International Free Agency: Explaining the Trading of Players for Slot Space

Baseball trades are unlike those in any other sports: Except in very limited circumstances, draft picks cannot be traded. Therefore the vast majority of trades are of the “player(s)-for-player(s)” variety. Sometimes cash is added to the deal; on rare occasions replacing player(s). However, on Sunday the Red Sox executed a pair of trades, sending minor league prospects away and returning no players and no money. Instead, they received additional international bonus pool allocations. Why did the Red Sox do this… and how does it work?

In order to understand these trades, we need to start off with the rules of signing international free agents. But we can’t start with the rules implemented for this year: no, we have to go back to 2012 and the old IFA regulations.

2012-2016

Under the previous collective bargaining agreement, the international free agent market went from a completely unfettered marketplace – where a Nomar Mazara could get a $5 million signing bonus – to a semi-structured series of statutes, which included a soft-cap and penalty provisions.

Within this byzantine system:

  1. Teams had a specific amount of money they could spend (a cap), which was initially the same for all teams, but eventually switched to a different amount based upon the previous year’s record. (Teams were given four “slots” that were essentially proxies for an international draft position.)
  2. Teams could go over their cap with varying degrees of penalties attached. All money over the cap would be taxed by MLB (at 75% up to 5% over the caps, at 100% for everything over 5%). Teams going over would also be limited the next season in how they could allocate their cap money, with penalties ranging from only being able to sign one player over $500,000 to not being able to sign any players to bonuses of more than $250,000.

In 2014, there were some subtle but significant alterations to these penalties. All overages were now taxed at 100%. And, if a team went over their bonus pool by more than 15%, they would not be able to sign any player to a bonus of more than $300K for two seasons.

  1. Slots could be traded, with teams being able to increase their IFA allocation by as much as 50%.
  2. Signing bonuses of $10,000 or less were not counted toward the bonus cap.

The original intent was for this to be temporary, with an International Draft taking its place. But that obviously has not happened. Without slotting, as baseball has imposed on the domestic amatuer draft, the desired drag on international bonuses also did not take place. For example, the New York Yankees splashed over $17 million on 52 international players during the 2014-15 signing period, going over their allocated bonus pool by about $15 million. Their top signing – Dermis Garcia at $3 million – cost more than their allocated bonus pool.

They weren’t the only team to decide that a two-year trip to the sideline – where they would only be able to sign players to $300,000 or lower bonuses – along with the tax penalties was worth it. The Red Sox also exceeded their $1.9 million cap in ‘14 by signing two of the top ten pitchers of that period – Christopher Acosta and Anderson Espinoza – for a combined $3.3 million. They would then completely smash the existing system by giving Yoan Moncada a $31.5 million bonus in March 2015.

One effect of overspending and the resulting penalty was that each signing period had a few new teams join the overage club. With the Red Sox and Yankees sidelined, others stepped into the breach and overspent, putting themselves into the penalty phase.

This preamble is important as we consider the 2017 signing period: Eleven teams are still serving penalties for going over their allocations in the 2015 or 2016 signing period.

New Rules for 2017

The newest CBA changes the rules. No longer are there draconian penalties for going over the soft-cap, because the soft-cap has been hardened. Now, each team is given a hard cap that they can not exceed of between $4.75 million and $5.75 million. Except…

Teams are still able to trade part or all of their free agent allocation space to another team. By way of the trade, any team can increase their international bonus allocation up to an additional 75% (which will be reduced to 60% in 2019). So, a team like the Red Sox or Yankees, with their $4.75 million cap, could trade to bring their cap number to approximately $8.3 million. While teams could previously trade only slots (and the specific money from the slot), teams now can send any amount of allocation cash in a trade. And while there are no penalties involved for going over the cap (because, a team can’t go over the cap), the penalties from the previous CBA still apply. Which means the St. Louis Cardinals, the Chicago Cubs, the Cincinnati Reds, and eight other teams are still unable to give a bonus of more than $300K to any prospect.

The Trades

The first trade that came down the wires was with the Cincinnati Reds, as the Red Sox sent 21-year-old first baseman Nick Longhi to the Reds for international draft allocation money which was later determined to be $2.75 million.

Longhi has progressed steadily up the Red Sox ladder since being drafted in the 30th round of the 2013 draft. The right-handed hitter put up a line of .262/.306/.401 with 15 doubles and six homers over 62 games with the AA Portland Sea Dogs. However, Longhi was about to put the Red Sox in a tough position, as he would have needed to be placed on the 40-man roster to avoid being picked in the offseason Rule 5 draft after 2017. With Sam Travis – now with the Boston Red Sox – above him in the pecking order and Josh Ockimey nipping at his heels in Salem, trading Longhi made sense. And, given that the Red Sox could not participate in last season’s international free agent market, getting additional money to sign a new influx of internationals was a prudent decision.

For the Reds, the trade also made sense. With their signing bonuses restricted, Cincinnati was not going to be able to utilize their entire $5.25 million cap. As the Reds are only giving away the allocation (not actual money), they are essentially being given Longhi for free. With little behind Joey Votto in the system – the Red’s AAA affiliate Louisville Bats have used nine different first baseman with 33-year-old Hernan Iribarren and 25-year-old Sebastian Elizalde leading the way with 23 games, while the AA affiliate Pensacola Blue Wahoos have mostly used 25-year old Eric Jagielo and 24-year-old Angelo Gumbs at the position – Longhi may well be worth a 40-man spot for the Reds this winter.

The second trade the Red Sox made was with the St. Louis Cardinals, who sent an undisclosed amount of their bonus allocation to Boston – likely to be in the $800K range, which would bring the Red Sox to their limit of $8.3 million – for infielders Imeldo Diaz and Stanley Espinal. Diaz and Espinal both signed during the 2014 international signing period, and both began the 2017 season with the Class A Lowell Spinners. Neither player has shown much offensive spark as of yet – 20-year-old Espinal has a career line of .251/.305/.377 while 19-year-old Diaz has batted .208/.269/.333. For the Red Sox, this trade gets rid of a couple of cheap lottery tickets for the chance to buy a more expensive, newer, shinier, lottery ticket. For the Cardinals, it is a chance to pick up a couple of pieces that they may value at more than the 300K maximum they can pay out on the free agent market this season – after all, both players have made it out of the DSL and into stateside leagues. And, the price, as it was for the Reds, is still free.

On the surface, trading a tangible quantity like Nick Longhi for something as amorphous as cap allocation space seems strange. In baseball, where there is no such tradition as in other pro sports of salary cap space, it is stranger still. However, when placed in context of what the cap allocation actually can bring to a team, it starts to make sense. While the Red Sox are done with this specific trade market this season, it should not be a surprise if they enter it again next year. After all, there will still be teams in the penalty box that can’t spend to their allocation.


Follow Brandon on Twitter @cuzittt

Featured image courtesy of Bryan Green.

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