Loopholing an Explanation for the Cubs’ International Spending Approach

wallet cashFor the past couple of days, nerdy folks like me have been taking to our calculators to obsess over the Chicago Cubs’ reported 2013-14 international free agent signings.

It’s been a while since I’ve been in a math class, but I know how to use the plus button, and I couldn’t quite square what the Cubs were doing. With a number of top tier talents reportedly signed by – or “agreed to terms with” – the Cubs this week, the organization was set to blow far past its allotted international signing pool.

As I wrote last night:

After signing Torres, Moreno, and Mejia for $3.35 million, and after netting $963,000 extra to their $4,557,200 bonus pool yesterday via trades, the Cubs had about $2,446,210 left to spend, after considering the 5% they can go over without incurring dramatic penalties. With Matos getting $270,000, the Cubs are down to approximately $2,176,210, give or take a few bucks.

Thus, ostensibly, the Jimenez signing would put the Cubs way over their limit. In fact, they’d be so over the limit (more than 15%, by my quick calculation) that they’d be exposed to the most severe penalty: a 100% tax on the overage and (worse) the inability to sign any prospects for more than $250,000 for the next signing period.

The logical conclusion, then, was that some of these players weren’t yet “signed,” and the Cubs would be sure to acquire more pool space before officially signing these guys so that they didn’t blow the budget and become subjected to such a severe spending restriction next year. After all, we know two things to be unequivocally true about this front office: (1) they aren’t stupid, and (2) they aren’t going to sit out an opportunity to accumulate young talent.

But then rumors started circulating this morning that the Cubs were planning to go after even more expensive international talent this year (those rumors came from Phil Rogers, who deserves credit for getting this line of thinking started). Indeed, that rumor had the Cubs going after so much more international talent that, even if they added the 50% extra pool space that is permitted under the rules, they would *still* blow well past their budget, and would be subject to a 100% tax on the overage and the restricted ability to sign any individual player for more than $250,000.

Why would the Cubs do that to themselves? They’re going to have a huge pool again next year thanks to the poor big league performance, and the best international players get bonuses in excess of $250,000. In effect, the Cubs will have to sit out on all of the big names next year if they blow their budget this year. There’s no way they’d willingly do that, right?

Actually, yeah. They might. And it’s potentially genius.

Let’s imagine that the Cubs really liked this year’s international crop. Given how quickly, aggressively, and expansively they’ve gone after players, I’d say that’s a safe bet. Imagine further that the Cubs aren’t quite as enamored by next year’s crop – that’s not a requirement for this theory, but it certainly helps.

Against that backdrop, the Cubs decide to go hog wild spending this year. Yes, it will mean a huge overage tax and the inability to buy the big boys next year, but the Cubs love this year’s group, so it’s worth it in their eyes. Essentially, then, there are no spending restrictions for the Cubs this year – even if every other team is feeling the pinch of those restrictions. That creates inefficiency. That creates opportunity.

Going nuts this year costs the Cubs only one thing. And it’s the one thing they have that the new guys haven’t yet been able to leverage: money.

Back in the pre-new-CBA days, Theo Epstein’s regime was notorious for spending heavily on the amateur side. But, by the time he came to the Cubs, the ability to do that in the Draft was swiftly foreclosed. In the international market, restrictions also went into place, but under the approach the Cubs may now taking, those restrictions could work to their advantage.

Well, what about the signing restrictions for next year, you ask. Now the Cubs can’t sign any big names, and they’ve got this huge pool of money that they can’t really use effectively (yeah, they can spread it around to a bunch of $250,000 guys, but there are only so many talents at that precise level, and the Cubs aren’t going to get them all – the punishment is supposed to be restrictive, and it is). What a waste, right?

Nope. Here’s the loophole I see (assuming I’m reading the CBA correctly, and I don’t see this as being prohibited): if the Cubs decide they can’t effectively use their entire bonus pool next year because of the $250,000 restriction, they can trade pool space for players or prospects.

Think about what has happened by the end of this approach. The Cubs got to sign anyone and everyone they wanted in the 2013-14 international class. No real restrictions. Then, in 2014-15, they can sign their normal fill of low bonus, diamond-in-the-rough types, and use their big pool money to, essentially, buy players or prospects. By signing enough big-timers this year, the Cubs can more than overcome whatever they might lose in prospects next year. And then they can further make up for that loss by trading pool space.

All they’ve lost in this process is the one thing they’re happy to throw around: extra money.

In this way, the Cubs are converting the cash they’d like to be able to spend on the amateur side – but can’t, because of various restrictions – into a huge number of international prospects this year, and then (hopefully) some players or prospects next year. The key is that, even if you get penalized this year, your bonus pool next year does not go away. The pool remains an asset that you can use in trades next year.

This approach is exquisite, and brilliant, and perfectly aligned with what this front office is about.

(If you want to get very detailed about all of this, you’ll note that, because of the no-international-draft-poison-pill the MLBPA and MLB planted earlier this year, if you were going to blow your budget, this was the year to do it. If you do it next year, the penalties become much more harsh. These guys are just so freaking smart.)

Ok. Now that you understand the loophole, you’re all wondering one thing: if the Cubs were planning to blow past the budget anyway, what’s up with the trades they’ve made?

I think I can explain them all.

The Ronald Torreyes for $800,000 of pool space: If the Cubs were going to blow the budget, why ship off a promising youngster for pool money the Cubs weren’t going to use anyway? Well, it’s probably pretty simple. If the Cubs blow past the budget, then every dollar of pool space they acquire is a dollar they don’t have to spend in tax. In that way, if the Cubs do use the approach I described above, they just sold Torreyes for $800,000 in actual cash. We can debate whether he was worth more, but he’s a small, flawed prospect at a position in the Cubs’ organization (second base) that’s likely to become very crowded. His future was, at best, unclear, and if the Cubs didn’t believe his extreme hit tool would overcome all of the other issues, they were probably happy to sell him for some cash. (The added pool space also provided them cover if they couldn’t get all of the international prospects they wanted to sign. In that event, they could stay under their cap, and not blow the budget for guys they didn’t really want in the first place.)

Acquiring pool space in the Scott Feldman/Steve Clevenger deal: Given my feelings on the value of pool space, the approximately $400,000 in pool space that the Cubs picked up from the Orioles in the Feldman/Clevenger trade never struck me as all that valuable. Folks on all corners of the ‘net tried to convince you that the $400K – not even a 10% bump in the Cubs’ pool – was the entire thrust of the deal. No way. The Cubs, I suspect, actually really liked Jake Arrieta and Pedro Strop, and were willing to take a shot on them rather than the maybe-far-less-than-we-all-expected prospect packages they were offered. So, what was the pool space about? Well, I mean, the Cubs wanted it. It’s not like it’s worthless. Given the Torreyes description there, it was probably worth about $400,000 in real money to the Cubs. That’s a lot of dough, when you think about it. But in a big baseball trade, it’s a throw-in. That’s probably all this was. (With the caveat, once again, that more pool space gives the Cubs some cover if their SIGN ALL THE PLAYERS plan didn’t work out when it was time to put pen to paper.)

Sending $210,000 in pool space to the Dodgers in the Carlos Marmol trade: This makes a whole lot more sense now, doesn’t it? The pool space was only worth $210,000 of real cash to the Cubs, since they were going to blow the budget anyway. And since the Cubs saved $500,000 in the deal, they netted $290,000 in actual savings (assuming Marmol isn’t ultimately dropped, and then signs with another team, in which case it has been reported that the Cubs owe the Dodgers some more cash). Pretty simply explanation, and pretty logical, too.

So, there you have it. We’ll see if the Cubs’ approach actually bears this all out, but I now wouldn’t be at all surprised to see them nabbing some bigger names. In fact, it’s what I really hope to see now. I’m not in the front office, and I don’t know everything they know, but on paper here, this strategy looks pretty damn good.

Here’s hoping it happens, and that it works.

Brett Taylor is the editor and lead writer at Bleacher Nation, and can also be found as Bleacher Nation on Twitter and on Facebook.

170 responses to “Loopholing an Explanation for the Cubs’ International Spending Approach”

  1. Now What is Starlin Castro Being Criticized for? And Other Bullets | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    [...] case you missed it yesterday with the holiday, I did some musing on the Cubs’ international spending proclivities this year, and expounded on a theory that could make the front office look like geniuses (as if [...]

  2. DarthHater

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  3. The Omnipresent Mystery Team

    Another reason to gobble up pool space is to intimidate off other teams and/or to disguise your intention to blow past the pool space limit.

  4. Timmy

    great post and detective work. sounds like a brilliant move indeed. if only the plan wasn’t for possible inroads 6 years from now i’d be even more excited.

  5. Matt Garza Rumors and More « The Billy Goat: A Chicago Cubs Blog

    [...] other news, Brett over at bleacher nation has written a fascinating piece on why the Cubs have been so willing to spend past their international spending pool, and [...]

  6. nkniacc13

    some interesting reads on cubs spending Internationally on articles that mlbtr has links to

  7. Cubs Reportedly the Favorite for Yet *Another* Top International Prospect – What Does it Mean? | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    [...] Last week, in between stops at the Fourth of July parade with the kiddos and the place where the fireworks were going to be (but which we couldn’t actually stay for because, like, kiddos – they had corn dogs and a dog frisbee catching contest, so it was fine), I wrote a long piece about the Chicago Cubs’ international spending proclivities. [...]

  8. And You Thought I Was a Good Writer | Writing Above Replacement

    [...] approaches to the new talent pool. Theo Epstein’s Cubs have been the biggest spenders, and this is an explanation of how and why they have spent as much as they have, despite very straightforward spending [...]

  9. The 30: Four Teams. Four Strategies. | SPORTS RSS NEWSSPORTS RSS NEWS

    [...] it comes to next year’s available cash cache, but the Cubs blog Bleacher Nation already did an excellent job of laying everything out. The CliffsNotes version? By adding to their available pool money, the Cubs were able to sign, [...]

  10. Starlin Backer

    Usually we get very well written, logical (though optimistic) posts. In trying to bend over backwards to explain possibly blowing a big pool of money for 2014, all logic has gone out the window.

  11. Making It Official: Eloy Jimenez Signs with Cubs for $2.8 Million (And a Signings Update) | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    [...] As I’ve written previously, suffering this punishment – particularly where the Cubs believe this year’s class to be better than next year’s – isn’t the worst thing in the world, and, indeed, can be worked to the Cubs’ benefit. Although the Cubs will be limited next year, they’ll still be permitted to spend or trade their entire allotment. They won’t be in on the biggest names, but you can still find great players at $250,000. [...]

  12. Theo Epstein Confirms the Cubs’ International Spending Approach, Discusses Free Agent Spending | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    […] familiar, it could be because Epstein’s explanation for the Cubs’ approach mirrors the one I hypothesized in early July when it started to become clear that the Cubs were targeting more big-dollar youngsters than their […]

  13. Season Ticket Holder Event – A Theo Epstein Teaser | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    […] loophole,” and also called the 2013 int’l spending spree “exploiting a loophole” (hey, that’s what I called it way back when!), and then lots of trades. We’ve traded four years of veteran years (8 players) […]

  14. The Yankees Reportedly Plan to Pull a Cubs in the 2014 IFA Market | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

    […] one of my favorite storylines to cover in 2013, the Chicago Cubs exploited a loophole in the international free agent signing rules to land a surplus of IFA talent, including top […]

  15. 2013 International Free Agency: Did the Cubs Expect to Exceed Their Pool Space All Along? | Obstructed View

    […] remaining players. I have my doubts, but let's assume for the moment it's true. Is this a stroke of genius by the front office in exploiting available loopholes, or something else? (Spoiler Alert: I'm […]

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