The Smart D-backs/Phillies Bonus Slot Trade and Lessons to Learn

Considering the context, the D-backs sprung a very smart little trade yesterday. Under the current CBA (which also provides for an international draft that hasn’t happened yet), international amateurs, all of whom are free agents, are lumped into a single system for MLB teams. You know the rest, by now; in busting last period’s pool by signing Yoan Lopez, the D-backs forfeited the right to sign any amateur over $300,000 between July 2, 2015 and July 1, 2017. Since the size of bonus pools are keyed to the previous year’s standings, however, the team stood alone with a $5,393,900 pool for this period that has just begun; and that’s more significant than it sounds, because the pools are not distributed linearly.

You can see the whole list here at Baseball America, but note that the difference between the #1 pool and the #6 pool (about $1.7M) is bigger than the difference between the #7 pool and the #30 pool (about $1.5M). Every team got a base of $700k this time around, and each got a total of 4 bonus slots with values in descending value. It’s set up that way not necessarily to match the the Rule 4 draft, but to help line up the runway for an international draft, something the CBA would like to have you believe is imminent. For now, though, teams can trade their bonus allotments — but only by trading the slots themselves, and they cannot increase their bonus pool by more than 50%. Which is why this was such impressive news:

#Dbacks acquire P Josh Taylor, P Chris Oliver & the Phillies’ 1st international bonus pool slot for our 1st international bonus pool slot.

— Arizona Diamondbacks (@Dbacks) July 5, 2015

We talked this move out on The Pool Shot, as we recorded shortly after the news broke. Check our discussion (picks up right before the 20:00 mark). Some numbers can help illustrate, below, but also, there are some takeaways from the trade and from how other teams handled July 2 that the D-backs could use to improve their approach next time around.

A Smart Trade

You see, the D-backs’ bonus slots drop down as rapidly from #1 as the overall bonus pools would make you think. Their “first round” slot was a whopping $3,590,400, with value dropping all the way to $518,100, $349,800, and $235,600 for the other three slots. The problem: the team with the second-largest bonus pool, the Rockies, were assigned $4,966,300, and since pools can only be increased by 50%, anything beyond $2,483,150 just wouldn’t help them (unless they traded some of their own slots to compensate).

No team could have taken on the D-backs’ top slot and fully used it without making some kind of follow-on move. But the D-backs didn’t force a different team to make that move — they built it right in. In my daydreams, they got the idea while watching Die Hard With a Vengeance.

There was still some leakage here; the difference between the #1 and #9 slots is $2,238,300, more than $700k beyond the maximum increase that the Phillies could possibly enjoy. They could still trade away one of their lower slots, so I don’t think we can conclude that the D-backs got no value at all for the surplus $700k, but it’s not like it was as perfect as the solution that John and Zeus came up with at the fountain.

Not long after the #10 Reds would a trade even like this one start to make very little sense for the other team. It’s not just that those teams’ maximum increases start to diminish (to $1,075,150 for the #20 Mariners, to $984,300 for the #30 Angels), but also that their #1 picks create much bigger gaps with the #1 overall, and therefore, even more leakage should the D-backs have swapped picks with another team. Meanwhile, the Rockies have signed just three players for over $300k, and still appear to have more than half of their original pool to spend. The Rangers aren’t too far off, but still have plenty of elbow room. The Astros, Twins, White Sox, and Reds haven’t come close.

I’m not entirely sure how the Phillies are going to use this money, either, but we may learn more about that soon. The Cubs would at least have valued the bonus pool room from a money perspective; since they’re busting their pool again this year and will pay a 100% penalty on their overage, they could have saved $1,615,350 with more pool space (since that amount would no longer be overage, and there would not be a penalty on that gap). The Red Sox had the most curious July 2 of any team… but we’ll get back to that in a minute.

We knew this wasn’t going to be easy, but for my own part, I don’t think I fully appreciated just how hard it was going to be to move some of the D-backs’ bonus pool this year, all because of the enormous size of that single #1 overall slot. In the wake of the Yoan Lopez signing, we posted a three-part plan for minimizing that opportunity cost. The team didn’t sign any additional international amateurs in the last period, at least none of note. They also didn’t sell any of their 2014-2015 slots, something that would have offered a very limited return anyway. But credit the team for figuring out a way to do something with all their extra room this year.

As for the return, I’ll refer you back to Jeff’s comments on The Pool Shot. Given the small size of the market for bonus slots, however, and given that the difference was worth very little to the D-backs, it wouldn’t take much for this to be a good deal for the team. If they turn around and sell the #9 slot they got in the trade for something else of value, we might upgrade this whole maneuver from “smart” to “well done.”

Lessons for Next Year

The young signing period has already offered some interesting case studies. I think we can just list them:

1. The Phillies: traded for extra room this year through their trade with the D-backs. I don’t think it’s a stretch to suggest that they’re looking ahead. The D-backs are something of a cautionary tale here, busting a pool to net one decent prospect despite having the largest pool in the following bonus period. The Phillies aren’t just baseball’s worst team right now; they’re lapping the field. I do think we’ll see another move from them here shortly, but it seems like they intend to use the pool they’re “earning” for next season.
2. The Cubs: out from a long winter of not signing any international amateurs for over $250k, the Cubs turned right back around and busted their pool again the very first day they were able to do so. From that, I think we can take that at least one team thought that busting their pool was wise strategy. Mark your calendar for July 2, 2018, to see them do it again (if there is no international draft first).
3. The Dodgers: outbid for Yoan Lopez, the Dodgers didn’t bust their pool in the last period — it might have been a more interesting auction for Yoan Moncada had the D-backs not snagged Lopez. Once the new period started, though, the Dodgers set about the business of trading away bonus slots. That’s a pretty good indication that the ability to spend $1 on international amateurs is worth more than $2, because every dollar they trade away will result in them paying an extra dollar in penalties.
4. The Red Sox: this is the incredible one. Despite busting their pool in the 2014-2015 period — just like the D-backs — and not being able to sign any international amateurs during this period for over $300,000 — just like the D-backs — the Red Sox came away with not one but two of Baseball America’s top 30 prospects, including #14 Albert Guaimaro. We know now: it’s possible to game the system within the system.

There isn’t a whole lot left for the D-backs to do in this bonus pool period, although they really should sell as much of their bonus allotment as they can while still picking up some fringy guys for the system, and to fill out the Dominican Summer League roster. The lessons from the Cubs and Dodgers, we’ll keep in our pockets until July 2017, or maybe a year from now when it’s time to get down to the business of laying the groundwork for a July 2017 strategy. The lesson from the Phillies may stay in the background even longer than that.

From the Red Sox, though? That’s interesting as all hell, and it’s a lesson that can be put into action in July 2016. Which means: it’s time to start laying the groundwork for July 2016 right now.

Much of this is speculation, but it seems that the Red Sox pulled off this laugh-in-the-face-of-signing-restrictions maneuver by working with the 16 year olds’ trainers/pseudo-agents. At FanGraphs, Kiley McDaniel had discussed the possibility (see the section “The Package Deal”) that a team like the Red Sox might get prospects to sign for $300k (instead of $1M or more) by working out deals to sign a handful of other prospects belonging to/represented by the same buscons. They couldn’t pay Guaimaro $1.2M, let’s say, but there’s no rule against paying him $300k and signing three other players for $300k who the Red Sox might not otherwise have signed.

The ethics of that kind of arrangement are worse than iffy. The buscon in question — if he is receiving a cut of each of his players’ earnings — might end up in exactly the same position, or potentially better. That would seem to be at the expense of any prospect promising enough for a team like the Red Sox to engage in this kind of workaround, however; there’s a pretty big difference between $300k and what Guaimaro might have commanded from another team without the baggage of other players.

Taking advantage of the rules as they are is something every team needs to try to do as frequently as possible, although big market teams with more money than they can really spend have a greater incentive to extract value from the margins like this. This, though — this bothers me. It bothers me because these kids are so damned young. It also bothers me even more because someone acting in this buscon capacity is taking on the role of an agent, but is not representing each of his individual players to the best of his ability. If Guaimaro’s agent was a lawyer and this were in the United States, he’d be investigated just based on how bad this looks, and disciplined for this if it’s true — severely. Combine those two things together… not cool.

If it’s really true that prospects may redistribute funds after the fact, then I have fewer qualms with the process, although I think all reactions are reasonable. The fact remains, though, that the Red Sox have shown the D-backs and every other team out there that having one’s pool busted does not mean one cannot be a player for international amateurs. And before passing judgment on a moral dilemma, the D-backs need to get in a position to do something here — it seems to be the case that strong relationships between teams and any buscon with a program and some prospects to showcase is a necessary step. So here are the action items for the D-backs now:

1. Start feeling teams out for whether they may be interested in making a deal for the D-backs’ top slot for the 2016-2017 period, as teams may start “spending” that money early, within even a few months.
2. Start feeling out prospect trainers in the Dominican and elsewhere, even to the point of sharing training resources.
3. Make a lot of new friends in the Mexican League for possible purchase of players right now or not far down the road, for the reasons that McDaniel outlined in his article — it could net the D-backs an opportunity or two to sign a decent prospect for $1.2M despite the $300k threshold, as the freight apparently isn’t charged to the team for bonus pool purposes the way that a trainer’s fee is in other environs.

Next year, the D-backs may end up with a bonus pool smaller than the one they were assigned this year, but if the Red Sox are a guide, that may be more than enough to get something done. And hey, if the only thing to come out of a full commitment to this process is a network of stronger relationships on which to build a year from now, in advance of the 2017-2018 period — that’s okay too. Because unless there’s an international draft by then, the D-backs will probably want to bust their pool in that 2017-2018 period, as soon as they’re able. Whether they’re able to do much with that opportunity while competing with the Yankees and Red Sox, well, that’s the part we don’t yet know.