Should the White Sox “go over” on international spending?

With a number of very talented Cuban ballplayers defecting recently, White Sox fans are clamoring for the club to go out and sign these prospects left and right. They see other teams throwing money around in the Caribbean like they’ve got a printing press, while the White Sox rarely seem to even be in the conversation.
Some of this is a problem of perception – the Sox have increased their spending on amateur talent both domestically and in Latin America. But it is true that there are a select few ballclubs that have decided to spend many times over as much as many of their cohorts in order to bring in waves of talented prospects. With the South Siders struggling to win at the major league level, and a farm system that has improved but hasn’t been in the top half in over a decade, the natives are restless.
Does going over limits and taking on penalties to sign a big wave of teenage talent really make sense? Would the White Sox even consider it? Is now the time?
A Quick Primer
Let’s start with the structure. Players from outside the United States (and it’s territories) who wish to play here are split into two categories. Those over 23 years of age and with 5+ years’ professional experience are free agents and can sign with any team without restrictions from the American side. Those who don’t meet that bar are subject to a set of rules around an annual signing cycle, beginning each July 2nd and running until the next June (there is a “quiet period” a few weeks before July 2nd). Players need to be at least 16 years old or turn 16 by September of the year the period begins to be eligible.
Teams are given a dollar figure that represents their “pool” for spending in this latter, generally amateur market. If a team goes over that pool by up to 5%, they pay a 100% “tax” penalty on the overage amount. If they go over by 5-10%, they get taxed and cannot sign a player for over $500,000 in the next signing period. If they go over by 10-15%, it’s a $300,000 cap the next period. Finally, if they go more than 15% over, they cannot sign a player for over $300,000 the next two signing periods, and of course are subject to that tax. That last bracket involves a heavy price to pay.
As you can see, while the system discourages teams from going over, it also encourages teams to go way over if they’re going to go over at all because the signing restrictions don’t hit until the next cycle(s). As such, what we’ve generally seen each year is most teams staying within pool limits, while a few teams go absurdly over their limit – there is no in-between.
The upcoming period’s bonus pool numbers haven’t been announced yet, but last year they ranged from about $2M to about $5.4M. The White Sox should be on the higher end due to previous record, so they’ll likely have near $4M to spend.
White Sox History – in Two Parts
If one looks at the White Sox organization’s history during the current ownership’s era up until around 2012, the idea of the front office even considering going over their international pool limit seems laughable. In the domestic amateur (Rule 4) draft, the team developed a pattern of spending small and going for “safe” picks while other teams blew through pool limits. In the Latin American market, the scandal around Dave Wilder in 2007 basically wiped out that pipeline for the next four to five years, so big spending was never even a consideration. It’s hard to know if the strategy to go small on amateur spending came from ownership or front office management or both, but the result was the same regardless.
But what many of the team’s fan base seem unaware of is just how much things have changed in the past five years or so. Looking for example at the domestic draft, since 2012 the team has shifted from minimal spending and “safe” picks, to going at least to their pool limit. Using the new rules to move money around and grab over-slot signings, the team has emphasized higher ceiling (and higher risk) players. They even went over their allotted pool in 2014, mostly to grab Carlos Rodon in the June draft.
On the international side, since Marco Paddy was hired in 2011 to resurrect the Latin American operations, the club has signed more than a dozen players to bonuses over $300,000 and a couple over a million (Micker Adolfo, Franklin Reyes). They’ve used their full allotments or close to it in each of the past four cycles. And just a few weeks ago at SoxFest, when our Brian Bilek asked GM Rick Hahn about the pool limits, Hahn expressed the club is open to the idea of going over their limit if the conditions line up the right way. The front office has significantly increased investment in amateur talent, and are indicating the possibility of doing even more dramatic things. This is not the same White Sox front office.
The Case for 2016
Let’s start with a quick note about 2015. Here in February, there’s only about 4 months left in the current signing period. Cuban teenager Lazaro Armenteros (aka Lazarito) is getting lots of attention, and his signing would push the Sox over their limit. But given the penalty for going over, doing so and getting just one player seems like a pretty terrible approach, especially when competing with teams who already blew through them. Clubs that have gone over in the past two cycles, did so by going way over, and signing a wave of talented players at once. Otherwise, going over by 15% or more just doesn’t make much sense, with it being highly unlikely any other significant talent will pop up and reach eligibility in the next four months.
That takes us to the 2016-2017 period that opens on July 2nd of this year. The reasons NOT go to over (the known costs) include:

• Financial cost – having to pay 100% overage on all signings over the limit means you are paying essentially double for the talent you are acquiring.
• Future talent pool cost – going two years without the ability to sign significant prospects from that pipeline is gambling a pretty big sacrifice in exchange for a one-year bolt.
• Signing children – let’s be honest, that’s what teams are doing. They are evaluating 15 and 16-year olds, and signing 16 and 17-year olds as future baseball players. The chances of any one of them becoming a valuable major leaguer, even for the highest-end prospects, are pretty low. And you are paying big money for long shots.

So what are the reasons the team SHOULD go over? Here are some:

• In the upcoming 2016-2017 signing cycle, a whopping ten teams (CHC, LAD, SFG, KC, LAA, ARZ, TB, BOS, NYY, TOR) will be restricted to signings under $300k due to previous instances of going over the limit. So the Sox have a much smaller pool of teams to compete with, giving them a much better shot at any given prospect, especially since the teams who are out are the same ones who were throwing around the biggest money in previous years.
• The 2016-2017 cycle likely includes the recently defected Gurriel brothers from Cuba, the younger of which (Lourdes Jr) falls into the amateur pool and is considered a big talent. As defections seem to be happening more and more often from the big island, there could be more Cuban talent available as the year goes on. Add this to what is perceived as a relatively strong class of talent to begin with, and it appears this should be a target-rich environment.
• The White Sox’ operations in the dicey world of overseas amateur baseball recruiting have finally become stable and reliable, as Paddy and his team have established the kind of connections necessary to grab some big names. A few years ago this would have proved very difficult.
• The “young core” of the current White Sox will likely break up within 3-4 years. There will be a serious need for young talent to build a team around at that point. Players signed as 16-year olds this cycle won’t likely be in the majors by then, but they will be in full-season ball and represent trade value, not to mention allowing the team the flexibility to stay away from longer term free agent contracts if the next wave is coming soon.
• Having lost their 2nd, 3rd and 4th round picks from 2015 and trading away a number of key prospects this past offseason, the current minor league system is pretty thin on talent. An added boost of viable prospects can quickly change things.
• With the large contracts of John Danks and Adam LaRoche coming off the books after the 2016 season, and ringers like Melky Cabrera not long after, there will be money to spend. It can be invested in selecting and developing young talent.
• Going ham for the first time will help raise the profile of the team for the future in that region, allowing the White Sox to be at the table more often in the long run as player agents see them as serious contenders for high end prospects.

The Wildcards
Then there are the factors that could throw any plan for a loop. These are risks – potential costs, hurdles or blockades, but also potential yet unpredictable rewards.

• Even if the team decides it’s willing to spend big, and even if they feel good about their scouting projections on these players, signability concerns loom large. The world of these 16 and 17-year old prospects is quite sketchy and unpredictable. The team would roll in with a list of players they want to sign – and they could sign most or all, or some, or very few, or maybe even find new ones at the last minute. The only ways to mitigate this area of risk are with yet more money, and fiercely aggressive networking. Even then, nothing is reliable until the pen hits the paper.
• There seems to be growing support for a future international draft. Should that be put in place in the next couple years, if the White Sox are in the penalty box, how does that effect the draft? Will teams with remaining penalty to pay get away with a lesser punishment, or will that be adjusted for in the draft rules? In short, the true penalty and consequences are not definitively known.
• While we’ve seen a number of high profile Cuban defections recently, the remaining talent pool has dwindled. It’s hard to say how many, if any, of the remaining young talents could become available in the 2016-2017 period. Legal and political machinations around the US-Cuba trade embargo further muddy the picture. The Cuban pipeline is a huge question mark.

Yellow Light
The picture is complicated. But the question is simple – is 2016 the year the Sox should go for broke?
It sure looks like this upcoming period falls within “if they ever do it, this is the year”. Having a third of MLB sidelined including most of the annually big spenders, the gates to Cuba staying cracked open, the Sox having the money and their regional operations just coming to maturity all point to this.
That simplifies the question – is it ever a good idea to do this? If the team’s pool is $4M, but they want to go after $15M worth of talent, they end up paying $26M for it (give or take). So you are certainly over-paying on a talent value basis within that market. And you lose that chance to sign any significant prospects for two following cycles, which is a big hit.
What it comes down to is odds. As stated earlier, any of these teenagers is unlikely to provide value to a major league club – just like drafted prospects, though perhaps even more so. Which is precisely why the teams who are best at developing young, cheap talent, see no viable path other than going big – to dramatically increase the chances of getting value from it. If you’re shooting in the dark, you’ll hit a lot more targets if you fire a lot more shots.
Finally, in the scenario at $15M worth of talent for $26M, that extra $11M still ends up making the investment pretty cheap. That’s $26M to get a massive wave of big prospect talent that can get you much more value than that among even the few who make it. And what we see in these bonuses is that three $333k prospects does not equal one $1M prospect, as the odds of future major league success are more of an exponential scale than a linear one. The latter is better, but only in so far as you going after multiple of each set. That non-linear odds curve also explains why one big year is likely higher value than three smaller years.
The light is yellow, because you can’t just cruise in this market. But it’s time to hit the gas if the White Sox mean business in player development. It’s time for the White Sox to go for it in July. Whether Jerry and Kenny agree, and if Rick and Marco can line up the talent with high enough confidence, is something we won’t know until then.
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