Big Money for Little Time: Part 1

Feb 19, 2014; Tampa, FL, USA; New York Yankees pitcher

(19) throws during spring morning practice at George M. Steinbrenner Field. Mandatory Credit: Tommy Gilligan-USA TODAY Sports

Back in early January, with all the talk about how much money Masahiro Tanaka would get without throwing a single pitch in North American affiliated baseball, I wrote a post at my own site, Blue Jays from Away, called “The Value of Prospects” that discussed why it was a good idea for the Blue Jays to hold off on trading two of their top prospects to Chicago for Jeff Samardzija.

I’m going to look at the repercussions of some major signings in the international market as well as some big, recent contract extensions for young players in order to examine current market trends and what it means for minor leaguers and young major leaguers. Part 1 will examine the international players while Part 2 will look at extensions.

The following table is a list of most of the significant international free agents out of Cuba or Asia from the past several years. Note: I have left off all previous Japanese imports because of the difference in the posting rules.

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There has always been a desire for major league teams to find the best possible talent and lately, teams have spared no expense scouring the corners of the earth (in what is an increasingly a global game) to find the best players who aren’t already in affiliated baseball. The “young” international free agent market (what I’ll call the July 2 IFAs) has less money going into it since the 2012 Collective Bargaining Agreement was signed which imposed limits on how much money could be spent yearly on these mostly Latin-American players. Outside of this market, also referred to as the “July 2” market because the window to sign players (and have that money counted against a particular year’s cap) opens on July 2, there are two other significant markets that have allowed major league baseball to pursue players who are older and have more experience in professional baseball but still lack easily translatable track records: Asia and Cuba.

Cuban players, of course, have to defect to another country and become eligible to be signed by US-based teams, which usually takes some time and diplomatic wrangling. Many players coming out of Cuba haven’t played in some time and even if they’ve been playing a lot, it’s very difficult to tell how a player’s game will translate to the higher competition levels of North American affiliated baseball. That said, it hasn’t deterred major league teams from awarding Cuban players big-money contracts in order to secure their services.

So far, the track record has been generally good for players who have come over and have been paid extremely well by MLB teams. Yoenis Cespedes and Aroldis Chapman are two of the players with a bit of a longer MLB resume and both have done very well (and will be discussed further below) while Yasiel Puig has been an extremely exciting young player for the Dodgers. As for the Asian players, Hyun-Jin Ryu is making the Dodgers look smart with over 3 WAR in his rookie season (at the age of 26) and, if we want to look at Yu Darvish, he’s been nothing short of outstanding for the Texas Rangers and appears to be a gigantic bargain at six years and $56 million when compared to Tanaka. None of the others on the list have played a single game in major league baseball. There are a few more players who may sign soon including two more Cubans, infielder Adelmys Diaz and catcher Yenier Bello.

When signing these long-term, big-money contracts, the team is taking two major risks. The first is that the player is as good as advertised and is able to play in the major leagues within about one year. The second risk is that the player stays relatively healthy for the life of the contract (just ask the Red Sox about Daisuke Matsuzaka). Because the numbers we’re talking about are generally about ten times higher than what teams pay (on the high side) for signing bonuses to draft picks and July 2 IFAs, teams are sinking huge amounts of guaranteed money into players who have no proven track record in the best baseball league in the world. If a team drafts a player, gives him a $3 million signing bonus and he turns out to be a bust, the team is out $3 million. If the team coughs up $30 million over a four-to-six-year deal and the player turns out be a bust, the club is on the hook for that salary for the rest of the life of the contract (unless they can trade him away).

Oct 7, 2013; Detroit, MI, USA; Oakland Athletics left fielder Yoenis Cespedes (52) hits a single in the fifth inning against the Detroit Tigers in game three of the American League divisional series playoff baseball game at Comerica Park. Mandatory Credit: Rick Osentoski-USA TODAY Sports

Another interesting risk of a bigger deal over fewer years can be seen when we look at how one deal is turning out with Yoenis Cespedes. His $9 million per year salary surprised many (especially since it was coming from the penny-pinching A’s) but he produced immediately at the major league level (also a surprise) and finished second in Rookie of the Year voting, earning a 3.7 rWAR and 2.9 fWAR despite missing some time due to injury. Cespedes regressed a bit in 2013 but the contract still looks like it provides solid value to the A’s. The remaining concern is where it’s going to leave the club after the four-year contract expires. Cespedes will be eligible for arbitration and he will not make any less than he’s making now and will likely earn much more. Should the Oakland A’s hold on to Cespedes until he’s eligible for free agency, they are going to be paying a lot more for his services over the first six years of his major league career than any of these other teams who are signing players to longer term deals for less money.

Cespedes’s average annual value (AAV) is on the high side as teams are more likely to give a player a less money per season but over a longer term in a deal like Jorge Soler‘s in which he received a nine-year contract worth $30 million dollars. Soler’s contract is almost guaranteed to keep him under the Cubs’ control until after he would otherwise be eligible for free agency, insulating the team from escalating arbitration salaries while giving the player a bit more security. The other side of looking at Soler’s contract is that the Cubs could have expected him to take two to three years to make the major leagues when they signed him. Of course, Soler’s contract is an outlier, representing the longest-term contract while Cespedes’s contract has the highest AAV (outside of Tanaka’s). Note: Because Soler was under 23, he still qualified as a July 2 IFA but got his paperwork done early enough to be exempt from the new rules that limit signing bonuses and major league contracts.

The benefits for a team signing an IFA can be seen with a player like Aroldis Chapman who was one of the first of these major-league ready players to sign in the new age of big contracts. Signing for six years and $30.25 million in early 2010, Chapman brought his 100+ mph fastball to the Cincinnati Reds and, though he started his pro career in the minors, reached the big leagues in that very same season (2010). Chapman is making that deal, averaging about $5 million per year, look like a terrific bargain, having provided the Reds 5.9 fWAR and 6.4 rWAR in just over three big-league seasons. Since the going rate of value for 1 WAR is upwards $6 million on the free agent market, the Reds overpaid Chapman in his first two seasons but are getting more value than they’re paying for over the past two (2012, 2013). With two more years on his contract (and an additional year of control left for the Reds), if Chapman maintains his production or even regresses to a 1-WAR production level, the Reds are getting a fantastic deal.

The trend to sign these international players to lucrative, multi-year contracts demonstrates to players who are drafted or signed through the July 2 international free agent market that there is an increasingly wide gap between these players who may or may not turn out to be effective major leaguers and those who toil in the minor leagues and before making the majors. In light of the recent law suit brought forth by three former minor league players, the drastically different treatment of defecting Cubans and pros coming from the Asian leagues shows how discouraging things must be to a minor leaguer who might lose his shot to play in the majors to one of these imports. The salaries that these players are getting (some, like Jorge Soler, who haven’t even played a major league game) dwarf even the major league minimum salary ($500,000 in 2014).

The draft system forces players into selecting one of a very few options: sign for what you can get from teams or go to school. College seniors are even further behind the eight ball because they are unable to leverage a threat of going back to school to get a bigger bonus. While some have chosen playing in independent leagues as another option, it’s so infrequently used that it hardly bears mentioning. After a drafted player or July 2 IFA gets his bonus, he earns almost nothing until he makes the major leagues and even then needs to have between two and three seasons of major league service time before he can start to make even close to the amount of money that is being handed out to these IFAs.

While the situations between drafted and July 2 IFA players on one hand and the other international free agents (out of Cuba and Asia) on the other hand are not entirely equal — the Cuban and Asian have already been professionals — you do have the situation of most major leaguers who never accrue enough playing time to go to arbitration being treated in a vastly different manner than these international free agents who make guaranteed millions without every having played a major league game.

This inequity highlights the differences between a monopoly and a free market system. The draft and July 2 IFA systems are examples of a system wherein the teams are competing against each other but within strict limits set up by the monopolizing organization (MLB). The fact that some players earn a large signing bonus but then must rise to the big leagues in the same poverty-like conditions as those who didn’t get big chunk of change is permitted because MLB players sacrifice the conditions of minor league players’ employment for their own gains. Even with the MLBPA favoring major league players, the conditions imposed upon players who have yet to attain salary arbitration are all collectively bargained from one organization allowing teams to hold a player’s rights for up to seven minor league years and six major league years. The player must only deal with the team and cannot shop his services to the highest bidder.

International Free Agents work in a free market system in which they are free to play for whichever team they want. They automatically have the right to decide their own destinies which is a right that most minor and major league players never receive. This is the system by which Major League Baseball governs its business regarding players. Do you think that there should be a more equitable system for young players that allows them to take part in a freer market?