). These aren’t the star prospects, but especially for a kid who’s 18 or 19, those are important opportunities. In the Dominican Republic, especially with pitchers, those small signings can turn into a prospect like Yankees righthander Domingo Acevedo or Phillies righthander Jose Taveras.

2017 Will Get Weird

Don’t judge the new system based on what happens next year, because the 2017-18 signing period will be unusual. Partly because it will be the start of the new system with the penalties of the old system still carrying over, so 11 teams will be unable to sign anyone for more than $300,000.

The international market moves quickly. Teams often strike oral agreements to sign players during the calendar year prior to which they’re eligible to sign. This year, that pace slowed down, or at least changed, since teams wouldn’t know what the rules were until the new CBA came out on Dec. 1.

While it’s usually the big-ticket signings that go off the board first, this year many of those players have been on hold. Instead, a bunch of lower-tier players have deals in place for $300,000 with teams under the penalty for 2017-18, since those teams knew that’s the maximum offer they could make.

There were, however, teams that had placeholder deals lined up with top players, contingent upon whether MLB instituted a draft. Some teams looked at where they finished in the standings and made a bet that they would have, say, $2.2 million in their bonus pool, based on the previous rules. So they might agree to a deal with a player for $1.75 million, with thinking that they didn’t want to miss out on a chance to sign a top prospect and that they would still have another $450,000 or so to sign other players.

Now, when that team realizes it has a $4.75 million bonus pool, the club is better off than it had originally anticipated, with an extra $3 million to spend. Except, had that team known it would have had $4.75 million, it might have played its hand differently, going after a player it had a higher grade on to try to sign for more than $4 million.

Some teams had those placeholder deals and were expecting to then blast through their bonus pools again once they knew the rules. That ended up being a miscalculation. Now those teams that wanted to go after the top player on their boards in what would have been a pool-busting year might only have $2-3 million left.

In addition to team strategy, what that affects are the top players in the market. There was talk that some players this year might surpass Mazara’s record of $4.95 million for a 16-year-old amateur. Now, not only are there 11 teams that can’t pay more than $300,000, there are teams that don’t have more than a few million in uncommitted pool money.

Had teams known these would be the rules six months ago, things would have played out differently. That’s what makes 2017 unusual. Going into 2018, teams will know the rules and can prepare accordingly, and in 2019, all 30 teams will be unrestricted. We’ve only known the new rules for less than a week, so how everything shakes out in 2017 remains to be seen, but markets are built by expectations. At the furious pace of the international market since the new rules came out, the expectations among those directly involved with the top 2017 players is that a $4 million deal might end up being the top of the market for a 16-year-old bonus, which would be right in line with previous years.

While sudden change breeds panicked decisions in this arena, patient trainers and creative teams could capitalize on the new rules. Let’s say a team with a $4.75 million pool thinks there are two star players in the class and can lock one up for $4 million. The team could tell the second player, we’re going to do everything we can to trade for more money and sign you for $4 million once July 2, 2017 arrives. If we can’t work out a trade, we will sign you on July 2, 2018 for $4.2 million, and we will make sure our staff looks out for you for the next year. If the 2017 market is so crunched that the player’s next best offer is $3 million, maybe it’s worth it for him to take that offer, with a chance to sign in 2017 and, if not, wait it out until 2018 (though with a non-binding agreement, of course) and get a little extra money for waiting.

Many of these players come from poor families that want to sign as quickly as possible—and are with trainers who want the same—so it’s understandable why that might be difficult to maneuver, even if it means leaving another $1 million-plus on the table. For a team, that plan has value, because not only is the club getting two players it considers elite prospects, it gets them into the system faster. If the team can trade for more pool space—and with 11 teams under the penalty in 2017-18, the supply of pool money should be high—the team gets two top prospects in one year and a full 2018-19 bonus pool. If the team has to wait until July 2, 2018 to sign the second player, that player will be 17 and can start playing in games right away, meaning he will only miss one month of the 2018 Dominican Summer League season. A 16-year-old player signed on July 2, 2018 would have to wait until 2019 to start playing in official games, so getting two top players in the 2017 class has its advantages, even if one has to wait another year to sign.

Uncharted Territory

There are so many angles to the international market that this is only scratching the surface. Everything above could be complete nonsense and I could be missing the mark entirely. When the last CBA went into place and shifted the system from unrestricted free agency to a bonus pool system in 2012, the only team that went over its bonus pool that year was the Rays, who went slightly over, and Amed Rosario’s $1.75 million bonus from the Mets was the biggest of the signing period. Today, the market looks totally different than it did four years ago.

The biggest change nobody knows yet is what might happen with the relationship between the U.S. and Cuban governments. If at some point in the next five years MLB teams are able to sign Cuban players still living in Cuba, how would that impact the talent pool? Would there be, as many expect, some type of transfer agreement? And would that mean more 16-year-old Cuban players hitting the market, or—and I think this is more likely—would it mean Cuban players would stay in Serie Nacional longer before coming over, reducing the available talent and competition for pool dollars? MLB officials are hopeful they can reach an agreement with the Cuban baseball federation within the next year, but it’s a huge unknown.

Of course, players would have been better off with bigger bonus pools. On Nov. 22, I wrote that MLB should turn the tables on the players’ association by pulling its request for an international draft and instead raise the bonus pools, which would give them one less concession they would have to make to the union. Shortly after, MLB did just that, except while I suggested giving every team $12 million in part based on what the Rays and A’s have been willing to spend, the owners slashed that by more than 40 percent and got the union to bite on a hard cap.

Arguably, MLB as a whole would have been better off with bigger pools too. Giving teams more room to spend spurs innovation, rewards teams that want to invest internationally and brings more opportunities for players in markets outside of Latin America like Taiwan, Korea and perhaps even Japan to come over to the United States as amateur players. Any time you put an artificial constraint on prices, you create incentives for under-the-table dealings, especially if the pools are too low. The commissioner’s office has said that it will impose significant penalties on teams caught cheating, but that is easier said than done.

In the end, for a constituency without a seat at the table, the international amateur players made their presence felt and were able to make an impact on the negotiation. The new rules provide ample incentives for all levels of trainers to continue to develop young Latin American players up to their signing date, with players getting freedom, opportunities and leverage that a draft would have eliminated. Scouts get the freedom to compete for the players they want to sign on a playing field that’s closer to equal than the previous system.

There is no perfect international system that will make everyone happy. But for the majority of players and teams involved in the process, the new system should be an upgrade from the last one.