Landmark CBA’s draft dollars cause consternation
The grumbling from front offices trickled out upon word last week that Major League Baseball and the players’ union had agreed on a new collective-bargaining agreement. Details were scant. They just knew they didn’t like it.
None of their aspersions, interesting enough, concerned pieces of the deal that drew the most attention. The playoffs are expanding, maybe as soon as the 2012 season, with one extra wild-card team opposing the other in a one-game playoff. Baseball will start drawing blood to catch human growth hormone users this spring, too, and random in-season HGH testing may come in 2013. Instant replay will include fair-foul calls and outfield traps. And by the end of the agreement in 2016, MLB will have 21 years of baseball uninterrupted by labor strife, a number as good for the sport as it is lucky for others.
All of that was well and good, but executives from markets small, medium and large couldn’t get over the new set of rules that will govern players whose names the average fan wouldn’t recognize. The acquisition of amateur talent – Americans, Canadians and Puerto Ricans subject to the annual June draft, teenagers from Latin America, Cuban defectors and youth from the Far East – will undergo a drastic transformation over the next five years, one with a far greater impact on the game than any of the headline-grabbing changes.
Starting immediately, every team receives a specified amount of money to be used for signing drafted players and another amount for international free agents. The amount depends on a team’s won-loss record. The draft pools start this season with the Houston Astros – who pick No. 1 overall – set to receive $11.5 million to spend in the first 10 rounds. They end with the New York Yankees having a $4.5 million budget over 10 rounds. Every team will receive $2.9 million for international signings for one year beginning July 2, 2012. Their 2013-14 budgets will range from an expected $5 million for the worst team to a little less than $2 million for the best.
Significant penalties accompany teams that exceed their bonus pools. MLB will tax teams 75 percent for every dollar spent over the draft limit up to 5 percent. Between 5 and 10 percent, it’s 75 percent and a first-round pick the next season. From 10 to 15 percent, it’s a 100 percent tax and first- and second-round picks. And for those over 15 percent – which, for the Yankees, would be an extra $675,000 – the tax is 100 percent and the penalty two first-round picks. The international rules apply the same taxation rates and limit the worst derelicts to spending, at most, $250,000 on a player the next season.
The total money spent on the draft will be about $200 million, same as in 2010, and will rise commensurate with MLB revenues. The international pool is expected to mimic previous years as well, and teams that want to stock up in a particular year will be able to trade for other teams’ international budgets – up to 50 percent more than their pool in any particular year. Thus, the highest international budget would be about $7.5 million – $5 million plus the 50 percent premium should a team be willing to trade a player or a prospect for the surplus cash.
How the rules alter the game resets the way some of the most progressive teams do business. Gone are the days of unfettered spending by teams that preach scouting and player development – from the low-revenue Kansas City Royals and Pittsburgh Pirates, who have overhauled their farm systems with savvy allocation of money, to the big-money Texas Rangers, who leveraged their investments into consecutive World Series appearances.
Whether the complaints are merely cold feet by executives or legitimate gripes will play itself out in baseball’s petri dish over the next five years. General managers, after all, just one year ago overwhelmingly voted in favor of hard slotting, the system for which MLB was pushing wherein an amateur player receives a set amount depending on where he is drafted. In that room, a vocal minority spoke out fervently against reform.
Their movement failed, and whether it was because of them being a true minority or their contemporaries refusing to defy their owners for fear of repercussions, it helped set into motion what could be the biggest change in the game since revenue sharing began. Interviews Tuesday with sources in front offices, MLB and the union (who requested anonymity in exchange for candor) revealed how the amateur spending pools came to be and what they portend.
[Related: CBA primer: What you need to know]
Much of it goes back to commissioner Bud Selig, whose continued infatuation with the amateur market flummoxes onlookers and colleagues alike. After all, it accounts for only 4 percent of MLB’s $7 billion in industry revenues. Alex Rodriguez’s(notes) contract alone is worth an entire year of amateurs for 30 teams. Why would Selig give a whit about what it takes to sign a 16-year-old Dominican or how much a 21-year-old college kid drafted in the fifth round gets?
For one, the draft’s perceived flaw – superior players getting passed over because of high bonus demands – bothered him. Selig envisions a draft in which the best players are taken in order. Granted, the lack of hard slots tends to blow up this argument. Teams can take their draft pools and spend them however they please. Which means if they want to take an under-slot player in the first round and save money to buy kids out of college commitments in later rounds, they’re more than welcome.
That’s among management’s greatest concerns: the defection of talent away from baseball because of a change in the bonus structure. The name Bubba Starling came up multiple times during bargaining sessions, according to sources. He was the fifth overall pick this year and signed with the Kansas City Royals for $7.5 million, forgoing a scholarship to play quarterback at Nebraska. The recommended slot for the No. 1 pick this year is $7.2 million, and the No. 5 pick’s suggested bonus will be less than $4 million, which made the union raise concerns that MLB would lose such talents to other sports.
While only a handful of two-sport talents are good enough to merit large bonuses, teams have used money to buy players out of other sports in the past. They believe those days ended with the new CBA. Were college baseball a more stable and fertile ground for growing future professional players, perhaps the concern wouldn’t be as great. The issue: The NCAA allows college baseball teams only 11.7 scholarships, far from enough to entice a player away from a full ride for football or basketball.
More problematic, critics say, is the international pool, which they contend punishes young Latin Americans and is ripe for corruption. Bonuses in Latin America have skyrocketed, with the Rangers this season signing 16-year-old Dominican outfielder Nomar Mazara for a record $5 million. Such figures are almost certainly a relic under the new system – at least publicly.
While MLB has spent millions of dollars to try to clean up the Dominican Republic, fraud still permeates the island, from trainers injecting teenagers with steroids to kids concealing their real ages with fake identities. If a team exceeds the previous year’s pool, for example, and is not allowed to spend more than $500,000 on a player, what’s to keep it from paying a trainer $499,999 for one elite player, $499,999 for another and telling the trainer to split it as he sees fit? It’s ugly. It’s wrong. And it’s a real threat in a country reared on lawlessness and teams hell-bent on winning.
That, of course, is the reason for the bellyaching: This changes a system around which teams have built themselves – their philosophies, their ideals, their staffs, their money spent, their strategy. Winning is about gaming the system. For the Yankees and Red Sox, that means outmuscling others in free agency. For teams without the inherent advantages of New York or Boston, they could at least stockpile their farm systems through high draft picks and taking chances on international kids who barely could grow facial hair.
[Related: Passan’s Ultimate Free-Agent Tracker]
No longer can teams hoard draft picks through compensation for losing free agents. The CBA does away with that system for all but the elite of the elite, whom teams must offer a contract worth the average of the top 125-paid players in the game the previous year. If the player doesn’t accept – and nearly all that get such an offer surely won’t – his former team will receive the first-round pick of his new team (except for top 10 picks) and a pick before the second round.
Those so-called sandwich picks come after a new cache of picks, which MLB deemed the “Competitive Balance Lottery.” Teams from the 10 smallest markets and with the 10 lowest revenues – most often the same teams – will have an annual lottery for six picks immediately after the first round, with the odds best for the teams with the worst records. Their draft pools will be larger accordingly. There also will be a lottery after the second round in which all the remaining teams, plus the ones that didn’t get a pick after the first round, will participate.
It’s a novel idea, a giveback for the potential mistreatment of successful low-revenue teams. In a perfect world, the new system should give the worst teams from the previous season a decided advantage – a nearly three-to-one spending advantage over the best teams. It does not help the lower-revenue teams that have won; it makes their sustained winning all the more difficult.
And this, sources said, is where MLB ran into its greatest conundrum with the CBA. Already significant mechanisms are in place for high-revenue teams to share money with those stuck with smaller markets or miserable stadiums or bad TV deals. Already the new agreement has the luxury-tax threshold staying at $178 million for two years and increasing to only $189 million for the three thereafter. Were MLB to have tried negotiating a player-acquisition system, officials said, it ran the risk of angering the larger-revenue owners as well as alienating the mid-revenue teams that would wonder why they, too, weren’t receiving such welfare.
This was the truest manifestation of baseball as America: the rich being asked to give more, the poor trying to survive and the middle class lost amid the chaos.
MLB refused to let class warfare infiltrate the negotiations and splinter its owners. While the union refused hard slotting on principle and postponed an international draft until 2014 – it is, one source said, “almost inevitable” with a committee mandated to draw up the rules over the next two years – it was unable to push MLB away from a system that limited amateur spending.
In exchange, the union received a 5 percent bump in the number of Super 2 players who go to arbitration for four years instead of three as well as a near-20 percent bump in minimum salary to almost $500,000. Chances are, even though the total money available for amateurs remains the same, some teams will take what’s earmarked for youth and devote it to their big league team. The union couldn’t put up too much of a fight regarding amateurs, not when its foremost duty is to the 1,200 players on major league rosters, even if today’s amateurs one day will become their constituency.
The definition of amateur has broadened. Cuban defectors and Asian players younger than 23 and with fewer than five years professional experience will be subject to the international pool, which means the most flame-throwing pitcher Aroldis Chapman(notes) could have received in today’s market would have been $7.5 million, not the $30 million Cincinnati gave him. They are the biggest losers in this, even if their impact in MLB has been relatively insignificant.
The draft, on the other hand, has become the lifeblood for many teams, something on which they not only spend millions in bonuses but in salaries for scouts, travel and time. For MLB, there were two components to the draft: cost control and competitive balance. They got the former. They hope the new system does not impact the latter.
And if indeed players go in order of their talent and superagent Scott Boras doesn’t find a loophole to exploit the rules and, most important, teams adjust and find new ways to win within the system, this will not be the CBA with the extra wild card or HGH testing or that mandated the use of the Great Gazoo batting helmet by 2013 or instructed players that they can still use chewing tobacco as long as they do so discreetly.
It will be the CBA in which a new era empowered the brightest minds in the game to use their brains and figure out how to win.
Theo Epstein’s plan to change Chicago Cubs culture via scouting and player development just got a lot harder.
Jon Daniels’ ability to maintain the Rangers’ status as an annual powerhouse will rely far more on free agent acuity it previously did.
Andrew Friedman’s brilliant maneuvering to make the Rays a threat in the AL East will be all the more impressive if he can sustain it.
Baseball has changed, no question, and whether it’s for better or worse will play out. MLB and the union are confident it’s the former, even if some executives want to believe otherwise. With one day down and many more until the CBA’s expiration Dec. 1, 2016, there’s plenty of time determine who was right, who was wrong and whether the new system blossomed or blanched inside the petri dish that is the game.