Draft : : Story
Tuesday, November 22, 2011

New CBA to impact draft, bonuses

Allan Simpson        
Photo: Perfect Game

Baseball’s latest Collective Bargaining Agreement, which was ratified today, includes juicy provisions like the move of the Houston Astros from the National League to the American League, daily interleague play, the inclusion of extra wild-card teams in postseason play for both 15-team leagues, expanded rosters for doubleheaders and an innovative plan for mandatory HGH testing.

But the most significant fundamental changes in the agreement involve the draft and the signing of amateur talent, leading to the potential for the most far-reaching changes to baseball’s primary player procurement process since the draft itself was implemented in 1965.

Going forward, we’ll see the first collectively-bargained drag on signing bonuses—involving both drafted players and those signed on the international market. We’ll also see a welcome change in the signing deadline from Aug. 15 to mid-July, though it’s unclear whether we’ll see a change in the number of rounds from the current 50, a change in draft dates from early June to the end of June, or the introduction of pre-draft combines for the top prospects where physicals will be administered. All those issues were on the table as negotiations regarding the draft reached an 11
th hour.

The hottest topic of discussion through much of the CBA negotiation process that involved a new draft structure (normally a back-burner item in most CBA negotiations), were all the newest measures aimed at curbing the continuing upward spiral of signing bonuses—a time-honored issue that has long plagued the game. To this end, owners largely achieved their goal of reining in spending on amateur players coming to the major leagues.

Though a proposal that included the mandated slotting of individual bonus payments was ultimately scrapped, we could still see the first significant drop in bonuses in the draft era as a pseudo-slotting plan was adopted that will restrict major-league clubs from spending more than X amount on all players signed in the draft and Y amount on international players signed on the open market. Those amounts have yet to be fixed, but teams will be penalized severely for going over the established slots.

Teams will be assigned a pool for draft bonuses, based on their prior year standing. If they exceed the bonus slot for that pool, they will pay a luxury tax or lose premium draft picks. A similar pool will be established for signing international free agents.

There will be five bands of penalties.

Specifically, teams that spend less than 5 percent over slot on the draft will face a 75 percent tax. Teams that go over slot by 5-10 percent face a 75 percent tax and the loss of a first-round pick. Teams that go over slot by 10-15 percent face a 100 percent tax and the loss of a first- and second-rounder. Teams that exceed slot by 15 percent or more face a 100 percent tax and the loss of their next two first-rounders.

For players taken in the 11th round and beyond, teams may give them signing bonuses up to $100,000 without it counting against the new threshold.

Any penalties would go into effect with next June’s draft.

A weighted lottery also will be established that would assign six extra draft picks after the first round to the 10 lowest-revenue/smallest-market teams, though it is unclear if the teams that gained these picks would be penalized for exceeding slot.

For international amateur signings from nations such as the Dominican Republic and Venezuela that are not subject to the draft, a luxury tax will begin with the July 2012-June 2013 signing season.

Starting in 2013-14, teams will be able to trade money from their spending allowance for international players. However, a provision would allow teams to boost their original spending limit by 50 percent through trades. Every team will have $2.9 million to spend on international bonuses this offseason, but the limits will eventually be in the $1.8 million to $5 million range.

A worldwide draft is considered a significant possibility by 2014.

The current compensation system for teams losing Type A and Type B free agents has been eliminated. Instead, a team must offer the player a contract equal to the average salary of the 125 highest-paid players from the previous season to be eligible for compensation, which would be a draft pick after the first round.

Only time will tell whether the draft-oriented changes in the new CBA will accomplish the stated goal of significantly reducing bonus payments to both domestic and foreign players, but we stand to see the greatest drop in signing bonuses in the draft era, beginning in 2012 or 2013, depending when all the proposals are fully implemented.

It could be a welcome financial relief to many clubs, considering bonus payments to the average first-rounder in the first 12 years of the draft was less than $50,000, and in the last dozen years has been in excess of $2 million, peaking at $2.86 million this year.

It wasn’t uncommon for first-round picks in the 1960s and 1970s to sign for as little as $10,000. This year, three of the five largest signing bonuses in draft history were signed, led by No. 1 overall pick Gerrit Cole, who signed with the Pittsburgh Pirates for $8 million. On any score, that’s called runaway inflation.

Things came to a head, and call for change came in 2009 when the Washington Nationals signed San Diego State’s once-in-a-generation righthander Stephen Strasburg to a record $15.1 million major-league deal (including a then-record bonus of $7.5 million) as the top pick in that year’s draft.

It was obvious then that the draft had entered into uncharted waters, that changes needed to be made in the next CBA to preserve the very integrity of the draft and signing process. That point was only accentuated less than five months later when the Cincinnati Reds signed lefthander Aroldis Chapman, a Cuban defector, on the open market for $30.25 million.

In 2010, the Nationals had the No. 1 pick again (Bryce Harper) and outdid themselves by spending a record $11.9 million on all their draft picks. They topped that mark this year by spending $15.0 million on all their picks, only for the Pirates to set a new single-draft standard by coughing up $17 million to sign all their selections.

With new restrictions on what the Pirates and Nationals, in particular, can now spend on all their draft-pick signings, those clubs (for good or for worse) will be forced to significantly curtail what they can spend on acquiring talent through the draft.

The Pirates haven’t posted a winning record since 1992 (a major-league record 19 straight losing seasons) and the Nationals a winning mark since moving to Washington from Montreal in 2005, and both clubs believed excessive spending on draft picks was their only way to compete with some of the game’s wealthier, more-successful teams.

By significantly reining in the Pirates and Nationals, we should see an immediate and significant drop in total bonuses paid by big-league clubs from a record $228 million this summer—up nearly 13 percent from the previous high of $202 million in 2010.

It’s unlikely, though, we’ll ever see the kind of one-year drop in bonuses that occurred from 1964 to 1965, when baseball took the radical step of adopt a systematic player draft as its primary means of securing amateur talent and distributing it in an equitable manner.

The very decision to implement a draft came after years of wrangling among big league clubs—many of whom saw a draft as the only way to compete on an equal playing field with big-money teams like the Yankees and Dodgers.

But there was also a reluctance at the time to introduce a draft as the commissioner’s office and most major-league clubs were concerned that the courts might take a dim view of the game incorporating a restrictive draft process, especially since most baseball draft picks (unlike in football and basketball) would be high-school players of minority age. There was a real fear that by restricting the options in the work force of players that were often just 17 or 18 years old that baseball might run afoul of child labor laws and be stripped of its sacred anti-trust status.

But in 1964, when the Los Angeles Angels paid a record $205,000 signing bonus to University of Wisconsin outfielder Rick Reichardt and teams spent more money that year on signing bonuses than they did on salaries to major league players, the time had come for baseball to roll the dice on possible legal issues and make radical changes to its player procurement process. The future financial welfare of the game depended on it.

Baseball was the last of the four major team sports in North America to install a draft, and the impact was swift and immediate.

Overnight, bonuses took a pronounced drop. With only one major-league club to negotiate with, beginning in 1965, drafted players were placed in a take-it-or-leave it position, and bonus payments predictably plummeted.

Outfielder Rick Monday, the first player selected in the first draft, received a $100,000 bonus from the Kansas City A’s—less than half the $205,000 bonus Reichardt landed from the Angels after a spirited bidding war for his services just a year earlier. The average first rounder in 1965 earned less than $40,000.

The baseball draft largely worked as intended for the first 20-25 years it was in place, keeping bonuses in check for the most part, while playing a vital role in producing a different World Series champion every year in one 10-year stretch through 1987.

Even as players were able to negotiate with just one club in a restrictive draft process, bonuses soon began rising at an alarming rate in the 1980s as new-found free agency at the major-league level drove up player salaries, revenues in the game grew, teams placed more of a premium on elite-level talent and agents began infiltrating the process.

In 1991, the Yankees had the top pick in the draft and sent shock waves through the industry when they spent the princely sum of $1.55 million on North Carolina prep lefthander Brien Taylor to pry him away from playing baseball at a local junior college. Taylor’s lengthy holdout was orchestrated by powerful agent Scott Boras, and together they netted Taylor a bonus that was nearly three times the previous record of $575,000.

From that point, the bonus rush was on. Bonuses quickly escalated at a dangerous and even reckless pace, and showed no signs of slowing. Taylor’s record amount would be broken time and again in the next several years, notably by Strasburg in 2009, and it soon became apparent that the whole draft process was unraveling. As bonuses to domestic players climbed at accelerated rates, bonuses to foreign talent in a free-market system climbed even faster.

All too often, the game’s elite talent was ending up with the wealthiest clubs. As the stakes climbed, small-market teams were either passing over premium talent or committing financial suicide just trying to keep up.

While some may argue that escalating signing bonuses are just a by-product of the game’s popularity and exponential growth in revenues, and only parallel the rise in major-league salaries, most baseball officials (and even big-league players) are in agreement that bonus payments to unproven talent have run amok, that the draft system, as we’ve known it for more than two generations, is broken. The runaway inflation on signing bonuses through the years provides all the graphic evidence needed.

With the latest Collective Bargaining Agreement now in place, with the strongest attempt in nearly 50 years to control bonus payments, the game may finally have gotten a grip on uncontrolled spending to untried amateur prospects.

As always, though, only time will tell.

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