Assessing the Indians New Uniform Tweaks
November 30, 2011Cleveland Cavaliers’ Trade Exception Might Still Be Valid
November 30, 2011This post is part of an ongoing series discussing the effects of the new MLB CBA on the Indians. Part 1 can be found here. Part 2 can be found here.
Yesterday, I started to look at what I see to be some problems with the new draft system in MLB. We spent most of our time looking at the change in draft-compensation for teams who don’t re-sign their own free agents. On the whole, I saw this as a problem for a team like the Indians, who hope to compete more on intellect than payroll.
But these slight changes in draft-compensation pale in comparison to the massive changes in the way that draft picks will be paid. The new CBA institutes a “luxury tax” on the draft that effectively prohibits teams from spending “over-slot” in the amateur draft to sign premium players. We’ll get to why this rule disproportionately affects small market teams in a moment, but first, the guts of the tax:
- Each pick in the draft will be subject to a “slot” that recommends how much that draft pick should receive in the form of a signing bonus. This isn’t new exactly; MLB has always had recommended slotting for draft picks. But before the new CBA, ignoring those recommendations had no consequences whatsoever other than a stern phone call from Uncle Bud. And who doesn’t like phone calls from Uncle Bud, anyway?
- But now, you can’t go over slot without some harsh penalties. Sure, you can pay one guy more than he’s worth, but you better make it up elsewhere. The tax kicks in when the sum of your signing bonuses on your first 10 picks adds up to more than the sum of their recommended slots figures. Here’s how that works.
- If you go over slot (on the first ten picks) by less than 5%, you must pay a 75% tax on the overage. Which is to say, if your slot recommendation for those picks is $10 million, and you spend $10.4 million on signing bonuses, you have to pay a 75% tax on the $400,000 in overages, or $300,000. That’s a lot of Fixodent for Uncle Bud.
- If you go over slot by between 5% and 10%, you must pay a 75% tax on the overage and lose your first round pick in the subsequent year’s draft.
- If you go over slot by between 10% and 15%, you must pay a 100% tax on the overage and lose your first- and second-round picks in the subsequent year’s draft.
- If you go over slot by more than 15%, you pay 100% tax on the overage and lose your first-round pick in the next two drafts.
- No picks outside of the top ten are subject to the cap, unless their bonus is more than $100,000. Then the overage tax kicks in just as above.
So what does all this mean? Well, Jim Callis tweeted the other day that TWENTY teams went at least 16% over slot in last year’s draft, meaning that all twenty of them would have lost their top two picks in the 2012 draft. For the record, the Indians were among the 20 such teams.
Effectively, this new tax does at least three things, none of which is particularly helpful to a team like the Indians. First, as some have argued, it’s likely to convince more high school stars (who typically have the highest signing bonuses) to opt for college instead, since their signing bonuses will be cut considerably under this new system, and will not be increased due to leverage. Second, two-sport stars are more likely to opt for a sport other than baseball. That means that the next generation’s versions of B.J. Upton, Grady Sizemore, Todd Helton, and (yikes) Jeff Samardzija might be more likely to choose football than baseball as a career. On the whole, the potential consequence of diverting star talent from your league seems an exceptionally short-sighted move in the CBA.
But most importantly, it means that smart teams will be less able to use the draft as they have for the last decade or so: a cheap mode of adding premier talent to the farm system. Sure, spending over-slot was more expensive than drafting low-ceiling college players and paying them the recommended bonus, but it hardly broke the bank in comparison to free agent spending. The Indians, in recent years at least, have figured out that the draft is the one place where it makes sense to spend more money than anyone else, and for their trouble, they’ve added players like Lonnie Chisenhall, Drew Pomeranz, Jason Kipnis, Levon Washington, Alex Lavisky, Fransisco Lindor, Dillon Howard, and Alex White. All of these players cost more than the recommended slot to sign, but all were probably worth the extra money, since the draft represented the only reasonable way for low revenue teams to add high-end talent. It certainly looks better than paying someone like Jeremy Sowers the recommended slot bonus, and getting almost no value out of it.
With the new tax, this strategy is now effectively closed. While it’s possible to argue that the tax hurts all teams equally (and therefore hurts no teams, in effect), I would disagree. Without a salary cap, the rich teams can easily turn to free agency to add talent to their piles. The poor teams, who used to be able to exploit the draft—both through adding compensatory picks as well as going over-slot to sign talent—are now left without recourse. In other words, the playing field that small market teams have to add value (the draft) has been leveled; but the playing field where the big spenders can add value (the free agent market) is left uncapped, allowing them to exert their force in ways the rest of the teams just can’t.
If all this sounds dreary, it is. But tomorrow we’ll look at a door that’s opened in the new CBA that could be even worse for the Indians. And it has to do with a “new” draft. Yikes.
15 Comments
I was going to say that the Tribe should go full throttle into the international pool of talent, but I have a funny feeling this is what you are referring to with the “new draft”.
And the news keeps getting better for Cleveland sports…
Here is why I think the hype over the new CBA draft rules are slightly overblown. It definitely changes the rules of the game, but there’s still holes for a smart team to manipulate. First, here’s the actual text of the important section from MLB.com:
“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. Players selected after the 10th round do not count against a Club’s Signing Bonus Pool if they receive bonuses up to $100,000. Any amounts paid in excess of $100,000 will count against the Pool.”
So basically, teams add up the value of the first ten picks based on slotting. That’s the total which they can’t exceed. You can still go over slot for single players. Sure, it might mean you can’t draft the same caliber of players later in those ten rounds (basically, you’d be getting guys later willing to go underslot to let you spend that money on your big name draftees).
I also read that the ranges for those pools will be $4.5M-$11.5. If that is true, it means that small market teams with high round picks will be giving their guys more than twice as much than a late round pick (assuming consistent reduction).
In short, I think there will still be ways to game the system. I also think it will control salaries so that teams like the Indians don’t have to spend ridiculously overslot for unproven prospects.
As for losing talent to other sports, I can’t find the article, but I read somewhere that the total amount of money spent on the first ten rounds of the draft in ’12 will exceed the amount in the first ten rounds of ’11. So while young players may not have as much hope of getting huge contracts, the likelihood of a good, fair money has increased. Also, it’s worth noting that all leagues have taken steps to minimize rookie contracts.
Again, not saying this is good for the Indians, but I’ll wait and see. Sorry for the length of the post, but these are complex issues.
I just realized you covered the whole top ten slot thing. Sorry for rehashing it. Tough to post and work.
To your point about getting a talent like Sowers at cap- teams don’t HAVE to draft and pay someone the cap. I assume that teams will continue to talk with players behind closed doors (which is supposedly not allowed) before hand to see what they’ll be willing to take. So in many ways, it’ll be like the old system. Teams will draft lower round talent in the 10th round for lower round money. And that’s nothing new…
@ Jon. Great article. Im confused on one thing though. If the Indians and other small market teams were overspending in the draft to lock down top talent b/c when in comparison to free agency it is such a good deal, then why werent the big market teams doing this as well? We all know the Yankees, Sox, and Phillies love to throw money around, but wouldnt they be just as inclined to overspend by a million on a draft pick, (say a SS) so that 3-4 yrs down the road that player might turn into a potential star and then they dont have to go out and buy the most expensive (multi-million) SS in free agency? Again, I know they like to blow money, but if they could save some cash themselves, I would think they would do it.
here’s my question (maybe answered and I missed it): let’s say the tribe falls in love with a “can’t-miss” and induces him to not return to college with overpayment. Since aggregate salaries determine overage, can they skip the next round of the draft(or lowball the next round’s choice)?
Until recently the tribe’s higher picks have been abysmal washouts, and baseball’s amateur draft as a whole is a crapshoot compared to other sports. If they feel confident in the first round guy, the stud with the 100mph fastball and Boras as his agent, can they overpay and just tank the next two rounds? Few picks fight their way up anyway and we seem to do better poaching other teams’ systems through trades.
I’m sure that there will be ways to game the system. But this makes things really rough for the small market teams who had gotten smart in recent years and paid guys in later rounds. Jon summed things up nicely above.
To take an example, look at a guy like Will Myers of the Royals. Probably not many of you know who he is right now unless you follow prospects really closely, but you will in a couple of years. The guy is a stud.
Myers signed in the third round for a $2,000,000.00 bonus. This type of signing goes away under the new CBA. That’s so far over slot for the 3rd round that no team will even consider giving out that much cash in that spot.
That’s what hurts the small market teams. For a one time bonus of 2 million, the Royals got a guy with star level talent while being able to draft whomever they wanted in the first and second round. That’s how you build a great farm system. The Indians have been using similar strategies (although I don’t know of an example that extreme for them). It basically gives the team an extra first round potential star level talent.
Under this new CBA, Myers is playing college ball for Vanderbilt and having god knows what done to screw up his development. College coaches are notorious for abusing pitchers arms and teaching hitters bad habits at the plate. That isn’t good for the sport in general, and it stinks for a team that won’t be able to afford the same level of talent on the open market.
Fransisco Lindor………Fransisco……….FRAN-SIS-CO…….oh that’s fun to say!
/elf’d
Harv – once a team passes on a draft pick, they are done for the rest of the draft. So, if you want to stop after just one pick, you can, but there are 50 rounds.
MikeLew,
I think he means to pick a guy, but then lowball him so much that he doesn’t sign and you get to include that money into the first guys slot.
Correct Harv?
actually, I was wondering about both ways. But never before heard about the rule MikeLew cites, and wonder why it’s so onerous.
Harv,
maybe it is to prevent teams from “trading” their pick to the team behind them. I know that trading picks is forbidden so if there weren’t penalties you could make a deal with the team behind you (or 2 teams, etc) and just not pick that round, thereby giving them that player for someting else.
I knew that was the rule in the Rule V draft, did not fully realize it was in play in the big boy draft as well.
I understand your point, but another way to look at it:
If Myers get drafted early in the third round, a team could probably offer him say around a $1M contract (based on the #s for the pools I’ve seen). That’s still good money. Does Myers leave that on the table to go pitch at Vandy hoping that he doesn’t hurt himself, doesn’t get his mechanics screwed, doesn’t fall in the draft, etc. all for the hope of going in the first round where the slotted contracts aren’t all that much better? Does he risk $1M in the bank for the hopes of $2M in a year?
I think most guys won’t. By eliminating the big pay days, MLB basically is forcing the hands draftees to take whatever they get offered. Maybe it works, maybe it doesn’t. And sure, maybe some guys will opt for the NFL instead of MLB, but they’re salary structure isn’t kind to rookies either.
I see you’re point, and I’m not dismissing it. I have my doubts about how it will all play out.
Quite frankly, with the slotting in place like it is, I think it’s damn near impossible to offer 1 million or more to anyone taken after the 1st round. And the big issue isn’t the tax: it’s the problem of losing draft picks.
Teams that go 10% over slot pay the 75% tax, and lose a 1st rounder. If you go 15% or more, you pay 100% tax AND LOSE 2 FIRST ROUNDERS.
Losing a pick would be a cardinal sin for a small market GM. It just can’t happen. And I’m not sure that everyone understands what “slot recommendations” are for everyone outside of round 1. Slot for a second rounder was around $500,000 last year from what I can see. Myers went in the third round for a $2,000,000 signing bonus. Based on what I see, the absolute most the Royals could have offered him would be around $400,000, and it might be significantly less than that depending on what slot is for the 3rd round.
So really, Myers couldn’t be signed under the current CBA unless the Royals were willing to give up their next 2 first round draft picks or just take him with their 1st rounder. As great as everyone thinks Myers will be, I guarentee you that they wouldn’t pay that much to tkae him later. No small market will for sure, and I doubt a large market GM would consider it either.