The Penalty Teams Are Willing to Pay in the Draft

Baseball America released the 2014 draft spending totals for every team, taking a look at what each team spent from their bonus pool, along with the total draft spending. The Pirates ended up spending $7,412,400 in bonus pool spending, which was 4.94% over their allotted amount. The total spending for the draft was $8,186,400. This means they spent about $674,000 on the 19 players they signed outside of the top ten rounds, not counting 11th rounder Gage Hinsz. That’s not a big amount, since it represents a little under $35,500 per player, although I’d imagine some of the better players got much closer to $100,000, since that’s the most you can spend without the money counting toward the bonus pool.

One thing that became apparent with BA’s list is that teams were willing to go over their bonus pools, but only by a specific amount. The Pirates were one of 15 teams that spent more than their pool amount. Ten of those teams, including the Pirates, went over their bonus pool amount by 4-5%.

The penalty for going over the bonus pool by up to 5% is a 75% tax on the overage. For the Pirates, this means a penalty of $261,545. Those taxes go to the teams that stay under their bonus pools, and receive revenue sharing money. BA says that this total was $297,435 per team. The Pirates would have been eligible for this money if they would have stayed under their bonus pool. So along with paying an extra $261,545, they are also missing out on close to $300,000.

You can’t really say that 11th rounder Gage Hinsz (signed for $580,000, with $480,000 counting towards the bonus pool) was the reason for going over the pool. He was just the last guy to sign. The Pirates could have worked the top ten rounds in a way where they could have signed Hinsz for the same amount, without going over their pool. However, this raises the question of whether Hinsz would have still signed for that amount if more money was available. If you do credit Hinsz for this, then the Pirates not only paid the $580,000 bonus, but they also paid the $261,545 penalty, and missed out on $297,435. So the true cost for Hinsz was $1,138,960.

As I pointed out above, a lot of teams took a similar approach. It’s a smart approach to take. The revenue that you get for staying under your bonus pool isn’t that much. The tax paid for going up to 5% over the pool also isn’t much. And if it means you get an extra talented prospect to work with, then it is all worth it. The Pirates might have given a guy like Hinsz a bonus of $1 M or more under the old draft rules. They did the same for Zack Von Rosenberg, Colton Cain, and Clay Holmes. Unfortunately for Hinsz, the Pirates are paying that much to sign him, but he’s only getting about half the amount. So it works out the same for the team, but the player gets less money.

Teams have been increasingly going over their bonus pool amount by up to 5%. BA reported that nine teams paid a tax in 2012 and ten teams paid in 2013. So that number is going up. But teams are stopping at 5%, and for good reason. If a team goes 5%-10% over their bonus pool, they pay a 75% tax on the overage, but also lose their first round pick the following year. An overage of 10-15% means a 100% tax on the overage, plus the loss of a first and second round pick the next year. An overage of more than 15% means a 100% tax and lose their first round picks in the next two drafts.

It’s one thing to pay a little bit of extra money, and miss out on a small amount of additional revenue. It’s another to lose future draft picks in the process. You might be able to sign another Gage Hinsz type prospect with the additional overage, but you’re basically using future draft picks to sign those guys. There is no one in the middle or late rounds of one draft that is going to be worth more than a first round pick in an upcoming draft. And thus, we will continue to see teams exceed their bonus pools, just like the Pirates have done the last two years. But don’t count on them going beyond that 5% mark and giving up a draft pick.

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Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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  • bucsws2014

    Did I just read that Nutting had an opportunity to NOT spend $500,000 in penalties and yet spent that money anyway? What a spendthrift.

  • S Brooks

    I don’t know how long this system is going to be in place anyway. The Players Association filed a complaint against the Astros for, in essence, making the (over slot) signing of one player contingent on the (under slot) signing of another. Which is unavoidable when you have an aggregate bonus pool. I don’t know if it survives the next CBA negotiations, at least without serious modifications.

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