22 October 2015

Expensive Central And South American Prospects Are Overrated

The Orioles are well known for their complete and utter disinterest in using their international signing bonus pool to sign prospects from Central and South America. Baseball America claims that the Orioles spent the least of all teams in 2013 and second lowest in 2014.  Orioles’ fans are concerned by this because about one-sixth of all top 100 prospects as ranked by Baseball America from 2010-2015 fell into this category and therefore the Orioles not taking full advantage of their bonus pool would seem to hurt their efforts to build a top farm system. This begs the question of how the most expensive, and therefore highest ranked Central and South American prospects, perform when compared to prospects drafted in the normal draft.

For clarification, Cuban players and Asian foreign professionals are exempt from the international signing bonus pool and therefore aren’t considered in this analysis because there’s a major difference between signing a 25 year old veteran and a 16 year old prospect.

Historically, there is no question that top international prospects have been akin to penny stocks. Beyond the Box Score has a list of the thirty-one largest Latin American signings prior to 2010. The list consists of two major successes in Miguel Sano and Miguel Cabrera with a few still interesting players such as Gary Sanchez, Jurickson Profar and Luis Sardinas as well as twenty-six busts. Teams were highly rewarded if they chose one of the successes (which were selected more than ten years apart) but mostly received zero or minimal production in return for their investment. In 2011, Jon Shepherd concluded that Latin talent is overpriced.

In 2007 and 2008, Baseball America compiled lists of players that received one of the top twenty international bonuses and the amount each received. Comparing these players to second and third round players drafted during these two years can determine a historical baseline to compare drafted players to international signings.

In the class of 2007, two of these twenty players had their bonus vacated due to fraud and therefore aren’t included in the sample. Of the eighteen remaining players, seven were ranked by Baseball America of which three; Julio Teheran (#5), Martin Perez (#17) and Arodys Vizcaino (#40) were ranked in the top 50 at least once. The three players mentioned above plus Wilmer Flores and Jefry Marte eventually made it to the majors for at least a cup of coffee. Teheran and Perez appear to be decent starters, while Flores has been a regular and fan favorite in New York. These eighteen players were a bargain as they cost only $12.59 million or about $700k per prospect.

The class of 2008 wasn’t as fortunate. Two of these twenty players also had their bonus vacated due to fraud and aren’t included in the sample. Only two of the remaining eighteen players were ranked by Baseball America. These players were Michael Ynoa (#20) and Adys Portillio (#100) but neither of these players made it to the majors. The only three members of this class that did were Rafael Rodriguez, Yorman Rodriguez and Ramon Flores and none had an impact. This class was a complete bust and cost $22.42 million or about $1.25M per prospect.

In comparison, there were 57 players drafted and signed from the second round of the 2007 and 2008 drafts combined.  Nine of these players were ultimately ranked as top 100 prospects by Baseball America at least once and four prospects, Giancarlo Stanton (#3), Freddie Freeman (#17), Anthony Gose (#39) and Jordan Zimmermann (#41) were ranked in the top 50. 27 of these 57 players played in the majors and a number turned into good players such as Stanton, Zimmermann, Freeman, Tyson Ross and Zack Cozart. These 57 players cost $34.2M or about $600k per prospect. This is slightly less expensive than the international prospects listed above and consists of considerably more talent, albeit with a sample size that’s 21 players larger.

There were 59 players drafted and signed from the third round of the 2007 and 2008 drafts combined of which five were ranked in the top 100 by Baseball America and one, Mr. Steven Souza was ranked in the top 50 at #37. 30 of these 59 players ultimately made it to the majors and some like Jonathan Lucroy, Craig Kimbrel, Steve Souza, Danny Espinosa, Danny Duffy, Jordy Mercer and Vance Worley became regular players. These 59 players cost $21.3M or roughly $360k per prospect. This is considerably less expensive than the international prospects listed above and also consists of more talent.

It’s very easy to make the argument that there was more talent developed in the fourth round (Darwin Barney, Corey Kulber, Derek Norris, Dee Gordon and Brandon Crawford), the fifth round (Jake Arrieta, Alex Avila, Steve Cishek, Daniel Hudson, Adrian Nieto) and sixth round (Anthony Rizzo, Josh Harrison and J.B Shuck) in these rounds than in the international prospects listed above at a considerably lower cost.

It seems clear that based on the data available that expensive international signings have historically been less productive than national draft choices. In addition, it seems questionable whether the 2007 and 2008 classes combined as defined above were worth the money spent.

I was unable to find a list of the most expensive international signings for 2009 but Baseball America did compile a list of the projected top 25 bonuses for 2009. It doesn't look very exciting as Miguel Sano is looking like a star, but the best remaining players are probably Profar and Sardinas, neither of whom have done much in the majors.

In 2010, Baseball America started keeping lists of players that earned one of the top 30 international bonuses as well as the amount. It is possible to do the same thing for 2010, 2011 and 2012 as was done in 2007 and 2008 to determine the current value of expensive international prospects.

Andres Serrano, one of the ninety players listed in these three lists had his contract voided by MLB during that time period due to unverified age and identification claims and therefore isn’t included in this study.

Of these prospects, so far nine have been ranked by Baseball America of which two, Raul Mondesi and Carlos Martinez, were ranked in the top 50 at least once. Baseball America was bullish on this set of nine prospects in their midseason rankings as they ranked Alex Reyes at #10, Franklin Barreto at #22, Manuel Margot at #24, Raul Mondesi at #25, and Nomar Mazara at #34 indicating that this group may have a strong showing in Baseball America’s 2016 rankings. Three of the eighty-nine prospects in the entire sample, Roberto Osuna, Orlando Calixte and Carlos Martinez have played in the majors.

A number of these prospects are atypical. Alexander Reyes grew up in New Jersey. When it became clear that he was a baseball star, his family decided to move to the Dominican Republic where they have citizenship so that he could practice all year round to become a professional baseball player. Raul Mondesi Jr., is the son of former all-star baseball player Raul Mondesi. While he did grow up in the Dominican Republic, it is possible that being the son of a former all-star gave him an atypical competitive advantage. Carlos Martinez was originally signed by the Boston Red Sox for just $140,000 but his contract was voided by MLB and he was suspended for a year after failing a background investigation. During that year, Martinez blossomed into a star and was eventually signed by the Cardinals for $1.5 million in 2010. If it wasn’t for an absolutely outrageous set of events that worked out to his benefit, he wouldn’t have received such a lucrative contract.

These prospects signed for bonuses of $32,727,500 in 2010, $39,524,000 in 2011 and $33,015,000 in 2012. This is equal to $105,266,500 for the entire set of 89 prospects or $1.18 million per prospect.

There were 97 players selected in the second round of the draft from 2010 to 2012 of which 3 did not sign with their clubs. Of the 94 players that did sign, 15 have been ranked by Baseball America.Daniel Norris was ranked #18th by Baseball America while Austin Hedges was ranked #27th and Jake Thompson was ranked #43rd. In addition, Josh Bell was ranked # 45th at midseason while Daniel Norris was at 18th and Jake Thompson was 49th. 26 of these 94 players have played in the majors, including Andrelton Simmons, Drew Smyly, Alex Wood, Brad Miller, Jedd Gyorko, Jimmy Nelson, James McCann and Daniel Norris.

These prospects signed for bonuses of $23,839,830 in 2010, $27,655,900 in 2011 and $23,014,500 in 2012. This is equal to $74.5 million for the entire set or about $792k per prospect.

There were 97 players selected in the third round of the draft from 2010 to 2012 of which 5 did not sign with their clubs. Of the 92 players that did, only three have been ranked by Baseball America. Addison Reed was the highest ranked of them all at 66th, while J.T Realmuto was ranked 76th and Tony Cingrani was ranked 82nd. 20 of these 92 players have played in the majors, including the three players listed above, Tyler Thornburg, Carter Capps, Matt Andriese, Mike Wright and Logan Verrett.

These prospects signed for bonuses of $13 million in 2010, $11.1 million in 2011 and $14.1 million in 2012. This comes out to roughly $38.2 million for the entire set or about $415k per prospect.
This three year sample indicates that teams are doing a better job investing in international prospects than they were previously. Then again, a number of highly ranked and expensive international prospects ultimately busted in the previous sample so perhaps this is premature.

These international prospects have a similar but worse success rate than second round picks and a similar value to third round picks albeit slightly higher when taking into account recent changes to the CBA that limit the national draft bonus size, but do not effectively limit the international draft bonus size as well as international prospects that have significant American connections. International prospects take longer to develop than second or third round picks and therefore require a longer wait for a return. Miguel Sano is looking like a star in 2015 but he was signed in 2009 which means the Twins had to wait five and a half years before receiving major league production.

It appears that spending money on improved scouting in South America may be more effective than spending money on top prospects. It isn’t clear whether teams are in fact receiving a viable return as a result of their investing and that it definitely isn’t worthwhile to face huge taxes as a result of international spending. Improved scouting and development has been a huge factor as to why prospects have become more valuable than they once were and why Baseball America Top 100 Prospects have been more successful recently than ever before. The fact that top international prospects haven't also benefited from this is a red flag.

When I started this analysis, I thought it would indicate that Central and South American prospects are a tremendous bargain and that spending in this area would give clubs a huge advantage. Instead, it appears that breaking their budgets has resulted in them receiving the equivalent of a few extra second or third round picks --- not good for competitive balance but hardly devastating.

Going forward, MLB should consider new rules making it illegal to draft players younger than 18 to ensure more predictable results. Until this occurs, the Orioles and other clubs should realize that the international market as it currently is formulated isn’t efficient and therefore should make their biggest investments on coaching, scouting and data while spending less money on actual players. It would appear that the most expensive prospects have a minimal return and therefore teams should focus on second-tier international prospects that have less hype and will be considerably less expensive.


Jon Shepherd said...

To provide some context, Andy MacPhail's clubhouse believed this exact thing and this was expressed way back in 2011 during a meet and greet we had with Matt Klentak and a few other local writers. Teams do seem to be aware of the risk and willing to spend on that risk. The Orioles then, and maybe now, do not agree with that risk and spend on lower cost targets.

That said, your less financially enriched clubs tend to spend more internationally than would be expected in comparison to spending on the free agent market.

In other words, I think the issue is more about understanding risk than trying to level risk. Even within a domestic draft class you have varying levels of risk depending on age, position, and body type.

Matt Perez said...

Well, understanding the risks should convince MLB to try and level them out. Why would you want clubs to pay prospects millions of dollars without having some certainty of their success? Then again, if the age limit was changed to 18 then teams would spend even more money and their spending might actually correlate to successfully selecting prospects which could be bad news for small market clubs. If teams are willing to pay huge taxes for international prospects now, then who knows what they'd do if that spending had a meaningful impact?

Teams have been willing to take the risk. The Rangers, Mariners, Blue Jays and Yankees have spent huge sums over the period that I studied. The Mariners and Yankees pretty much struck out. The Blue Jays have done well due to Osuna becoming a good closer while Barreto has significant value and was traded for a king's ransom. The Rangers have done extremely well and developed a number of excellent prospects. They're doing far better than the others on the list (although they've been hit hard due to Profar's injury issues), possibly better than any other team in the majors (although I guess the Twins have to be #1) and probably know something that others don't. It would seem that it's a smart risk for the Rangers and probably less so for the other three clubs.

If I had a dataset that had all international prospects from 2006-2013 and the amount they signed for then I imagine I'd find some interesting results. There are a large number of international prospects that are ranked. There have been a large number of international prospects that have turned into star players and regulars. Logic indicates that this could mean that a players signing bonus has little (for guys that earn say $100k or more) to do with his ultimate production.

I think when you're dealing with 16 year olds playing in a foreign country as opposed to even 18 year old high school graduates playing in the states that it is harder to determine whether a player is worthy of a large bonus. It seems to me that the only potential way to answer that is by developing a strong and an active scouting team.

To be clear, I wouldn't just give away the Os international budget but I'd be looking into guys making 100k-300k as opposed to players making $1M. Go heavy with scouting, try to use the best automated tools as much as possible and go for quantity (but guys that you like) over quality. Either that, or just hire someone away from the Rangers and try to replicate their method.

Jon Shepherd said...

This all is true, except I just cannot go that further distance and say that MLB's role is to make scouting easier. I have difficulty supporting that teams need to be saved from themselves except if such behavior is detrimental to the sport. I do not feel compelled to say that spending money on elite foreign Latino prospects is a bad thing.