Some Initial Thoughts on the New CBA and the Astros' Rebuilding

With the Collective Bargaining Agreement (CBA) making significant changes, particularly with respect to acquiring amateur players, sports writers and bloggers have written a lot about how the "haves" and "have nots" will be affected. 

Most, but not all, of the opinions view the changes to the draft and international signings as disadvantaging small market teams and teams that rely primarily on the draft to rebuild.  Here is a sampling: "Why It's the Worst Possible System," "Baseball Sticks It to the Pirates," "CBA Draft Provisions Will Lessen Value of Franchises," How New CBA Provisions Could Alter Jim Crane's Plans for the Astros," "The Good, the Bad, and the Ugly of the MLB's New Labor Agreement." Super agent Scott Boras is far from an unbiased party, but Astros fans might take notice when he says that new franchise owners:

can no longer rely on the draft to improve their franchise in a major way. The GMs now have less flexibility, less ability to do it. It’s going to take longer to improve your team in a meaningful way.

After reviewing what we know about the new CBA provisions, I have been pondering how the changes that affect prospect acquisition may affect the Astros' rebuilding effort.  I won't try to answer whether the provisions ultimately are good for baseball or not---that's a larger and more difficult question.  I think that the new rules will decrease the impact of some of the rebuilding tools available to the Astros.  But, frankly, I doubt that the overall effect significantly changes the Astros ability to rebuild.  There are some unknowns, like how the rules will affect the behavior of amateurs, and some gaps in our knowledge of the details of the rules.  So, I could be wrong, but my best guess is that the Astros' player acquisition strategy won't be hurt that much.

The caps on both draft and international spending will  reduce the relative value of those avenues for building teams--somewhat.  The draft inherently gives an advantage to losing teams (by virtue of the draft order), but smart front offices had found that this advantage could be increased by expanding investment on the draft and international signings.  To some extent, the spending pool limits will flatten the advantage that some of the small market teams learned how to exploit.  The spending limits will also reign in the ability of big market teams to use their money on amateur players, but teams like the Yankees and Red Sox have more resources to turn to other options, like acquiring major league free agents.

Although the Astros are in a rebuilding mode just like the Royals and Pirates, the Astros are not exactly in the same position.  The Astros are not a small market team, and the Astros' market will support the use of additional options for player acquisition, like free agent signings, in the long run. 

Furthermore, there is no indication that Jim Crane intended to undertake blockbuster spending on the draft.  Perhaps some level of increased spending would have been expected, but I doubt that the Astros intended to spend like the Pirates did last year---the $17 million that the Pirates spent on the draft last year was the most spent by any team in the history of the draft.  Crane has said that the Astros' revenue is declining and that expenses have to move in line with changing revenues.  That kind of statment doesn't make me think that new ownership planned a massive splurge in draft expenditures.  Given what we know, assuming high draft positions for several years, the new system will allot sufficient money to permit the Astros to significantly increase its draft spending; and it's doubtful that the CBA will substantially impede the Astros' draft plans.  It's even possible that the CBA will improve the Astros' comparative position.  The advantages of the new draft primarily will flow to drafting order rather than willingness to spend money.  The Astros will have a draft order advantage in the next few years, but the gap between the Astros and other teams in willingness to spend will diminish.

Here are my thoughts on each of the provisions that may affect the Astros' rebuilding.

Amateur Draft (Rule IV)

The limit on the draft is an aggregate draft signing bonus pool for the first 10 picks.  Based on drafting order and number of draft choices, each team will be assigned a total budget for the first 10 picks, and any team that exceeds the budget will be heavily taxed, both monetarily and through loss of future draft picks.  Teams will also be effectively limited to no more than $100 thousand bonuses on draftees after the first ten rounds.

The players association did negotiate for some concessions which favor draftees.  In exchange for buying into the limitations, the union pushed for higher aggregate limits than the previous slot recommendations.  The aggregate bonus pool for all teams may be 50% higher than the total aggregate slot recommendations for MLB in 2011.  For this reason, Baseball America said that the draft changes are not as "harsh" as "initially feared."   Therefore, the Astros are likely to have an aggregate limit of $11 or $11.5 million in the upcoming draft, which should be high enough to sign the first pick and have enough left over  to spend reasonable amounts on the remaining picks in the first 10 rounds .   If the best player available for the first pick were a Strasburg or Harper "once in a decade" type player, the Astros would face difficulties signing the first pick and spending money on the later rounds.  But at this point, the likely first pick candidates don't appear to be in that category..

The practice which will be severely curtailed: making bets on large over slot offers to prime players in the 2d to 10th rounds whose drafting position fell due to signability concerns.  The Pirates and Royals were among the teams which made good use of this strategy, with signings of players like Josh Bell in the second round and Bryan Brickhouse in the 3d round.  The Astros have paid over slot for some players in those rounds, but the amounts were more modest.  Many commenters here at TCB may have been hoping that the Astros would undertake the Pirates' and Royals' strategy, with numerous over slot signings. They will be disappointed.  But aggregate bonus pool limit may permit the Astros to be modestly aggressive on a few selected picks.  Also, the Astros' tactic of offering players like Jacoby Jones a large bonus in the late rounds is likely to be a thing of the past.

For the upcoming draft, it's possible that the new limits would push the Astros toward drafting a college player over a high school player with the first pick.  The college player will have few options to demand a bonus above the amount that the Astros have budgeted for the first pick.  The high school player has more leverage and could threaten to honor a college commitment unless the Astros pay a higher bonus that threatens their spending on later draft rounds.  Another possibility is that mostly college players and fewer high school players are selected in the 2d through 10th round, in order to maximize the amounts available for the first pick.  In general, the tendency will be for the Astros to make more "safe" bets. 

Arguably, the new system will place a premium on scouting and talent evaluation. More focus will be placed on the process of identifying prospects who will succeed. Some teams, like the Braves, have been good at talent evaluation without exceeding slot recommendations.  Perhaps the strategy that Crane's front office plans to undertake will be centered on improving the scouting and evaluation budget.  Because the Astros will not have the opportunities to amass draft picks and pay big above slot bonuses, the room for error in selecting draft picks will be smaller.

Competitive Balance Lottery

A lottery will be conducted to provide an extra 2d or 3d round pick to some of the small market and small revenue teams.  The exact details regarding the teams which participate in the lottery are unknown.  However, my guess is that the Astros are unlikely to benefit from the lottery.  The lottery is composed of the lowest 10 revenue teams and the 10 teams with smallest markets.  By most measures, the Astros are either a large or mid market team.  So, the Astros are unlikely to qualify as a small market team.  I suspect that it is also unlikely that the Astros will be one of the bottom 10 revenue teams.  Based on 2010 revenues, the Astros would have to leapfrog five or six teams to be among the ten lowest revenue teams. Crane has placed a priority on marketing strategies that stem the team's revenue losses, and if those tactics are successful, that works against a revenue ranking in the bottom 10.  In any event, the lottery will not occur until 2013, and it's speculative at this point to project that the Astros will receive an extra draft pick as a participant in the lottery.

The lottery slots are the only draft picks which are tradeable.  Could the Astros benefit by trading for lottery picks?  Possibly. The restrictions/conditions on trading the picks reportedly are complex.  So this strategy will require smart analyses by the front office.

International Amateur Free Agents

This limitations on spending for international amateur signings are among the most controversial.  The Yankees Analysts blog concludes: "Essentially, this will kill the IFA market as we know it."  Since the Astros have spent considerable sums to open a new academy in the Dominican Republic, the Astros are in no position to pull up stakes and go home.  The immediate impact on the Astros can be divided into two periods, 2012 and 2013-2015.

In the upcoming 2012 signing period, the Astros will be forced to reduce their current spending level on international free agents.  Each team will be limited to a bonus pool of $2.9 million in 2012, with penalties (similar to the amateur draft) for exceeding the pool amount.  When you consider that the Astros spent $2.6 million on Ariel Ovando's bonus, alone, it's clear that the Astros' international spending will be crimped in 2012.  The Astros paid out $5.13 million for international signings in 2010 (the third highest in the majors), and, therefore, will face the biggest cutbacks in the upcoming year.

In 2013 and later, the teams allocation of bonus pool amounts will vary inversely with W/L record.  If we assume that the Astros' continue to have a bad W/L record in 2013, the Astros international budget can increase significantly, probably returning close to the $5+ million level of 2010.  Moreover, the Astros could enjoy a comparative advantage for international free agents in that period.  As the Yankees Analyst blog suggests, the handful of premium international prospects are likely to gravitate to the teams with bad W/L records, because they will be the only teams with sufficient cap room to give out big bonuses.  Teams like the Yankees and Rangers, which have spent heavily in the international market, will be hurt badly.  They will have to search for other strategies.

Over the longer period, it's unclear how the international limits will play out.  MLB is exploiting its monopoly power with this move--assuming that international free agents have no other options and no leverage.  This assumption may or may not be true, depending on whether talented teenagers will train for other sports.  For all we know, the situation could increase the Japanese NPB  presence in this market.  If the Astros begin to field a competitive team in 3 or 4 years, the team's international budget could face cuts again.

In addition, in 2013 and later, teams will be allowed to trade up to 50% of their cap space.  If the Astros are very good at identifying inefficiencies in the cap space trade market, the team could gain an advantage, either by trading its own cap space or buying cap space from other teams.

Free Agent Compensation

The Type A and B free agent compensation system has been dismantled.  Teams will now have to make substantial offers to their free agents in order to be eligible for draft pick compensation.  Also gone is the use of mid season trades to obtain value from the draft compensation associated with prospective free agents.   No longer will teams like Tampa Bay be able to stockpile large numbers of draft picks from free agent compensation.  I think the changes to the free agent compensation system are unfortunate for low payroll teams.    Free agent salaries will increase, as a result, making this the "plum" for the Players Association. 

This change eliminates a strategy that has been used to good effect by some rebuilding teams.  Potentially, this change can slow down the Astros' rebuilding effort.  However, looking at 2013, when the change takes effect, it's unclear that the Astros currently  have any players that would have qualified as Type A and B free agents.  Perhaps Carlos Lee or Wandy Rodriguez could have provided free agent compensation under the old system, but that's iffy.  So, it's not clear that this change realistically alters how the Astros would have benefitted from from free agent compensation in 2013.  It does take the "Tampa Bay strategy" off the table.  But we don't know if the new ownership group would have pursued that strategy or not.