A Guide to Minimizing the Opportunity Cost of the Yoan Lopez Signing

As Jeff Wiser broke down yesterday, in Cuban right-hander Yoan Lopez, the D-backs added an asset worth far more than the $8.27 million it took to get him inked. As he also covered in great detail, Lopez also cost much more than that $8.27 million. For starters, that figure is a signing bonus, not a guaranteed salary, meaning that anything he makes in the minors or majors while under D-backs control is gravy. But as the team surely knows, the signing will cost them in at least three other very meaningful ways.

1. $8.27M is not $8.27M, thanks to a 100% luxury tax that will be paid on the D-backs’ international amateur bonus pool overage. Without knowing how close they were to their bonus threshold before signing, we can still estimate the present financial cost of the Lopez signing to be in the neighborhood of $16M. Still a good deal.

2. Losing the ability to sign any international amateur for more than $300,000 between July 2015 and July 2017 is a pretty big deal; in fact,  you can’t argue that Lopez is worth a lot without simultaneously admitting that other amateurs over a two year period could be worth as much, or more. Pursuant to an addendum to the Collective Bargaining Agreement, the D-backs will still be penalized even if the sport transitions to an international draft, by losing picks. This is easily the biggest cost associated with the Lopez signing, especially considering they were slated for a 2015-2016 bonus pool more than twice the size of their 2014-2015 pool.

3. Timing the D-backs’ bonus position with that of powerhouses that will include several other teams, like the Yankees and Red Sox, and could end up including the Dodgers as well. This is very important. The Yankees went about their bonus-busting business the absolute right way this year: if they were going to bust, they were going to try to get everyone they liked. The fact that the D-backs weren’t going to have to contend with the Yankees over the next two bonus periods makes Cost #2 that much more costly; the Cubs lurk, but more could be done in the next two periods without the Yankees bidding. But as a completely separate cost, the D-backs will now have its first opportunity to buy amateurs over $300,000 at the exact time when the Yankees and Red Sox and Angels and others will also have its first opportunity in two years. Not only will the D-backs be able to get far less out of their 15-16 and 16-17 bonus pools, but chances are pretty good they’ll get less out of their 17-18 pool, too.

It may sound like I’m very negative about the Lopez signing, but that’s not really true. I’m excited by Lopez, especially after reading Jeff’s piece yesterday, and the lost opportunities only matter if you assume the team would have seized those opportunities, which is far from a sure thing. Perfect is the enemy of good, and all that. Still, we will know much more come late July or August in terms of whether the D-backs handled all of this correctly.

Part of it is that we’ll get a much clearer picture of who Lopez is — this is something the D-backs organization probably already knows, but the rest of us won’t be as far behind on sizing him up come the summer. The rest of it is that, although the D-backs have switched gears with their international pool strategy, a lot depends on whether they still put the pedal to the metal.

There are three prongs to that attack.

Pursue currently available international amateurs

This list starts and almost ends with Yoan Moncada, a “potential franchise player” who Jeff discussed yesterday. With Andrew Velazquez (who could have moved Chris Owings) out of the picture and Brandon Drury still a questionable choice at the keystone, one needs to be pretty high on Domingo Leyba to think that second base is not area of need for the D-backs in the not-too-distant future. I hesitate to bounce Jake Lamb from the medium-term picture because I have kind of a thing for the guy, but there’s also a decent chance that third base becomes a place where the D-backs could add to the major league squad in a couple of years; even if Yasmany Tomas sticks there in the short term, he could be moved off of the position if and when Mark Trumbo departs in two years. In other words, Moncada fits; even if you dream big on Drury, one of either second or third base could be available. There’s also the consideration that Moncada could be so good that it would make tons of sense to move other players out of the way.

The price for Moncada will be high, although the cost may not be. The D-backs set a record for international amateurs with the Lopez signing, besting the $8M figure that saw Roberto Baldoquin sign with the Angels. The main point, though, is that he can’t do any additional opportunity cost damage; now that the D-backs will face Cost #2 (the important one) and Cost #3 above, the overall cost of signing Moncada drops significantly. If it takes Moncada takes $40M to sign, the team that gets him would pay an additional $40M in tax to the league. That sounds rich, but consider this: the D-backs appeared willing to eat a $20M posting fee to sign Masahiro Tanaka last winter or Kenta Maeda this winter. It seems that the team would only sign James Shields if he came at a discount, but what move would you prefer: $80M for four years of an aging Shields, or $80M for full club control over Moncada? I take Moncada given that choice, seven days a week and twice on Sundays.

Part of the problem may be that $40M could be too low. The D-backs beat the Yankees to Lopez, but supposedly, New York could operate at a profit even if it had a $500M payroll. Luxury tax is hard to swallow, but it won’t count against the major league payroll tax — which could make those dollars look like a more attractive spend to the Yankees. And as best I can tell, the signing bonus wouldn’t count, either, unless Moncada signs a major league deal (which would guarantee him a spot on the 40-man). The Yankees have already been proven to be smart about their international amateur spending this period, and the smart money is on the Yankees’ smart money. The Red Sox have oodles of smart money, too. And now, it looks like the Dodgers are in the fray with some smart money of their own (and don’t bet against Jesse Sanchez’s intel). Yeesh.

In the end, would it be shocking to see Moncada get a bonus over $50M? I don’t think so, considering the winner’s curse. Chances are not great for the D-backs to snag Moncada, which is probably one reason why signing Yoan Lopez wasn’t as great as it might otherwise appear. But honestly, I had kind of counted the D-backs out for Tomas and Lopez. The team should at least keep tabs on Moncada, and see if they can turn the two Cuban players they just signed into a recruiting asset — no one’s saying Moncada has to take the top bid, and just like Lopez’s interest was apparently piqued by the idea that the D-backs could provide a fast path to the majors, maybe Moncada’s can be, too. Free agency is where the real money is.

As I said, this is mostly about Moncada, but not completely. All of Baseball America’s Top 30 from in advance of the signing period have been signed, even at least one that had a pre-deal fall through. But hey, Moncada isn’t on there, and neither is Lopez. There’s still five and a half months before the end of this signing period. The D-backs should stay frosty, and jump on any other promising amateur that is eligible to sign before the next signing period in July. Who knows, he might not even be from Latin America — Junichi Tazawa signed with the Red Sox as an amateur once upon a time.

Sell 2014-2015 international signing bonus slots

When the dust settled after the Yankees’ international amateur blitzkrieg last summer, the thought occurred: why were the Yankees even keeping their tradeable bonus slots? The market for bonus slots came into focus shortly thereafter when Tommy La Stella was traded by the Braves to the Cubs for slots.

For it to make sense to trade away slots that would force you to pay additional luxury tax, you’d have to get a return greater than the luxury tax. But in the wake of the La Stella deal, that looks possible, and that’s the nature of the Beyond the Box Score piece that Jeff hooked into his Yoan Lopez article yesterday. Essentially: the D-backs’ first slot for this year’s pool is #15, for $778,000. If they traded that slot away, that $16M estimate for the true cost of the Lopez signing would rise to $16.78M, because $778,000 of the approximately $11M in bonuses they’re paying to international amateurs would suddenly have a luxury tax associated with it.

That means that for that particular bonus slot, the team would need to receive something of greater value in return in order for the exchange to be worthwhile. No one (including me) is saying that trading 2014-2015 slots would be easy, or even possible. A team cannot increase its bonus pool through trades to more than 150% of the amount it starts with, per the CBA, so most teams interested in acquiring them will be interested just to limit their luxury tax, making slots no more worth it to them than they are to the D-backs. I was all geared up to pitch a specific match here, but I can’t find them. The teams that we know are over the limit are well over the limit, except, perhaps, for the Rays (some data is missing). Further complicating matters: trades need to include all of particular slot, which is part of why we often see slots go in both directions when they get traded (it’s kind of like this), and that can make it even harder for a team to add exactly 50%.

Still, this is another channel the D-backs need to keep watching — if they find a buyer, it would help make Lopez worth it (especially if they got a player back, instead of cash). It’s not outside the realm of possibility that a team that didn’t quite bust its limit might want to sign an additional amateur that comes out of the woodwork.

Make pre-deals for future international signing bonus slots

You’re hearing it here last: although teams can’t technically negotiate with players before the relevant signing period begins, it happens. All the time. Deals are frequently made as early as December of the preceding year (when the players in question are probably 15), and for all I know they happen even earlier.

And it’s the big time amateurs that cause bonus pool problems; teams can sign as many as six under $50,000 without those players’ bonuses counting against their pools, and any particular team can sign an infinite number of players for under $10,000, at least per the CBA. If you happen to be a team that wants to hit the 100%-150% range on your bonus pool, then, you need to start planning — early.

Now is the time for the D-backs to start to feel out other teams about their 2015-2016 slots, which are going to be just about worthless to the D-backs. In addition to specific slots, teams start with a smallish but distinct pool of money — the D-backs will have plenty of cash to sign any of the players under $300,000 that they can get their hands on. What they don’t have is an ability to spend up to their full bonus pool, which is likely to be over $5M.

Pre-deals between teams would be a little sketchy, no question. But the Yankees and Red Sox and Angels are in a similar position (although their pools are going to be nowhere near as high, so they might be more inclined to keep what they have). Some teams might only be willing to make that extra pre-deal or two with amateurs if they feel pretty sure that they have an arrangement with the D-backs in place to help make sure they don’t bust their pool despite going to 140% of what they’re currently likely to be allotted. Fewer teams willing to plan like that would mean a smaller market in July for the D-backs’ slots. It just makes sense — as does the D-backs putting a November reminder in their calendar to start shopping their 2016-2017 slots, as well.

Making pre-deals for future slots is probably more important than the other two prongs here, especially considering the unlikelihood of signing Yoan Moncada, and even pre-deals don’t matter a ton. It’s a little like being on a diet, breaking down and ordering a giant Yoan Lopez cheeseburger. The damage is done, even if you leave the last few onion rings on the plate — but it still matters. Small victories, friends.

I still think the smartest play for the D-backs was to write 2014-2015 off, to add a few slots and spend big but within their (newly-increased) bonus pool for 2015-2016 (considering it’s going to be huge), and then to bust their pool in the 2016-2017 period, when they’d be out of sync with the Yankees, Red Sox, and probably Cubs and Dodgers, too. I like the Lopez deal, in part because I’m not sure what the D-backs would have done otherwise — but the team still has some housekeeping before we can call it a win.