The New York Yankees are poised to respond to a disappointing 2013 campaign at the major and minor league levels by shattering the record for spending on international amateurs, starting on July 2nd, 2014.
Since there are so many angles to this story, I broke it down into sections. If you aren't familiar with the July 2nd market, see the sidebar for a quick primer on how it works. Coverage of last year's market with signing bonuses, rankings, scouting reports and videos can be found here.
A source with direct knowledge of the Yankees plans says they aim to spend $12-15 million in bonuses on international amateurs this year, which would trigger penalties of about $10-12 million per to the 2-year old rules in the Collective Bargaining Agreement (CBA) that limit international spending.
The total outlay of about $25 million would blow away a record the Texas Rangers set in 2011 of about $15 million, of all penalty-free bonuses. That record was thought to be untouchable as it came in the last season before spending limits were implemented and was shocking at the time, also shattering the previous record.
MLB hasn't notified clubs of their 2014 international spending pools yet, but the Yankees are expected to have a pool amount between $2.0 million and $2.5 million. They would be taxed 100% on any dollar they spend over 10% above that amount and the maximum penalty (for going over 15% above the pool amount) is not being allowed to sign a player for above a $300,000 bonus for the next two years. The maximum bonus penalty this year is harsher than the previous two seasons, when it was a one-year bonus limit of $250,000.
This international amateur market is sometimes called the July 2nd market, as that is the day that 16-year-old players first become eligible to sign. The top MLB talent from Latin countries signed through this process, many of them signing at age 16 on July 2nd for seven-figure bonuses. Players in the U.S., Canada and Puerto Rico are subject to the draft starting at age 18, while most amateur players from Asian nations opt to play for the local professional leagues.
In 2012 the market changed drastically, shifting from clubs being allowed to spend as much as they pleased until MLB put spending limits in place. The limits are based on record like the MLB draft order, with spending limits ranging from $1.7 million to $4.7 million last year, but this year's pools haven't been sent to clubs yet.
The vast majority of the big bonuses in the July 2nd period are handed out to first-time-eligible 16-year-old players from the Dominican Republic and Venezuela, with other Latin nations accounting for most of the other big bonuses, but the occasional big bonus is given to a prospect from Europe or Asia. Last year, 15 players received seven-figure bonuses, all of the 16 years old, with $2.8 million (Cubs OF Eloy Jimenez) marking the highest bonus of 2013, while the all-time record is $4.95 million (Rangers OF Nomar Mazara).
The spending caps don't apply to players age 23 and over that played a certain number of games in professional leagues, such as in Cuba, Japan, Korea and Taiwan. That means most Cuban and Japanese professional players (like currently-posted Japanese RHP Masahiro Tanaka and many past examples, like Rangers RHP Yu Darvish and Dodgers OF Yasiel Puig) aren't subject to the pools, though Reds LHP Aroldis Chapman would have been if the rules were in place when he defected.
While it's technically illegal to agree to bonuses with players before they are eligible to sign, it happens with almost every top international prospect, sometimes months early. With the new spending pools MLB put in place in 2012, clubs have begun trying to find bargains by locking players up even earlier. The Yankees plan was hatched in the summer, leading up to the heavily reported August meetings in Tampa with all of the Yankees scouting and player development personnel answering ownership's questions about a lackluster farm system. Yankees Senior VP of Baseball Operations Mark Newman didn't respond to an email about this story in time for publication.
Given the stricter limitations on spending in the draft (loss of first round pick(s) and forfeiture of corresponding bonus pool allotment) and the cutting of big league payroll to get under the $189 million luxury tax threshold for 2014, the international amateur market emerged as the most logical place for the Yankees to spend their massive revenues.
This isn't a novel strategy, as the Tampa Bay Rays spent over 15% above their bonus pool in 2012 and the Rangers and Chicago Cubs did it in 2013. The new wrinkle with the Yankees plan is that, with this year's expansion of penalties, it raises the stakes for this gamble, necessitating a bigger investment to make the strategy worth it.
While the previous three clubs just went a few million over their pool, essentially lumping 2-3 years of signings into one year, the Yankees would be spending more in bonuses in the summer of 2014 than almost any club will spend in the next five years, along with almost as much in penalties.
An executive with one of the three clubs that has already employed this strategy said they had trouble signing all the players they had targeted, as agents assumed their pre-July 2nd offers weren't genuine when the agents caught wind of all the rumored deals the club had in place. Agents didn't see the strategic move this club was making, assumed bad faith in negotiations and steered their players away from signing with that club. Now that the Yankees plans are well known this early and this strategy has already been employed three times in two years, the Yankees shouldn't have any trouble implementing their plan.
One downside of doing it this year rather than last year (beyond harsher penalties) is that with clubs moving to lock players up even earlier than they did last year, the margin for error is even smaller. So, not only do the Yankees have to act quicker in locking up players when they are 15-years-old, but late-rising players may not be options as the budget may be spent before they emerge in the winter/spring. The Yankees top July 2nd signing last year, Dominican center fielder Leonardo Molina (scouting report & video), signed for $1.5 million and wasn't considered an elite prospect at this juncture last year.
Effectively, the Yankees could spend over $20 million on what their scouts think are the top Latin American 15 year olds; a challenge no club has ever come close to trying before.
MLB put these spending limits in place for two reasons: to shrink overall spending and to try to give weaker clubs more of an advantage in signing players. While that has generally happened, big market clubs have the revenues to outspend penalties that are only monetary, thus giving them the option to crush every other club, the exact opposite of the intended effect.
With at least three big market clubs in two years exploiting this loophole and the Yankees planning to do it in extreme fashion, MLB will likely be forced to change the rules yet again in the short term, possibly as soon as next season and possibly with the switch to an international draft. If an international draft is in place for 2015, the Yankees two-year bonus limit penalty would change to losing their first round pick in the international draft for the next two years.
The International Draft
Clubs are unsure how close MLB is to instituting a international draft, something the CBA allows MLB to do when it sees fit, with the current bonus pools already split into pick "slots" to facilitate the eventual change. It appears that losing consecutive first round picks in an international draft (depending on the Yankees' record, likely mid-to-late first round picks with bonus values ranging from $500,000 to $750,000) wouldn't be that different than the current bonus limit penalties.
In both systems, the Yankees would essentially be limited to signing a handful of low-six-figure prospects, though in the current system they could likely sign a few more of that type of player. The big downside with a draft is that in 2017 when the penalties they would earn this year expire, they wouldn't be allowed to blow away the other teams in bonus spending again. That said, it's unlikely the system goes unchanged for three years, so this year is the Yankees' chance to get their money's worth before an international draft is instituted.
The Industry's Perspective
Multiple industry sources have indicated that the Yankees have been uncharacteristically aggressive in pursuing international prospects this fall and winter, with rumors attaching them to nearly every top player in the market.
Long-time Yankees scout Gordon Blakeley has been heavily involved in this year's aggressive approach in Latin America. The celebrated scout is credited with some of the club's top international signings, such as Alfonso Soriano.
There is some consensus in the industry that the Yankees have already agreed to bonuses with about a half dozen prospects. A rival AL international scouting director outlined a scenario of signings he believes to be in place that have the Yankees signing seven hitters from the Dominican and Venezuela to bonuses ranging from about $1 million to about $3.5 million that add up to $12 million, a specific budget number many sources have been hearing on the scouting trail this fall/winter.
Yankees executives beyond international scouting director Donny Rowland have been seen much more than usual in Latin America this fall/winter, including super-scout Gordon Blakeley. Blakeley is credited with signing Robinson Cano, Alfonso Soriano, Orlando "El Duque" Hernandez and Jose Contreras, among many other Latin American players that have impacted the Yankees.
Sources have indicated that part of this plan was the Yankees belief that this is an above average July 2nd class. Rival executives think it is just an average class and point out that, of the 5-7 players most rumored to be signing with the Yankees, only one or two are elite players worth the big bonuses they are rumored to be getting. That's par for the course in a market where opinions can vary wildly and players, like the Yankees top signing last year, often develop in the winter/spring before signing.
One scout has brought up the point that after rumors that much of the scouting staff for the Yankees would be fired this summer, they are now being handed an unprecedented amount of money to spend in the most volatile talent market in baseball. While very few know how close the Yankees execs were to being fired, it is an interesting move that has raised eyebrows around the industry.
The parallels between the Yankees plans this year and what the Rangers did in 2011 (the last year before spending limits) are striking. The Rangers handed out the biggest bonus ever for an international amateur player, $4.95 million to OF Nomar Mazara and followed it with $4.5 million to OF Jairo Beras after a lengthy age investigation, $3.45 million to 1B Ronald Guzman, $1.5 million to LHP Yohander Mendez and $425,000 to 2B Rougned Odor, ironically the best current prospect of the group by a good margin.
The Rangers also signed Cuban defector OF Leonys Martin (5 years, $15.5 million) and Japanese RHP Yu Darvish ($107.7 million for 6 years, including contract and posting fee), but they don't count toward the July 2nd spending record, as they were international professionals. An NL executive joked the Yankees could spend over $150 million on international players this year, including the over $100 million they are expected to offer to currently-posted Japanese righty Masahiro Tanaka.
While the international market is the least sophisticated talent market and is ripe for a coordinated, well-funded attack at some of its weak points, the Yankees approach isn't flawless, though it is logical, as chronicled above. The Yankees have done pretty well in Latin America on the whole, spending basically a league average amount, but their recent big July 2nd bonuses we can evaluate have produced mixed results: Dominican catcher Gary Sanchez ($3 million bonus) and Venezuelan catcher Jesus Montero ($2 million, later adjusted down to $1.65 million after a mediocre physical). Sanchez is only 21 and has All-Star potential but hasn't improved much in the last two years while Montero has lost athleticism and is now a 24-year-old part-time designated hitter for Seattle.
I assume Yankee fans reading this are asking themselves three questions: (1) what took so long for us to flex our financial muscle (2) why can't we spend some of this money on the draft and free agency and (3) why did we let Cano walk to spend the savings on 15 year olds? I like the spirit behind this move: the idea is good and the scouts are finally getting all the resources they could want.
Rival scouts indicate these aren't the players they would choose to spend this money on, but no one agrees about players this young. New York baseball fans aren't known for being patient and this puts a big target on the backs of executives that have less than ideal job security, so they need a quick, positive return on their investment.
Follow Kiley McDaniel on Twitter for more baseball news. He'll be in the Dominican Republic in January scouting the top players for the July 2nd signing period.