International draft would hurt competitive balance, not help it
By Jay Jaffe
On Monday, Sports Business Journal's Eric Fisher reported that Major League Baseball and the player' union are negotiating to institute a worldwide amateur player draft. The impetus is a clause in the current Collective Bargaining Agreement that imposes additional restrictions on international spending beyond those introduced last year, which drastically cut into the signing bonuses of foreign-born amateurs not subject to the June draft. "The auto trigger for tighter MLB spending restrictions on intl amateurs described as a 'poison pill' designed to spur along worldwide draft," said Fisher via Titter. Per the CBA, that trigger goes into effect on June 1, though the earliest the new draft would happen wouldn't be until 2014.
As with the bonus restrictions put in place by the CBA regarding the June draft (technically known as the Rule 4 draft), increased financial restraints on international bonuses are intended to level the playing field in the name of competitive balance, since competitors will no longer be able to outspend one another in significant fashion. The reality is just the opposite, as such restrictions make it harder for teams — particularly those on smaller budgets — to build by focusing their limited resources on the acquisition of amateur talent instead of on major league salaries. The end result is that more money winds up in the pockets of major league players (the union's constituency) via dramatically divergent payrolls driven by the inefficient, free-for-all nature of the free agent market, where expenditures dwarf what is spent on amateurs.
If that sounds arcane, consider the contrast in spending strategies of the three teams that have been going toe to toe in the AL East for the past half-decade, the big-market Yankees and Red Sox and the small-market Rays. According to Baseball America, in 2011, the Rays spent $11.5 million on draft bonuses, the sixth-highest total in the majors, about $5.5 million less than the top-spending team, the Pirates, but about $5.2 million more than the Yankees, and $0.6 million more than the Red Sox. They were outspent on the international market by both teams, but by a comparatively negligible amount; Tampa Bay spent $1.79 million (20th in the majors), while New York spent $2.93 million (11th), and Boston $3.25 million (ninth). Meanwhile, the Rays had the majors' second-lowest Opening Day payroll at $41.1 million, roughly one-quarter that of the Red Sox ($161.7 million) and one-fifth that of the Yankees ($202.7 million).
One year later, with the CBA dictating limits on draft bonuses driven by their on-field success, the Rays spent only $4.4 million in draft bonuses, the majors' fourth-lowest (27th-highest) total, compared to the Yankees' $4.9 million (21st) and the Red Sox' $7.9 million (ninth). The team with the overall number one pick in the draft, the Astros, spent just under $12.1 million on draft bonuses; the Twins, who had two additional supplemental picks, were allowed to spend slightly more, $12.6 million. The top pick in the 2011 draft, the Pirates' Gerrit Cole, received a signing bonus of $8 million, while that of the top 2012 pick, the Astros' Carlos Correa got just $4.8 million, well below the CBA-imposed slot maximum of $7.2 million.
Meanwhile, as of the July 2 international signing period, every team was only allowed to spend $2.9-$3.2 million on international bonuses, with steep taxes on any amounts over that as well as restrictions on future expenditures — around the same per-team average as the year before, albeit with a dramatically reduced spread. Even with their Opening Day payroll jumping to $64.2 million, the Rays still spent only about one-third of what the Red Sox ($173.2 million) and Yankees ($198.0 million) spent on major league talent, but their other avenues of talent acquisition were dramatically closed down.
The overall effect of the restrictions isn't hard to see. Via BA's numbers, total draft bonus spending shrank from $228.0 million in 2011 to $207.9 million last year, a reduction of 9.1 percent. Via USA Today, MLB's official figures peg the drop at 11 percent, with the paper noting that the last time draft expenditures fell was in 2007. Meanwhile, the average major league salary increased by 3.8 percent in 2012, producing an industrywide increase in spending of over $200 million, roughly 10 times the savings on draft bonuses. In striking an agreement with the owners, the Major League Baseball Players Association sold out amateurs (who aren't represented by the CBA) by restricting their income in exchange for a dramatically bigger gain of their own.
In addition to creating a continued drag on amateur bonuses, an international draft has numerous logistical issues that would still need to be settled by the June 1 deadline. As outlined by Biz of Baseball's Maury Brown, the CBA sets down 12 issues that need addressing, including integration with the Rule 4 draft (i.e., will there be one draft including all amateur talent, or a separate international draft?), age of eligibility (currently, 16 year old amateurs can be signed), means of handling developmental opportunities for undrafted or unsigned players, regulations for representation, effect on protocols with regards to Japanese, Korean, Taiwanese and Mexican professional leagues, and the protocols of handling Cuban defectors.
If such issues can't be ironed out over the next two and a half months, marginal taxes on international expenditures above the allotment will increase. Via SBJ:
Without a draft deal, teams next year overspending their international signing caps by 15 percent or more will be subject to a 100 percent tax and a two-year restriction from signing any foreign amateur player to a bonus of more than $300,000. Even a 5 percent overspending by a club would limit an individual signing bonus to $500,000. Current international signing regulations assess only a 75 percent tax for less than a 5 percent overspend, building to a one-year prohibition on bonuses above $250,000 for overspending the pool by at least 15 percent.
All of those amounts are drops in the bucket compared to major league salaries, considering the 2012 average MLB salary of $3.2 million.
MLB and the union do have other nontrivial reasons for imposing an international draft. As Baseball America's Josh Leventhal pointed out last year, "Another motivation for MLB to create an international draft is to clamp down on age and identity fraud, performance-enhancing drug use and bonus skimming primarily in Latin America." All of those have been ongoing problems in recent years; think of the revelations that pitchers formerly known as Leo Nunez and Fausto Carmona were playing under false identities, the dramatically higher tendency of minor leaguers who receive PED suspensions to be foreign-born; and bonus-skimming scandals that have touched the Nationals, White Sox and Yankees. Latin America is a hotbed for baseball talent, but it's also the wild west, and ripe for reform. The best way to do that may be the imposition of the draft, but the logistics of regulating the player pool may be a nightmare given laws that differ from country to country — developing countries, at that, where the lion's share of prospects live in poverty, with baseball one of the few avenues out. ESPN's Buster Olney reported that MLB is willing to give up "significant concessions" to the union in order to make an international draft happen, with an increase in the minimum salary, and less service time required to reach arbitration eligibility two possible incentives. The MLBPA will likely continue to bargain away the rights of players it doesn't explicitly represent, and the end result will be more money in the pockets of major leaguers, and less in those of prospects, the vast majority of whom will never reach the majors. As in all too many other areas of life, this is another means via which the rich get richer, and the poor get poorer.