How Teams Can Get Around International Bonus Pools

As soon as the current Collective Bargaining Agreement went into place in December 2011, it was clear that teams would take different tactics to get around the international bonus pools.

The most obvious route, especially in the first year of the international bonus pools, was a package deal. Take a player for July 2 you want to sign for $2 million, but give $1.5 million to him on July 2 and give $500,000 to another player from the same trainer before July 2. Prior to July 2, 2012, there were no bonus pools, so you save half a million dollars from your 2012-13 bonus pool.

While the decision should ultimately be up to the player and his family, the reality is that the trainers often hold the ultimate decision-making power in these deals. Maximizing the money that goes to the chief decision-maker is what gets a deal done.

Before July 2 that year, we asked Major League Baseball what the league would do if a team tried that type of package deal. The response was that the commissioner’s office would view it as a circumvention of the bonus pools and would respond with strict penalties.

Except, they didn’t. Teams did exactly what we wrote that they would do, and MLB did nothing. I’m not saying MLB necessarily should have done anything either, but it at least set a precedent that the commissioner’s office was fine with teams signing players that way.

More recently, teams have done a variety of package deals designed to manipulate their bonus pool money with no repercussions. Sometimes it’s done to massage money from one bonus pool to the next. Other times it’s a team that went over its bonus pool in a previous signing period and limited to signings of no more than $300,000 landing a player worth far more than $300,000 by signing several players from one trainer just to get the one it really wants. The commissioner’s office has approved all of these contracts.

These types of package deals have transpired long before bonus pools ever existed. A trainer won’t have the same commission in each of his players—he might have 10 percent in one player, 25 percent in another—and players often have given percentages of their contracts to multiple people. It creates perverse incentive systems that aren’t necessarily in the best interests of a player.

Cuban Package Deal

What’s different now is that Cuban players can dramatically change the way these package deals are structured. Players in the Dominican Republic and Venezuela are all subject to the bonus pools. If a team in the penalty box signs a top Venezuelan prospect for $300,000 and gives two other non-prospects from the same trainer $300,000 in a package deal, the full $900,000 still counts against the bonus pool.

It’s different with Cuban players, who are exempt from the pools as long as they are at least 23 and have at least five seasons in Serie Nacional. Infielders Yulieski Gurriel, Jose Miguel Fernandez and Luis Yander La O and outfielder Yadiel Hernandez are quality, pool-exempt players that teams will pursue for the sake of their own talent. But a slew of talented younger prospects such as Jorge Ona, Norge Ruiz, Randy Arozarena, Vladimir Gutierrez, Adrian Morejon, Lazaro Armenteros, Cionel Perez and others are currently subject to the bonus pools.

We already have six teams—the Astros, Braves, Cardinals, Nationals, Padres and Reds—planning to go over their bonus pools on July 2. Once a team is over its bonus pool, the team has to pay a 100 percent tax on its pool overage, so the total cost to the team to sign a player will be twice the signing bonus. So the Red Sox signing Cuban second baseman Yoan Moncada to a $31.5 million bonus last year cost them $63 million total.

As the dollars get bigger, there are more incentives for teams to coordinate a package deal to save money. Let’s say there’s a good prospect subject to the bonus pools who a team could sign for a $10 million bonus. The total cost to the team is $20 million. The trainer (or investor, handler or owner—a word that feels particularly gross but might be the most accurate, since he has the largest equity stake in the player’s future contract) who is controlling the player has 25 percent in him, so he makes $2.5 million off that deal.

But what if the team signed the good prospect for $5 million? And from the same trainer, they signed a mediocre, organizational type player exempt from the bonus pools for $5 million as well? (To keep it simple, let’s assume the trainer has a 25 percent stake in the mediocre player too.)

The total cost to the team would be $15 million—$5 million in a signing bonus for the pool player, $5 million in the overage tax and another $5 million for the exempt player. For the trainer, he’s still getting 25 percent of $10 million, which is $2.5 million. The trainer makes the same money, he gets to offload his mediocre player and the team saves $5 million. The team can pass it off to whoever reports the news and to other media members who have never seen the exempt player with a juiced-up scouting report to mask what they’re doing.

That’s a simplified version. A real-world scenario gets more complicated. Cuban players often have several middlemen with percentages in their contracts. The person controlling the decision might have different percentages in his players. If he has 15 percent in the pool player but 30 percent in the exempt player, he can make more money for himself by doing a package deal that shuttles even more money to the exempt player, which also allows the team to save more money in overage penalties.

It gets even more convoluted because some of the trainers working with Cuban players also have Dominican amateur players, and because it’s not always obvious who has a percentage (and how much that percentage is) in a given player. If a trainer has a legitimately talented pool-exempt Cuban player in addition to talented Cuban prospects subject to the pools, the possibilities to manipulate money with a package deal only increase—and become more difficult to detect. A team could stuff more money into the major league contract of a talented exempt Cuban player in exchange for keeping down the bonuses of any pool players they want to sign from the same trainer.

These are tactics done explicitly to circumvent the bonus pools, but what can MLB say, if they do care at all? Last year, the Dodgers gave an $8 million bonus on a minor league contract to 26-year-old Cuban righthander Pablo Millan Fernandez, a pool-exempt player who was overpaid by about $8 million. A team can argue, look, that’s our scouting evaluation of the player, we see him differently than the rest of the industry, so why can’t we sign him when the Dodgers just gave Fernandez $8 million a year ago?

The fact that general managers and higher-ups in the commissioner’s office are reading this story might alter a team’s plans. But whether it’s inflating the contract of a talented player or someone who’s just organizational filler, teams are looking at ways to build package deals around exempt Cuban players to sidestep their bonus pools and save money.