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Thursday, July 10, 2008
Baseball on the International Front

Kevin Baxter, a writer for the Los Angeles Times, has an interesting piece in Baseball America this week about an ongoing federal investigation into bonus skimming in the Dominican Republic involving MLB club personnel. Federal investigators are interviewing personnel from all 30 teams. Bonus skimming is another term for receiving a "kickback" and the feds are investigating whether club personnel, mainly scouts in the Dominican, are either keeping a portion of the bonuses as a finder's fee or misleading their organizations about the size of bonuses and keeping the difference for themselves. The White Sox recently fired their international scouting director in connection with the investigation.

Some people in baseball are hinting that the recent escalation of bonuses in Latin America is what's fueling the problem because it has made it easier and more profitable to skim money from players and teams. According to Baxter, last year 511 Dominicans were signed for an average bonus of $65,82, which is double the average that teams paid three years ago and more than thirty times what the Athletics paid to sign Miguel Tejada in 1993. And just last week, Oakland gave a $4.25 million signing bonus to 16-year-old Dominican pitcher Michel Inoa, which is nearly $2 million higher than the previous record bonus for a Latin amateur not from Cuba. [The Reds and Rangers reportedly offered even more.]

I can't believe that people in baseball are blaming the high bonuses paid to amateur Latin players in a free agent market (Dominican players are not subject to the amateur draft) as a reason, or a contributing factor, for the illegal practice of bonus skimming. Don't blame bonus skimming on your inability to control your own purse strings! But it gets even worse, because now the federal investigation is being used to support the possible implementation of an international draft. According to Baxter, veteran Dodgers scout Ralph Avila, who helped open the floodgates to Dominican talent when he established the first training academy there 22 years ago, "fears things have gotten so out of hand that the only way to bring order would be to make Dominican players subject to the draft."

There has been a lot of discussion within baseball about implementing an international draft, making all of the Latin American countries subject to the annual MLB amateur draft in June. It's extremely difficult to predict the impact that an international draft would have on amateur players in the United States. Amateur players in the U.S. would be competing with all of the top Latin amateur players (not just from Puerto Rico anymore), so one thing we can say for certain is that fewer U.S. players would be drafted in the top rounds. The high school players in the U.S. would probably be the most adversely affected. Their bargaining leverage would become much weaker if the clubs can sign much cheaper a comparable player graduating from high school in Latin America who doesn't have a full ride scholarship to fall back on.

However, the "unknown" impact to U.S. amateur players is the overall effect that an international draft would have on the bonuses currently being paid in the draft. If overall bonuses did not substantially increase after an international draft, then U.S. players as a whole would obviously be paid much less because (in theory) a U.S. player who would otherwise be drafted in the second round or third round would be drafted in the fourth round or sixth round, respectively.

An international draft can't be unilaterally implemented by MLB. It would have to be negotiated with the union and it will be interesting to see how much MLB pushes for an international draft, as well as the union's position. One thing is for sure, the process of an international draft and its impact on U.S. amateur players will have to be thoroughly examined. If an international draft is going to be implemented and its terms negotiated, it would be an ideal time for MLB and the union to revisit the entire draft bonus structure and how bonuses are to be determined, including the issue of league-recommended "slot bonuses" and what those legally mean (which I've never understood).


Bonus skimming sounds a lot like agent commission or fee?

Am I missing something?

I can't really figure out what is going on in that Baseball America article?

It looks like lots of players are signing as soon as they are eligible, though. Any thought of scrapping the draft and going to an all free agent system? I wouldn't think you would see the long hold outs that teams complain of and it might work to bring down bonuses since you would essentially do away with the slotting system. I suspect you would see large bonuses for premier talents, but a leveling off after you get outside of those talents. Thoughts?

Anonymous Anonymous -- 7/10/2008 11:30 AM  

The problem is that people who work for the teams (scouts) are allegedly doing it.

The baseball draft, and the bonuses that are paid, has always been something difficult to figure out, especially when you throw in the aspect of pre-draft dealing which is commonplace in the industry. I don't think you'll see baseball do away with the draft -- it clearly has the effect of suppressing salaries and achieving competitive balance.

Blogger Rick Karcher -- 7/10/2008 12:12 PM  

Bad idea to scrap the draft altogether. Why do you think the Yankees dominated baseball in the post-war era and teams like the Browns and A's could barely crack .500? The Yankees had the most money to throw at amateur players.


Anonymous Anonymous -- 7/11/2008 10:11 AM  

There have been alleged cases of bonus skimming in situations where the bonuses were only a few thousand dollars, so I don't believe that the size of the bonus has any effect on this issue. What I believe does contribute to this problem is the fact that Latin players don't usually have agents negotiating on their behalf because teams refuse to deal with them if they do, so these so-called "scouts" actually play agent-like roles in getting these players signed, and probably feel justified in taking huge portions of the signing bonuses even though they are technically team employees. And this leads me to think that maybe an international draft could result in less bonus skimming if it actually resulted in Latin players using certified player agents to negotiate on their behalf.

Anonymous Anonymous -- 7/11/2008 7:30 PM  

Again, where is the crime in bonus "skimming?" I don't understand why the feds are involved?

Anonymous Anonymous -- 7/12/2008 10:39 AM  


You (allegedly) have an employee pocketing his employer's money that he is not entitled to have, because the employer is not aware of it and has not authorized the employee to pocket any of its money that the employer has authorized to be paid to the player. I'm not a criminal lawyer, but I suppose you could characterize it as theft, fraud, embezzlement, etc.

Blogger Rick Karcher -- 7/12/2008 11:00 AM  

But it's not the employer's money. They have paid it to the player.

Perhaps there is a conflict of interest because the scout is working for the team and for the player, but I don't see how it's a criminal matter.

Anonymous Anonymous -- 7/12/2008 11:31 AM  

I disagree. If the team knew that its own scout was taking a "cut" then it wouldn't authorize that same bonus amount to be paid. [But I agree with you that it's definitely a conflict of interest.] You're looking at it like, what's the difference if it's a third party agent or a scout who takes the commission? There's a significant difference because the team is authorizing payment on the implied condition that the player may pay a commission to a non-employee agent, but not to its own employee. Thus, the employee has essentially stolen money from his employer.

Blogger Rick Karcher -- 7/12/2008 11:50 AM  

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