July 5, 2013

OVERSPENDING

I don't know if it is a desperation move or laying the foundation for the Big Excuse, but the Cubs have blown through their international signing bonus pool money. As a result, the Cubs could face stiff penalties including a 100 percent fine and signing limitations for next year.

Steve Adams of MLBTR believes that with the signing of Elroy Jimenez, the Cubs have spent $6.27 million for international players. The Cubs original bonus pool of $4.557 million and the trades that brought in bonus slot values gave the Cubs only to $5.520 million.

That would mean the Cubs are over their allotted bonus pool by $749,700 -- an overage of 13.6 percent.  The CBA  penalty for exceeding a bonus pool by 10-15 percent would be a 100 percent tax on the overage as well as the inability to sign a player for more than $500K in next year's signing period.  The penalty for exceeding the pool by 15% or more is a 100 percent tax on the overage and a $250K per player limit next year.

If the reported signing bonuses aren't 100 percent accurate, the Cubs could be less than 10 percent over. However, barring a significant inaccuracy, they would still fall into the 5-10 percent overage bracket, which would prevent them from signing a player for more than $500K in 2014-15 but require only a 75 percent overage tax.

Per the new CBA, teams are allowed to acquire up to 50 percent of their initial bonus pool. That would be a total of $2,278,600 for the Cubs, meaning they can still acquire an additional $1,315,600. That would be enough to cover the remaining difference and keep the Cubs from incurring limitations on next year's spending.

 The problem is that every other team now knows what the Cubs are up to with the international draft pool. They all know that the Cubs have overspent their allotment and will seek to get more slot values in trades before the deadline to offset their overage spending. But other teams have no duty to help the Cubs out of their problem. Other teams have been using their bonus pools to sign players. It would be in those teams best interests to NOT send additional cap money to the Cubs in deals so the Cubs will be forced to spend significantly less per player next season.

It is a familiar refrain that we will hear in the near future. The Epstein draft model was to overspend on the draft picks, but the new CBA made that nearly impossible with hard caps and harsh penalties. Epstein whined about the new CBA hindering his ability to stockpile talent. Likewise, we will hear that the Cubs rebuilding plans will stall next year if the Cubs are penalized by only being able to offer $500,000 bonuses to 16 year Latin ballplayers.

In any event, is this money well spent? The Cubs are on pace to spend more than a million dollars each on a hand full of foreign teenagers. This is the equivalent of first round draft slot money for six kids who have no real high level competition or experience.

High schoolers drafted in the normal draft only have a 0.5 percent chance of making to a big league roster during the professional career. It is not that much better for Latin teenagers. Only two percent of prospects signed out of the Dominican Republic make it to the majors. SI.com examined the signings of 3,099 Dominican amateurs from 2003 to 2010 and found that 18-year-old players were twice as likely to appear in the majors as 16-year-olds, and at a fraction of the price.

That is why many teams will sign as many international players as possible in the budget. The Blue Jays have averaged more than a dozen over the years, but at a fraction of the U.S. draft signing allotments for players chose after Round 10. 

The Cubs, with penalties, may spend $7.7 million for five players. With the odds that only two percent of foreign signees make it to the majors, the odds are that none of the Cubs signees will make it to the big club.

Then, one has to consider what the Cubs could have done with $6.25 to $7.7 million to better this season the current major league roster.  When Ricketts bought the club, he proudly proclaimed that the team was only one or two players away from competing for a championship. Many thought his statement was naive. But it was all about winning from Day One. Now, three years later the regression continues.

Overspending does not guarantee success.  The financial ability to spend more to cover one's mistakes is a crutch that many general managers have used in the past. But the Cubs are quickly turning into a small market team by diverting all capital and resources to develop real estate holdings at the expense of the actual baseball operations. Epstein's international spending spree may have been done because he will not be allowed to spend like a drunken sailor anymore once the Wrigley renovations begin.