03 July 2012

Amateur Acquisitions: IFA signings; remaining Draft signings

International Signings -- Day 1 Wrap
Yesterday marked the first day that first-time eligible international free agents could sign with Major League organizations. Ben Badler at Baseball America kept folks abreast of all the action over at the BA Prospect Blog (check it out if you haven't already).  One quick note -- the BA rankings discussed are to anchor the piece and any resulting conversation.  In no way should the rankings be taken as gospel.  Badler does as good a job as anyone at compiling info on these players, but the opinions on these 16-year olds vary greatly from organization to organization.  We use the rankings as a useful cross-section of talented international players; that is enough for this exercise.

The down and dirty details? Out of the Top 20 IFA prospects listed by Baseball America, 14 have been announced as coming to terms with MLB clubs. Out of that group of signing prospects, seven are headed to farm systems in the AL East. Out of those seven, none are heading to Baltimore.  Here is the breakdown (including BA ranking):

Blue Jays
Franklin Barreto, ss/cf, Venezuela (BA Rank #1)
Luis Castro, ss, Venezuela (BA Rank #9)

Jose Mujica, rhp, Venezuela (BA Rank #3)
David Rodriguez, c, Venezuela (BA Rank #14)

Luis Torrens, c, Venezuela (BA Rank #2)
Alexander Palma, of, Venezuela (BA Rank #4)

Red Sox
Jose Almonte, rhp, Dominican Republic (BA Rank #17)

In previous years Baltimore has shied away from swiming in the deeper waters of high bonus international free agents due to expected return on investment.  This year, MLB has placed a soft cap on international spending for all teams, whereby teams cannot spend more than $2.9 MM on international free agents without incurring a penalty.  This $2.9 MM soft cap can be tweaked a little with up to six $50 K signings being permitted without counting against the overall allotment.

In 2013, it is expected that pool allotments for signing IFAs will be handed out on a sliding scale in similar fashion to the June Amateur Draft, with the best records from 2012 receiving smaller allotments than those teams at the bottom of the standings.  MLB hopes to then transition to an International Draft in 2014, though the details surrounding such an endeavor still remain convoluted.

With more cost certainty this year in the top tier of international signings, it is somewhat disappointing to see Baltimore still on the sidelines -- at least after Day 1 of the signing period.  Next year the O's will have a built in advantage over a number of teams, depending on their final record.  While the preference is for Baltimore to flex this advantage next year, at least fans can take solace in the fact that the other four AL East teams will be limited in their spending options.  So even if Baltimore continues to sit out the IFA feeding frenzy, at least the rest of the AL East won't be getting quite as far ahead as they have in years' past, and thus far in 2012.

Draft Signings
As of this morning, Baltimore still had yet to ink two of their top ten selections -- first rounder, and fourth overall selection, Kevin Gausman (rhp, LSU), and fifth rounder Colin Poche (rhp, Marcus HS, Flower Mound, Texas).  Thus far, Baltimore has spent just under $2.5 MM of their allotted $6.8 MM (assuming all top ten round selections sign).  The following is a breakdown as to what is available for Gausman and Poche, as well as a quick look at whether the O's should be looking to signing any of the remaining selections after the tenth round for over the $100K allotted amount -- most notably fifteenth rounder Derick Velasquez (rhp, Merced College).

Gausman's pick is allotted $4.2 MM by MLB.  When we selected Gausman in our Shadow Draft, we did so with an estimate that we could sign him for $3.5-3.75 MM.  That estimate looks pretty spot on in comparison to other top six picks that have signed thus far:

1:1 Carlos Correa (ss, Astros) - Signed for $4.8 MM (allotment $7.2 MM)
1:2 Byron Buxton (of, Twins) - Signed for $6.0 MM (allotment $6.2 MM)
1:3 Mike Zunino (c, Mariners) - Signed for $4.0 MM (allotment $5.2 MM)
1:4 Kevin Gausman (rhp, LSU) - Unsigned (allotment $4.2 MM)
1:5 Kyle Zimmer (rhp, Royals) - Signed for $3.0 MM (allotment $3.5 MM)

The O's have saved $120K by signing various of their top eight signees for under allotment, which ups Gausman's "allotment" to around $4.3 MM  They could spend an additional $341 K (approx.) without losing a pick next year, but would be taxed 75% on the overage (this is important).

If Gausman signs for the full allotment of $4.2, Baltimore will have $120K untaxed to tack on to Poche's allotment or the allotment for fifteenth rounder Velasquez. Ideally Baltimore will save more money on Gausman in order to increase the allotment for these other two picks.  Why? Once we dig into the taxable overage for these two players, we push closer to the area where risk and reward get more uncomfortable.

Poche's allotment is $262 K.  Velasquez's allotment is $100K.  Adding another $120 K to either bumps the allotment into an area that is still bearable from a risk reward standpoint (about fourth round money for Poche and fifth round money for Velasquez).  Anything over that comes at a 175% rate, which quickly drives up the respective price of these two.  Here is how it shakes out assuming Gausman were to sign for $4.2 MM and Baltimore is willing to spend up to their allotted 5% overage:

Actual Allotment/Round Selected - $262,000/5th
Bonus w/$120K saved from other signings/Round Equivalent - $380,000/4th
Additional $100 K to player - $555,000/late-2nd
Additional $150 K to player - $645,000/mid-2nd
Additional $200 K to player - $730,000/early-2nd
Additional $300 K to player - $905,00/supplemental-1st

Actual Allotment/Round Selected - $100,000/15th
Bonus w/$120K saved from other signings/Round Equivalent - $220,000/5th
Additional $100 K to player - $395,000/late-3rd
Additional $150 K to player - $485,000/early-3rd
Additional $200 K to player - $570,000/mid-2nd
Additional $300 K to player - $745,000/early-2nd

While both Pouce and Velasquez have upside, Poche is not a second round talent from a risk profile perspective and it is debatable as to whether Velasquez should be considered more than a third or fourth round talent form a risk profile perspective.  Further, if Velasquez was signable for around $350-400 K, one would think he would have come off the board around the fourth or fifth round. My guess, having been witness to negotiations of this type first hand, is that Velasquez is looking for something closer to $600-650 K.  Above, Baltimore had room to give him $520 K without losing a pick. Assuming they save $200 K by signing Gausman for just $4.0 MM, that would make the total cost for Velasquez, tax included, $875,000 (with $650,000 of that going to the player).  That would be top sixty overall money.

What's the point of all of this? It's not as simple as "there is money to sign Gausman/Velasquez/Poche."  If Baltimore saves $500 K by signing Gausman to a $3.7 MM deal, that $500 K, with the $120 K already saved through other signings, should in and of itself give Baltimore the money to sign Poche and Velasquez to $300,000 and $675,000, respectively, without incurring any penalty.  If Gausman signs for the full $4.2 MM, and we assume Poche and Velasquez can be had for around $275 K and $500 K, respectively, it would end up costing Baltimore an additional $525,000 (or about 7.75% of their draft budget).

Yes, it's just money. But in reviewing the formulation and implementation of a draft strategy, a resulting class in which Poche and Velasquez comprise a total of 18% of your budget ($775 K in bonus and $525 K in taxes levied) is simply not going to score very high from an "efficient and effective" standpoint. 

Beginning this year, the draft is about a lot more than "get your guys". The teams that thrive in this environment are going to be the teams that best utilize their bonus allotments.  O's fans should not simply be hoping to see Gausman, Poche and Velasquez signed -- they should be hoping to see them signed such that a large chunk of tax is not required.  The alternative is a potential indication that Baltimore was not as effective in their draft spend as they probably could have been. That means talent was likely left on the table.

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