The Issue That May Divide MLB and the Union

For the last decade or so, the relationship between Major League Baseball and its players union has remained strikingly, strangely amicable. The two sides are hardly at odds anymore, at least not the way they were during the Marvin Miller era, when every slight suggestion of disagreement could be the spark that led to a labor stoppage.

For the most part, the two sides now get along well, and there's no indication that the next round of collective bargaining agreement talks—set to begin sometime next year—will be any more contentious than the last round. Sure there are issues. And obviously service time concerns will be discussed to avoid future situations like Chicago Cubs infielder Kris Bryant's recent demotion to the minors, a nonsensical baseball move that made all kinds of bottom-line sense. But it's likely some kind of compromise will be reached because it's obvious what both sides want.

The issue that may be the murkiest to sort out will be what to do with international amateur players. Because for the most part the system negotiated into the CBA signed after the 2011 season has been a massive failure.

Penalties implemented into the system, which were supposed to deter teams from superseding strictly set bonus caps, have failed at discouraging teams from overspending. The tipping point was when the Boston Red Sox in March signed 19-year-old Cuban infielder Yoan Moncada to a $31.5 million bonus, even though it meant surrendering another $31.5 million in tax penalties.

"Obviously, when you start to talk about younger Cuban players, that's where the international system has broken down. Because we did not imagine a world in which 19-year old Cubans would receive $30 plus million signing bonuses," Dan Halem, MLB's chief legal officer, said. "The system wasn't designed to address that issue. Certainly it hasn't been effective on that issue."

The system in place slots a set bonus cap based on a team's performance. For example, the team with the worst won-loss record is awarded the highest bonus cap amount. The best team is given the lowest. Teams are penalized when they spend over their allotted bonus amount. Penalties vary according to how much a team oversteps its cap amount. The most severe penalty—the one that the Red Sox shruggingly incurred in signing Moncada—results in a team paying double the amount they spent on bonuses, in addition to forfeiting their right to sign any player for more than $300,000 for the next two signing periods.

The system was intended to replicate the rules of baseball's June draft, in which teams are penalized draft picks if they spend past their slotted bonus amounts. While no team has been penalized a draft pick for exceeding a draft bonus amount since the system was put in place prior to the 2012 season, four teams exceeded their international bonus amounts in this signing period alone, which resulted in nearly $60 million in penalty fees.

"The intent appeared to be, I'm sure, to in some way mirror what's happened in the draft: Redistribute players and limit signing bonuses," said former Yankees executive vice president Mark Newman, who prior to retiring earlier this year helped the team sign a slew of international prospects that resulted in more than $15 million in penalties. "I don't know that it's happened. Doesn't look like it has."

Newman said the decision to overspend New York's bonus amount was made after a careful analysis of that year's signing class and an assessment of future signing classes. But another motivation was the fact that the international market is where the league's more successful teams can stock up on amateur players. Teams that win games can't move up to a higher spot in the draft, but the teams with the best won-loss records can still sign the best players on the international market if they're willing to pay for it.

The uncertainty of what system will be in place when the next CBA takes effect after the 2016 season was also a factor.

"Some of it has to do with the specter of a future draft down there," Newman said. "The potential that we wouldn't be able to do that or any team wouldn't be able to do that in the future."

So while the bonus cap system was supposed to end the lawless "wild west" days of the international market, where teams operated under no restrictions, it has instead created a mad scramble for players among teams looking to avoid the uncertainty of what's coming next.

Newman also concedes that, in reality, the penalties aren't so severe. Teams often find good players on the amateur market for $300,000 or less. Even when adjusted for inflation, Newman said the Yankees paid relatively little for future stars such as Mariano Rivera and Bernie Williams. More recently, the Houston Astros paid just $15,000 to sign future American League batting champion Jose Altuve. The Latin American amateur market is full of such hidden gems.

Halem said the difficulty in implementing this system was that they had nothing else to compare it to. The cap system was set after numerous discussions with the union during CBA talks about an international draft. "The system you're seeing was a compromise," Halem said. "At the end we had moved from a draft proposal to a cap system in which a club that exceeds its signing bonus pool is subject to certain penalties." A union spokesman did not return several requests for comment.

Unintended consequences have arisen in the system, some good, some bad.

One team official said that his organization was now more forced to heavily scout 13 and 14-year-old players in order to determine whether it was worth sacrificing two years of potentially million dollar signings. Although it bothered him to do so, the official said he had to be properly prepared to make that decision.

This is worrisome on two levels: First, trying to project what 13 or 14-year-old players will be like in two years seems both inherently kind of sketchy and like a rather inexact science. Secondly, heavily scouting such young players creates an even bigger disincentive for Dominican kids to stay in school. Most kids already chose to drop out an an early age, but if tryouts at age 13 are going to determine someone's market value, then surely more trainers and family members will discourage these kids from staying in school, telling them instead to focus on baseball.

But not every unexpected consequence of the system has been bad.

"A positive byproduct from a central baseball standpoint is that the substantial international tax proceeds will be used to fund programs to develop baseball around the world and green light programs that may not have been possible without the tax dollars," Halem said.

Several times each month, MLB officials and officials from the Major League Players Association meet in order to determine how best to spend the penalty money. This has become an increasingly difficult task because there's so much money to use.

But according to MLB, the money has already been used for education programs in the Dominican; prospects leagues in Puerto Rico and Nicaragua; a coach development program for interested parties around the world; the hiring of MLB scouts in Panama, Colombia and Nicaragua; and an international prospect series where players from Latin America are matched up against American high school players.

And there are many more future programs that may benefit. Additionally, Halem said the money could be used to fund possible MLB exhibition games around the world. One possibility that new commissioner Rob Manfred mentioned recently was playing a game in Cuba, which most likely would be funded by penalty tax money.

So even a broken system has its advantages.

"However, the system wasn't designed to have a club pay $30 million in taxes," Halem said. "It was designed to restrain spending so that the clubs with the worst won-loss record have an advantage over other clubs in terms of signing international players and thus promote competitive balance."

Most concerning about this system is that there don't appear to be any easy solutions. It's difficult to standardize a system that can incorporate 16-year-old Latin American amateurs and 20-something year old American college players. And even then, there is no consensus yet on whether the owners will again push for an international draft, or whether the players—with heavy influence from Latin American players, who believe a draft will threaten the development of the game in their homes countries—will again resist draft overtures.

Complicating things is the Cuban factor. Nobody really knows how to implement these players, who were outside it for so long, into the system. Currently, players 23 years or older with five years of experience in Cuba's National Series are considered unrestricted free agents. All others are subject to the bonus cap.

But those distinctions may soon prove moot. President Obama has recently pledged for better relations with Cuba, which many interpret to be an eventual lifting of the embargo. Such a change would allow MLB to more easily incorporate Cubans into the league since players would not have to leave their home country illegally. But nobody knows if or when these changes will occur. MLB is forced to wait patiently.

"We're going to be guided by the government policy on Cuba," Halem said. "We will make decisions regarding how MLB will proceed in Cuba after we fully understand our government's policy changes. We are not going to delve into foreign policy, but will determine the appropriate policies for MLB in light of our government's policies."

For now the union and the league will continue to meet regularly to discuss how to spend the tax money. But soon those conversations will have turn into more about what changes need to be made. And that may not be such a friendly conversation.