Finance Uncategorized

Gaming the MLB International Spending Limits

There is something strange going on pertaining to international free agency in Major League Baseball.

(AP Photo/Mark J. Terrill)
(AP Photo/Mark J. Terrill)

There is something strange going on pertaining to international free agency in Major League Baseball.

MLB is the one professional sports league in America that does not use a salary cap, hard or soft. The NFL and NHL have a hard cap while the NBA has a soft cap. In the former, teams cannot pass the designated salary-cap threshold no matter what. In the latter, there are rules that allow teams to pass over the cap that result in penalties.

In baseball, there is no cap at all. There is revenue sharing, which is partially determined by how much teams spend, but in general, a team can spend as much as it wants to fill out its roster. This leaves a spread between the haves and the have-nots.

That fact left room for big spenders to try to gain an edge elsewhere. Besides, opportunity costs affect everyone from the richest to the poorest. For example, the fact that the Los Angeles Dodgers are paying Carl Crawford more than $20 million per season means they didn’t wish to go out and spend another large chunk of money on someone who plays the same position even if it would have helped the team.

Credit: Richard Mackson-USA TODAY Sports
Credit: Richard Mackson-USA TODAY Sports

So teams such as the Dodgers and Yankees looked elsewhere for the advantage, and they were drawn to the international free agent market.

While MLB has had strict restrictions on the amateur player draft since the latest collective bargaining agreement, the restrictions set upon international free agency were much more forgiving. In the amateur draft, if a team spends over its slot allotment, it could result in lost picks. If something similar happens in international free agency, the team just has to wait its penalty out.

Under the current system, there is an international spending limit. If a team goes over the limit by a certain amount, there is a certain percentage penalty. If it goes too far over the limit, that team cannot spend more than a designated amount the following period. This sounds relatively fair on the surface, but the system is being gamed.

What the Yankees did a year ago, and what the Dodgers did this year, is target a year where there were a bunch of prospects they were interested in. Once that came around, the teams spent all they wanted to get that group of players. New York signed nine of the top 25 international prospects in baseball; Los Angeles eclipsed its budget by more than 20 times to sign its guys this season.

The penalties have been legislated so each team was left with nothing but peanuts to spend in the subsequent season, but that’s just the point. They knew the following season would be a throwaway and so went all-in, annihilating the market in the process. After a year off for penalties, each team can be back in it again to do the same thing and grab another baker’s dozen of the best international players money can literally buy.

Cuba US

This isn’t how the system or the penalties were intended. Rather than to encourage big-spenders to flood the market one year and take the next off, it was supposed to force teams to all play on a relatively even field.

A team like the Houston Astros went through years of terrible losing to acquire tons of top draft picks and put together a team of young, talented ballplayers. But now good teams are acquiring a comparable level of talent for a different reason and from a different market. It’s disrupting how the entire system is supposed to function and may only get worse before it gets better.

Changes are surely in the works for when the CBA is next up for negotiations. Until then, teams flooded with cash will continue to overbid for these prospects. I suppose it is better than an owner pocketing all his revenue, which some do; and it may also be better than teams throwing ridiculous contracts at 30-plus-year-old veterans who are on the backside of their careers. This isn’t the ideal solution though, especially for a sport that has always battled the stereotype of rich versus poor and teams buying titles.

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Joe Messineo is co-founder of Rukkus, the fastest-growing mobile ticketing platform utilized by concert, sports and theater fans.

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