The Cincinnati Reds have a pretty big workout today in the Dominican Republic with top Cuban prospect Eddy Julio Martinez. You can read all about that at the link above, it’s not directly what we are going to be talking about today. Indirectly though, it is what we will be talking about.

The possible signing bonus to get Martinez is rumored to be eight figures, so it won’t come cheap and the Reds have been in on this kid (he’s now 20) since the beginning, so they know the price and are still pursuing him. It would easily be their largest signing of an international player under the age of 23 since the new rules went into place on signing international players (those under 23 can only be signed for a limited amount of money or you pay very harsh penalties – such as 100% tax on the overages of your spending limit as well as limiting the price you can spend on players in future seasons on the international market place).

The new system for international signings went into place in 2012. For the 2012 and 2013 season there was a cap for all teams at $2.9M. In 2014 and 2015 teams were handed a set number, based on how good the team was the year before, with no team getting a budget higher than $5.3M in either year. Big market teams, and even a few smaller market teams are going over their budgets at will.

In the 2014 signing period the New York Yankees were given a spending limit of $2.19M. They spent more than $2M on three different players each. In total, they spent over $20M on players and another $18M on penalties paid to Major League Baseball for going over their limit. All they had to do was pay that overage and sit out of big signings. What does that sitting out matter when you just signed 10 of the top 30 players in one class? Probably not a lot.

The Dodgers did the same thing this year, spending $16M on one player and another $4.6M on two other top 10 caliber prospects. Given their bonus pool of just $2.02M, after penalties, the Dodgers have spent more than $40M this year to sign players when Major League Baseball told them they could spend $2M.

The Cincinnati Reds have toed the company line of Major League Baseball. They’ve never gone over their budget handed to them. With that said, they haven’t been stingy overall on international signings. They spent big on Aroldis Chapman and Raisel Iglesias, but neither of those signings required any sort of penalties either.

Big market teams have been using their massive amounts of cash to work the system and acquire top end talent on the international market. It’s a lot easier for a team like the Dodgers or Yankees to immediately come up with an extra $20M to pay in penalties to infuse massive amounts of raw talent into their system than a smaller market team that’s working with a much smaller margin.

The Chicago Cubs had to basically sit out of the 2014 signing period after blowing past their signing budget in 2013, but they came back in 2015 with a pool allotment of $3.23M. They have already spent over $9M on bonuses and have been linked to another $2M worth of players. That would put them in the $15-20M range of spending for the year.

The Reds have made to bigger signings this year, spending $1M on outfielder Cristian Olivo and another $650,000 on shortstop Miguel Hernanrez. Those two represent the two of the three largest bonuses paid out by the Reds since the team signed Yorman Rodriguez in 2008 for $2.7M (not including Chapman and Iglesias, who signed big league contracts). Their budget this year is $2.87M, so they are still well under it. Maybe they go for the big splash this year and change things. For now though, it seems that just like in free agency, small and mid-market teams are finding themselves behind the 8-ball when it comes to the international marketplace for talent.

21 Responses

  1. jessecuster44

    I’ve never understood any of the “luxury taxes” in pro sports. They aren’t a deterrent to the teams causing the spending gap at all.

    • greenmtred

      Exactly my thinking, Jesse. The luxury tax is really just a way to guarantee that the rich will get richer, which probably explains the whole thing.

  2. Hotto4Votto

    Does anyone know off the top of their heads where the overage tax goes? Does it get equally distributed to the other teams? Does MLB just hang onto it?

    • VaRedsFan

      Good question…I was wondering the same thing.

    • lwblogger2

      I think it is handled like the payroll luxury tax, which means it is divided among smaller market teams based on their revenue. I’m not sure though. Maybe Doug knows the answer?

    • Doug Gray

      Right now, it’s literally just sitting there. Baseball set it up, thinking that teams would toe the line and they’d maybe get $2-3M a year in overages. Instead they’ve now got over $80M and because they were unprepared for it, they really don’t know what they are going to do with it at this point. So it’s literally just sitting around collecting interest.

      • lwblogger2

        Ahhh, I think I’d take 1% of that collecting interest and working for me somewhere.

    • greenmtred

      If it is an over age tax, I quake to think what I might have to pay.

  3. VaRedsFan

    Doug, do you believe that the Reds should pay the penalties and acquire this guy?

    • Doug Gray

      If they think he can even be an average starting oufielder, then yes, without question.

  4. sultanofswaff

    Timely article Doug. I was wondering what you thought of all this.

    Without knowing the talent that’s available, I think it’s crucial the Reds have scouting boots on the ground in Cuba now that relations have normalized and players should soon be available to sign. It’s a once in a generation opportunity that we can’t miss out on.

  5. WVRedlegs

    Thanks Doug. This international market system is convoluted at best.
    A better system is needed for all these foreign players. Maybe make them enter the draft. MLB will have to change the name of their draft from amatuer draft to just draft. It would allow for the terrible teams to draft more ready MLB players and to improve quicker. These foreign players are given advantages the US players just don’t get. These foreign players are not subject to minor league salaries and then six years of team control in their MLB salaries. These foreign players are granted free agency right off the bat that it takes US players 6-10 years or more to achieve. This just isn’t right.

    • lwblogger2

      I don’t think that’s the case with the kind of signings that are being discussed here. In the case of guys like Kang, Iglesias, Chapman, Tanaka, and the like, those were MLB contracts. When it comes to the kinds of signings that this article is talking about, these players are coming in on minor league deals for the most part and are subject to minor league salaries and team control. I would like to see the draft include international players though. I’m not sure how MLB could do it and still get all the talent that’s available to come to the US to play though.

    • Doug Gray

      MLB is trying their hardest to set up an international draft. Of course, they are only trying it because in the end, it will save them more money. You aren’t ever going to get a mixed draft though.

      The international market, for nearly all of them, are subject to minor league salaries and six years of team control. Only the older guys or the incredibly special, special players are signing big league deals that aren’t six years.

      The US players get screwed though. No doubt about it.

      • WVRedlegs

        Thanks guys. I am not too hip on and up to speed on the international rules. It is an evolving animal.
        The Dodgers signed Hector Olivera to a free agent contract with a $19M signing bonus, then traded him to the Braves in that big Dodgers-Marlins-Braves deal at the deadline that included Mat Latos. The Dodgers eat the $19M bonus and the Braves pay the remaining contract. The details to work out that trade had to be a nightmare.

      • lwblogger2

        You aren’t kidding on that Dodgers trade. The financials in baseball can get really complicated.

        If you want to talk about American born players getting the short end of the stick, at least “draft-and-follow” is dead and gone now. That was a prevalent thing when I was being scouted/recruited. “So, if I get better, you own my butt and if I get worse you just don’t sign me? Yeah, that’s fair.”

      • ohiojimw

        Not to forget that the Dodgers also took Arroyo’s contract off of the Braves books as part of that deal and got LH starter Alex Wood in return. The Braves had previously agreed to take on Arroyo’s contract from the DBacks in order to get another hot young prospect who was in DBacks system.

  6. I-71_Exile

    Instead of penalizing teams with fines, MLB could take away draft picks. That might level the field a little and be the start of a de facto International draft.

    • hammer

      I like this idea. May also be able to tie amount of signing bonus paid to slot levels in draft in order to determine which rounds’ draft picks you would lose. Could also slow down the bidding wars for international talent and overpaying by yankees, dodgers, etc who may or may not be willing to give up 1st round picks.

  7. Shchi Cossack

    I had the same question regarding the use of the penalty funds for international signings. Thanks for that update Doug, but I also looked through the CBA to try and find information on that usage. I did not find any information regarding the international penalties, but I looked through ARTICLE XXIII——Competitive Balance Tax of the CBA. What I found was contrary to what I had always understood (that the penalties were distributed to the other teams).

    ARTICLE XXIII——Competitive Balance Tax

    Section H. Uses of Competitive Balance Tax Proceeds
    Competitive Balance Tax proceeds collected pursuant to Section B(4)
    above shall be used as follows.

    (1) The first $2,375,400 of proceeds collected for each Contract
    Year shall be used to fund benefits to Players, as provided in the
    Major League Baseball Players Benefit Plan Agreements.

    (2) 50% of the remaining proceeds collected for each Contract
    Year, with accrued interest, shall be used to fund benefits to Players,
    as provided in the Major League Baseball Players Benefit Plan
    Agreements.

    (3) 25% of the remaining proceeds collected for each Contract
    Year shall be contributed to the Industry Growth Fund and, with
    accrued interest, used for the purposes set out in Article XXV.
    118

    (4) 25% of the remaining proceeds collected for each Contract
    Year, with accrued interest, shall be used to defray the Clubs’’ funding
    obligations arising from the Major League Baseball Players
    Benefit Plan Agreements.

    That does not sound like distribution to the other teams. That sounds like funding for the Players Benefit Plan, directly or indirectly through reimbursement of team contributions, or for funding the industry growth fund which is used to promote the game.

    If this is correct, no wonder its not even coming close to having any impact on competitive balance.

    • Chris

      And would also explain why this convoluted mess of a system won’t change too quickly