How the new Collective Bargaining Agreement affects the White Sox (and baseball), Part I

Major League Baseball and the Players Association unveiled their new Basic Agreement today which, upon the expected approval of the owners and the players, will extend baseball's labor peace another five years. The CBA contains some rather radical changes, including major changes to free agency, the amateur draft, international signings, playoff format, league alignment, interleague play, player compensation and drug testing. Some changes are immediate, while others will be phased in.

Every CBA presents new inefficiencies that can be exploited. I've generally stayed away from the analysis of what the new inefficiencies may be and how they may be exploited because I haven't the time to read the whole agreement right now and I probably couldn't figure them out right away anyway. I'm generally discussing how the CBA affects the White Sox in the immediate future. But I do also spend a lot of words discussing some of the finer details of specifically what is being changed from the old agreement and how this affects baseball generally.

Because the changes are numerous, this is being broken into multiple posts. The first covers the amateur draft and international amateur free agents. The second covers free agency. The third covers everything else.

Amateur draft

Commissioner Bud Selig and some of the owners have long sought to control spending on the Rule 4 Draft, otherwise known as the amateur draft. High school players who have graduated, all junior/community college players and four-year college players who have completed their junior years or are 21 years old are eligible for this draft if they are residents of the United States, a United States territory or Canada.

The current method for curbing spending is the Commissioner's office’s "slot recommendations", which provide for a recommended bonus amount for each draft pick. Its name says it all: they're just recommendations. There are no real penalties for going "over slot" other than a stern talking to. Many teams thus ignore the recommendations, although some teams, including the White Sox, do generally adhere to them.

Selig was particularly irate at the spending in 2011. Though only seven teams had ever spent over $10M on the draft before 2011, ten teams did so in 2011 alone. The Pirates ($17.01M), Nationals ($15M), the Royals ($14.01M), Cubs ($11.95M), Diamondbacks ($11.93M), Rays ($11.48M), Mariners ($11.33M), Padres ($11.02M), Blue Jays ($11 M) and Red Sox ($10.98M) spent eight figures on the draft.

Spending cap

The new system places a cap on the total amount a team can spend in the first 10 rounds of a given draft. The specifics are unclear at this point but it appears the cap will be based upon the 2010 slot recommendations for a given draft position (though if a player signs after the 10th round for more than $100,000, the excess money will go against a team's draft pool).

Each club will be assigned an aggregate "Signing Bonus Pool" prior to each draft. For the purpose of calculating the Signing Bonus Pools, each pick in the first 10 rounds of the draft has been assigned a value. (These values will grow each year with the rate of growth of industry revenue.) A club’s Signing Bonus Pool equals the sum of the values of that club’s selections in the first 10 rounds of the draft.

The Signing Bonus Pools will range from $4.5 million to $11.5 million. The slot recommendations for the first ten rounds of the 2010 draft totaled $133 million, per Jim Callis. I'm still trying to figure out what was spent in the first ten rounds in 2011 (edit: it was $192 million). Based on the Signing Bonus Pools range, it seems like the total pool for all teams will be about $180-$200 million.

Penalties

This time the rules have some teeth. Clubs exceeding their cap will pay a tax and possibly forfeit future draft picks. Teams that go more than 5% over slot get a 75% tax. From 5-10% over, a 75% tax and loss of 1st-round pick the next year. Go 10-15% over, it's a 100% tax and loss of 1st- and 2nd-round picks. 15% and higher is a 100% tax and loss of two first-round picks.

A strict cap is particularly silly because it presupposes that the talent in a draft is the same every year, which we know to be false. To illustrate, should the Nationals have the same cap in the year when a once in a generation type talent like Bryce Harper is available? But, obviously, the point is to not let the market decide but to place very artificial constraints on spending. It looks like 20 teams went 16% or more over slot in 2011, which would have triggered the 100% tax and the loss of two 1st round picks.

Impact on White Sox

The White Sox have rarely gone over slot so the new rules will not have much effect on their current draft "strategy" of not investing in the draft. The new rules likely will curtail overall spending and that may be slightly beneficial to the White Sox by possibly making players who previously would have been out of reach more affordable.

Impact on baseball

The real losers are smaller market teams. Teams such as the Royals, Nationals and Pirates have been free spenders on the draft. The Royals are beginning to realize the benefit of this strategy, as their major league team is chock full of young talent and their minor league system has plenty more on the way. The Nationals have splashed on big talents - Stephen Strasburg and Bryce Harper - and those benefits will be on display in 2012. The Pirates are in the earlier stages of this strategy.

These teams have seen the efficacy of investing in amateur talent that costs a fraction of professional, veteran talent. For example, a $6 million investment by the Royals in 2008 gives them Eric Hosmer for essentially six cost-controlled seasons before he can be a free agent. Hosmer was worth 1.5 WAR in 2011, production with a value exceeding his draft bonus and salary. Going forward, any production exceeding his salary will be all upside for the Royals.

Overall in 2008, the Royals spent $11.1 million on the draft. If the new system had been in place then, the Royals would have been penalized at 100% of the overage. That amount would still be a bargain for the talent acquired; however, this change increases the cost of doing business and, at some point, teams with tight budgets will not be able to pay. Big market teams, such as the Red Sox (who has spent the fourth most on the draft since 2007, behind the aforementioned teams), will have no problem paying a bit more.

To remedy that, the additional penalty of surrendering draft picks was added. This is a devastating penalty. While good talents can be found and signed in later rounds at the right price, the best players will almost always be taken in the first round. The loss of high draft picks is a very high price to pay.

Competitive balance lottery picks

To help remedy what is perceived as a system that hurts small market teams, there is a "Competitive Balance Lottery" that awards lowest-revenue teams extra draft picks. The ten clubs with the lowest revenues, and the ten clubs in the smallest markets, will be entered into a lottery for six draft selections immediately following the completion of the first round of the draft. A club’s odds of winning the lottery will be based on its prior season’s winning percentage.

For the teams that don't get one of those six picks, they will be entered in another lottery open to all payee teams (as defined by the Revenue Sharing Plan) for 6 picks after the 2nd round.

Interestingly, picks awarded in the Competitive Balance Lottery may be traded by a club, subject to certain restrictions that are not yet available.

The picks forfeited by clubs penalized for exceeding their spending cap will be awarded to other clubs through a lottery in which a club's chance of winning is determined by prior year winning percentage and prior season revenue. Only clubs who adhered to the spending caps in the prior draft will be eligible for this lottery.

Signing deadline and restrictions

There is actually one good thing in the new CBA: the draft signing deadline moves from August 15 to between July 12 and 18. This should ensure that drafted players get the opportunity to play in the minors in the year in which they are drafted. Also, it will ensure that players drafted in the prior year are eligible to be named in trade deadline deals the following year. However, draftees will no longer be able to sign major league contracts.

International amateur free agents

Another goal of Selig was to place some controls on international amateur free agent spending. Essentially, any player who is a resident anywhere other than the U.S., a U.S. territory or Canada can be signed once they turn 16 years old. And there are currently no limits on the bonuses or contracts given to these players. While not quite the bargain the amateur draft is (in particular because projecting 16 year olds is much more difficult), the bargains are still there. Miguel Cabrera, for example, was signed in 1999 for a bonus of $1.9 million.

Since 2008, spending has increased as the vast majority of the all-time 20 largest bonuses have come since then, pushing up the overall spending. And smaller market teams are most of the top spenders.

Spending cap

The new CBA places a cap on spending and a tax on spending above the cap. The amount a team can spend will eventually be based on their record in the prior season, though every team will have $2.9M to spend in international bonus money this season. In future years, it appears the worst team in baseball gets $5M to spend internationally while the best team gets $1.8 million. Interestingly, starting in 2013-14, if a team doesn't want to spend it all, it can trade the money to another team. Teams can trade for only 50% more than their international spending cap. So if a team has a $2.5M cap, the most it can trade for is $1.25M.

Under the new agreement, now anyone (read: Cubans) under 23 years old and with less than three years in a professional league will be considered "amateurs" and count against international bonus money. All amateurs who wish to be signed by major league teams will have to register with MLB prior to signing.

To illustrate the impact of these new rules, in the last year, the Rangers have spent $17.6 million on international signings. Or almost $15 million more than is now permitted. Since 2008, the Reds are the spending leaders with $28.6 million. It seems clear that international free agents will see bonuses decline substantially.

Penalties

Clubs that exceed their Signing Bonus Pools will be subject to the following penalties in the 2012-2013 and 2013-2014 signing periods: a 0-5% overage results in a 75% tax; a 5-10% overage results in a 75% tax and loss of right to provide more than one player in the next signing period with a bonus in excess of $500,000;a 10-15% overage results in 100% tax and loss of right to provide any player in the next signing period with a bonus in excess of $500,0000; and, a 15% or more overage results in a 100% tax and loss of right to provide any player in the next signing period with a bonus in excess of $250,000.

Impact on White Sox and baseball

Because the White Sox generally do not spend much on international amateur free agents, the cap won't really have an effect on how they have operated with one notable exception: the signing of Dayan Viciedo to a 4 year, $10 million contract (including a $4 million bonus) would have been illegal under the new agreement.

The White Sox likely will also take advantage of the ability to trade money. They've essentially been given a new trading chip for nothing.

Teams like the White Sox, who have little to no international scouting infrastructure, will also benefit from the registration of international amateurs. There will be no unearthing of "hidden gems" by teams; or, at least, once they are unearthed, every team will know about them.

For example, it appears the MLB Scouting Bureau, which acts as a scouting operation for all of the clubs and currently focuses only on amateurs available for the Rule 4 draft, will see its mandate expand to international amateurs who register with MLB. While teams supplementing that with their own scouts (just like they do with the amateur draft now) will maintain some advantage, the information gap between the clubs will close. Teams with strong connections to the buscones and others that act as advisers and coaches to the players will see that advantage dissipate some, as well.

Worldwide draft

Most ominously, however, is that a "study committee" will be formed and a new system may be put in place later in the five year life of the CBA (possibly as soon as 2014). That "new system" is expected to be some form of a worldwide draft.

Part of the reason the White Sox have been disinterested in the international amateur free agent market may be that they avoid young players. In the 2011 draft, they didn't pick a high schooler until the 33rd round. Speculation on the reasoning for this is outside the scope of this article, but a worldwide draft would obviously result in an influx of teenagers into the draft pool. If a worldwide draft were implemented, the White Sox may find themselves able to draft better players of the type (non-teenagers) that they seem to prefer.

For the players, if a worldwide draft came to be, a lot of the corruption (for which the White Sox are poster boys) should be eliminated. Age discrepancies will likely remain a problem, as age will remain a major deciding factor in drafting a player. The leverage players have will, of course, be drastically reduced from even what they have under the new CBA's cap system. As opposed to being able to negotiate with any team, a drafted player would have to negotiate with just one. And the draft spending cap would play a factor, as well. Finally, as opposed to current amateur draftees, it is more difficult to see a Latin American player refusing to sign with a team. Current draftees can always threaten to enroll, or return to, college in order to extract larger bonuses from teams. Players from Venezuela and the Dominican Republic, for example, can make no such threats and, considering their generally far poorer economic situation, would likely be far more reticent to delay signing.

Next up: free agency.

link to part II

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