MLB international free agency primer

Every June, Major League Baseball holds its Rule 4 amateur draft to great fanfare and media coverage. The MLB Rule 4 draft covers only amateur players who are residents of the United States, Canada, or Puerto Rico. All other players are considered international under the MLB collective bargaining agreement (CBA) and may not be selected in the June amateur draft. International players are signed as free agents.

The signing period for international free agents is open from July 2 through June 15 of the following year. It is then followed by a dead period, from June 15 until July 2, during which no international players may sign contracts. On July 2, the dead period ends and the international signing period commences.

Under the current CBA, MLB and MLBPA agreed to cap the money clubs are giving amateurs (who are non-union members)—whether they are residents of the United States, Canada, Puerto Rico, the Dominican Republic, or Venezuela. MLB and the MLBPA did this by agreeing to the slotting system now applicable to the Rule 4 draft and a bonus pool cap for international amateur free agents. This means less money going to players who have never played a big-league game and more money going to owners and veteran big-leaguers.

An international free agent’s bonus and salary differs greatly based on whether he is an amateur or professional. If an international player is a professional, he can sign like any free agent (e.g., Aledmys Diaz). But if an international player is an amateur, his signing bonus is subject to the bonus pool system created under the CBA that caps the total amount of money a club can spend on international amateur signing bonuses. If a club signs amateur international free agents to bonuses that total up to a dollar figure higher than their allotted pool, it faces penalties.

Which player bonuses are subject to the pool system?

International free agents are subject to the bonus pool restrictions if they are amateurs. The CBA does not affirmatively define what it means to be an international amateur. Rather, it sets forth exemptions to amateurism:

1) A player who is at least 23 years old and has played professional in a Cuban league for at least five seasons. (This is slightly different from the provision that was controlling during the 2013-14 international free agent signing period that allowed Cubans to sign as a professional free agent if they were at least 23 and had plied their trade for three seasons in a Cuban league.)

2) Similarly, a player who is at least 23 years old and has played as a professional in a league recognized by the MLB Commissioner’s office are also not considered amateurs.

3) A player who has previously signed a contract to play in MLB or the minors is not considered an amateur either.

How are the bonus pools calculated?

MLB assigns four bonus values to each club using a formula that grants teams additional money based on their record during the previous season. $700,000 is then added to each club’s bonus pool.

Based on this formula in 2014, the Astros have the largest bonus pool at $5,015,400. The Cardinals had the lowest bonus pool total in MLB for the 2014-15 international signing period: $1,866,300. You can take a look at the 2014-15 team bonus pool totals and slot values here.

This year, the Diamondbacks lead the pack with a bonus pool of $5,393,900, according to Baseball America. The Cardinals rank 26th with a pool of $2,038,200. Coming in last are the Angels at $1,968,600. You can view all of the 2015-16 international free agent bonus pool values here.

Keep in mind that signing bonuses of $10,000 or less do not count toward a club’s signing bonus pool.

What are the potential penalties if a club exceeds its bonus pool amount?

The CBA lays out penalties for teams that exceed their allotted bonus pool amounts:

• 0-5% overage: MLB taxes the overage at a 100% rate.
• 5-10% overage: (1) MLB taxes the overage at a 100% rate. (2) The offending club loses the right to sign any player to a bonus exceeding $500,000 during the following international signing period.
• 10-15% overage: (1) MLB taxes the overage at a 100% rate. (2) The offending club loses the right to sign any player to a bonus exceeding $300,000 during the following international signing period.
• 15%+ overage: (1) MLB taxes the overage at a 100% rate. (2) The offending club loses the right to sign any player to a bonus exceeding $300,000 during the following two international signing periods.

These penalties have not stopped clubs from spending well over their allotted pools amounts. This practice really took off during the 2014-15 signing period, with the New York Yankees as the biggest culprit. Dustin Palmateer authored a post entitled, "The Yankees and the Toothless International Spending Limits," at Baseball Prospectus that is a thorough examination of the current system and well worth reading. Palmateer shares the tidbit that as of December 4, 2014 (about halfway through the 2015-15 signing period), the Rays overspent their pool by 35%, the Red Sox by 111%, the Angels by 248%, and the Yankees by 610%. It will be interesting to see how many clubs employ such a strategy this time around.

Can MLB clubs trade international bonus pool money?

Yes. For example, the Cardinals did just this when they traded Mitchell Boggs to the Rockies in 2013.

Remember the four bonus slots assigned to each club referenced above? The CBA is vague as to how these slots are calculated and assigned. Nonetheless, a club can trade the total value of one of its slots to another club. A club cannot trade a portion of a slot value; it must trade the whole dollar figure.

There are limits on how much bonus pool money a MLB club can acquire for a given signing period. The CBA forbids a team from acquiring via trade more than 50% of its initial bonus pool allotment. As an example, a club that is initially assigned a $2 million bonus pool total by MLB is limited to acquiring at most $1 million in international bonus pool money via trade.

If a club violates this rule and acquires more than 50% of its initial bonus pool total, MLB will reduce its initial bonus pool allocation to 150%. So if a club that was initially assigned a $2 million bonus pool acquired $2 million more in bonus pool money, MLB would reduce that club’s bonus pool by $1 million, leaving it with a $3 million bonus pool. (This paragraph was edited on February 18, 2016-CE)

Manager's Note: The original version of this post ran on July 2, 2014. It has been updated with information relating to the 2015-16 signing period.