The 2016 Budget and Funding the Draft 15

This summer presents Oakland with the opportunity to make the single, largest financial investment towards amateur talent in franchise history. Finishing the 2015 season with the worst record in the American League “earned” the Athletics a Draft bonus pool of $9,883,500 for this June, with an additional $3,818,700 being allowed for International spending during the 2016-2017 signing period. The total allotment of $13,702,200 (if fully spent) represents a larger expenditure towards strengthening the farm system than the organization has spent over the past two seasons combined.  My concern has been that the drive to rebuild from the rubble that was the 2015 season would impact Oakland’s fiscal ability to fully fund this opportunity to inject needed raw talent into the organization.

I freely admit that this concern is seeded in the famous Moneyball draft of 2002; while most remember it as the year Oakland tried to revolutionize the draft process by injecting significant statistical analysis into their selections I recall the stark necessity that pushed the A’s through that door… to whit, GM Billy Beane had seven, 1st round draft picks and the team owners wouldn’t give him sufficient funds to pay the going rate for those selections. I don’t want to see that scenario repeated this summer. So I resolved to dig into the financials as best I could, given the information available to the public, and determine if Oakland would be able to invest fully into the amateur market while putting a “representative product” on the big league field. What I discovered was that my understanding of payroll costs and expenditures was not as comprehensive or accurate as I originally believed. And I needed to understand these figures better if I hoped to understand Oakland’s budget process.

How can Oakland budget for success in the 2016 season?

 

The Payroll

The first thing I realized is that there is not a single source that paints a completely accurate picture of a baseball team’s payroll expenditures. A few really good sites, including Cot’s Baseball Contracts and Spotrac, do a great job of giving their readers a big picture overview of a team’s yearly payroll situation. But when you look closer at the numbers you see gaps in the information, gaps that raise significant questions in how teams budget their money. And when you’re discussing a team like Oakland, which has a limited budget and needs to carefully count their (baseball franchise equivalents of) nickels and dimes, these questions need to be discovered and hopefully answered in order to realize a detailed picture.

Example: Can you name the single most expensive, in-season acquisition the A’s have acquired since 2012? The A’s added some fairly large pieces during their play-off runs but as it turns out it was the May, 2015 trade for Edward Mujica and his approximately $3.84 million remaining salary that represented the largest contract Oakland took on in-season over the previous four years. I had to combine the information I found in Cot’s and Spotrac and Baseball Prospectus’ player transaction pages to get a clear idea of Oakland’s player payroll and how they might budget for a given season. So let’s start by clarifying some basic information:

 

Opening Day and Year End Payrolls(in millions)
Year	Opening Day	Year End
2016	$85.4429	TBD
2015	$86.6295	$85.207
2014	$86.4709	$94.1142
2013	$63.3145	$69.775

 

The numbers you’d find on Cot’s Contracts are (generally) within a couple million dollars of my figures; the key to remember is that Cot’s factors in signing bonus money the same way MLB does, i.e. pro-rated over the life of the contract as an adjustment for luxury cap purposes. Baseball’s luxury cap is set at $189 million… and Oakland’s payroll is well below that mark. I consider it more relevant for this discussion to know how much a player actually costs in a given season, therefore on my salary chart Ryan Madson costs Oakland $7 million in 2016 and $7.5 million in each of 2017 and 2018 and not $6.667/$7.667/$7.667 million over the next three years. Spotrac is great for figuring out how much players make for partial seasons but I admit to not being able to make heads or tails of how they get to their final, year-end figures.

The payroll bump between 2013 and 2014 can be attributed to the influx of cash from MLB’s new, national TV contracts with FOX Sports and Turner. These deals, coming on the heels of MLB’s new contract with ESPN earlier in 2012, gave the A’s approximately $20 million annual to pad their budget. This money will continue through the 2021 season; a factor which should (eventually) be considered before discussing any long term player contracts that extend beyond that season. But the national TV money isn’t the most significant source of outside revenue the Oakland A’s receive… no, that would be the revenue sharing check the A’s receive from MLB as part of their special exemption within the existing Collective Bargaining Agreement (CBA).  This adds $30 – $40 million to the coffers annually and I believe it influences some of their spending habits. But we’ll get to that later.

 

Cash Reserves

If you look closely at Oakland’s 2016 Opening Day Payroll, provided by Cot’s, you notice 29 salaries listed in full in the 2016 column. That’s because teams set their Opening Day rosters a day or two before their first game of the regular season and in Oakland’s case Felix Doubront made the official Opening Day roster; he of course got hurt right at the end of Spring Training and was placed on the 15-day Disabled List April 4, with Andrew Lambo called up to take Doubront’s place on the roster. Players on the DL get paid in full but what jumped out at me was that Lambo’s salary didn’t make Cot’s Opening Day payroll yet it makes sense that Oakland (and every MLB team, for that matter) had to have budgeted funds during the offseason to pay for the players they would call up during the season. But how much would Oakland budget to maneuver their 40 man roster?

And how do they budget for performance based bonuses? Both John Axford and Ryan Madson have clauses in their contracts that can help them earn up to $1.25 million based on games finished. Axford can earn $250K each for 30, 35, 40, 45, 50 games finished and while I can’t find specific language for Madson, if his contract is set up the same way than his promotion to Closer means he’s all but certain to earn most if not all of that additional money. Henderson Alvarez can earn up to $1.6 million based on games started, starting with $100K after his 12th and 15th starts for the A’s and increasing by $50K increments every 3rd start through 24 games. While it is now impossible for Alvarez to max out on his bonus money (he needed 28 GS to achieve the full $1.6 million bonus) it seems like prudent fiscal management would have been for Oakland to have left room in the budget to accommodate some if not all of these potential salary increases. Here is a breakdown of the cost for the various roster maneuvers Oakland has followed over the past 3 seasons:

 

Roster Maneuver Costs
Year	40 Man Roster Additions/ Subtractions	Trades	Total Payroll
2015	+ $2.4125 MM	– $3.84 MM	– $1.4225 MM
2014	+ $560.8 K	+ 7.0825 MM	+ $7.6433 MM
2013	+ $875 K	+ 2.763 MM	+ $3.663 MM

 

Clear as mud, right? But digging into the mud does provide some clues. In 2013 the A’s were able to add $3.663 million to their payroll, a 6% increase over their starting budget. In 2014 they traded for Blanks, Hammel and Shark by early-July, bumping payroll by 7%. When they later traded for Lester, Gomes, Soto and Dunn they only took on an additional $1.8 million in payroll… they did this by giving up an asset due $2.1 million over the remainder of the season (Cespedes) and receiving $3.1 million in cash back from Boston and Chicago. I think by the time Beane initiated those last trades he had already spent his cash reserve and while ownership was willing to give him additional funds there seems (appears) to have been a mandate that he make deals that would largely pay for themselves. In 2015 a planned 7% reserve would have given Beane approximately $6.06 million to play with; most of that would be committed to the May trade for Edward Mujica in an effort to stabilize the bullpen. The cost to transfer players from Oakland to the DL and/or the minors skyrocketed compared to previous seasons, putting further strain on a cash reserve.

Is it telling that during the Sell-Off of July, 2015 Beane’s first trade was to deal Scott Kazmir to Houston without including any cash? Perhaps. To be fair, it’s entirely possible the Astros had no interest in giving up the additional prospect value associated with receiving salary relief for the remainder of Kazmir’s $4. 388 million salary and I believed then, as I do now, that Oakland received fair value in the prospects they acquired for Kazmir. What I do find interesting is that the money freed with the trade more than covered the fiscal outlay made when the team acquired Mujica and I believe that financial latitude allowed Beane to be more aggressive when shopping his remaining trade chips. The deals involving Tyler Clippard, Ben Zobrist and Eric O’Flaherty all involved Oakland sending cash to their trade partners, thus improving the prospect return the A’s received. (For the record, I couldn’t find anything confirming the amount of cash Oakland sent to New York as part of the O’Flaherty deal. But considering how desperate the Mets were for a LOOGY and how lousy a prospect Dawrin Frias was I figured the figure had to be considerably less than the $1 million the A’s sent along with Tyler Clippard.) A look at the trade details below.

 

Trade Details
Player	Trade Team	Cash Sent	Salary Saved	Return
Kazmir	Houston	None	$4.388 MM	Nottingham/ Mengden
Clippard	NY Mets	$1.0 MM	$2.1295 MM	Meisner
Zobrist	KC	$2.1 MM	$686.9 K	Manaea/ Brooks
Cook	Boston	None	$497.3 K	Cash Considerations
O’Flaherty	NY Mets	$500 K	$1.3333 MM	Dawrin Frias

 

We know that Oakland closed out the 2015 season with a final payroll of $85.207 million; that was $1.4225 million below their Opening Day payroll. When we factor in the cash reserves we know the A’s budgeted for (as part of a prudent business model) Beane returned ~$7.5 million to the pockets of the owners.

Jumping back to the present, an Opening Day payroll of $85.4429 million would suggest a cash reserve of $5.981 million. Factoring in $1.25 million in performance bonuses to Ryan Madson and another $550 thousand to Henderson Alvarez (for a presumed 21 GS) and that leaves just over $4 million available in reserve. That’s certainly enough to cover transactions within the existing 40 man roster and minor league system but would limit Oakland’s ability to bring in big league reinforcements.

 

The Draft

Let’s start by looking at Oakland’s draft spending over the past 3 years.

 

Draft Spending (In millions)
Year	Draft Pool	Spending
2016	$5.4441	$5.60
2015	$4.7783	$4.775
2014	$6.0368	$5.8941

 

Winning records lead to smaller draft pools. Oakland’s $9.8835 million pool for this June is nearly equal to the team’s total allotment the previous 2 years combined but the really interesting point is the team’s spending in the 2015 draft; Oakland went above their allotted draft pool by $155,900, a move necessary to sign draft-eligible sophomore Boomer Biegalski. What if Oakland was to budget the same cushion into this year’s draft? The not-so-new slotting system penalizes teams who spend above their allotted pool but teams only start to lose draft picks if they spend 5% or more than their allotment. If a team goes no more than 4.9% above its allotment than their penalty is a 75% tax on the money spent over the cap. A $9.8835 million draft pool allows for a $484,291 cushion before losing future draft picks. Rounding that down to $484,000 (just to be extra safe) the A’s have the equivalent of a mid-fourth round pick that they can divide and allocate throughout their upcoming draft class. The team would be penalized an additional $363,000 if they did spend that 4.9% above their pool but that seems a pittance (and an easily budgeted one at that) in the overall scheme of things. So let’s add this additional $847,000 to the existing draft allotment and set the overall draft budget at $10.7305 million.

 

International Free Agents

The A’s have shied away from the international free agent market over the past 2 seasons, going so far as to trade some of their slot allowances last July to Atlanta for fringe arms Cody Martin and Aaron Kurcz. During that timeframe 10 teams have spent so far above their allotted pool that they are restricted from signing any international amateur to a bonus greater than $300,000 come the new signing period this July. Oakland, with an allotment of $3,818,700, is expected to be more active this year per Baseball America’s Ben Badler. What does “more active” mean in terms of dollars budgeted? I think we can safely rule out an approach similar to what the Dodgers took last year, spending a combined $85 million in signing bonuses and fines to acquire seemingly every other amateur prospect available. But can we expect Oakland to go over their pool allotment?

Teams can go over their allotment by up to 4.9% and face only a financial penalty of a 100% tax on their overage. Therefore Oakland could spend an additional $187,000 (again, rounding down to be safe) and push their international budget to just over $4 million, with an additional $187,000 due in penalty tax. Teams can also increase their allotment pool by up to 50% by trading for slot allotments from other teams. (Every team receives a base $700,000 allotment for international signees. They then receive slot allotments of various amounts, similar to the way each draft pick in the amateur draft is worth a specific amount, based on their record from the previous season. All of these slot allotments are tradable.) The A’s could trade for an additional $1,909,350 in slot money, pushing their total allotted pool to $5.728 million. They’d still be allowed to spend up to 4.9% over the new mark ($280,500) and only face the 100% penalty tax. And just to be clear, if the A’s traded for $2 million in slot money they could still only spend up to $1,909,350 of that new slot money before being taxed. Getting additional slot money would require an interested seller and a reasonable price and I have no idea if either of those is readily available; therefore I’d expect Oakland to budget no more than $4.19 million towards the international market.

Why can’t we expect/plan/hope for Oakland to make a big splash in the international market and drop $10-15 million on young talent? Because it would make for bad politics.

The current CBA expires at the end of the current season. As mentioned above, it contains a special exemption for Oakland allowing the team to receive revenue sharing in spite of the fact the team resides in one of the largest media markets in America and as such, would normally be ineligible from receiving financial aid from MLB.  The specific language allows for the A’s to receive a revenue sharing check until they can acquire a new stadium… as that future event is still undetermined it makes sense that Oakland’s owners would be keen to insure that exemption makes it into the new CBA for next season. Lewis Wolff’s old college pal Bud Selig is no longer the Commissioner so the A’s ownership group needs to practice smart politics to get enough of their fellow owners on board to extend the exemption, an exemption that requires other owners to pay $30-40 million annual to Oakland. Going out and dropping $15 million on international talent would be bad politics; because if Oakland can afford to do that, why do they need a special exemption allowing them to receive revenue sharing?

That’s my theory as to why we won’t see Oakland spend tens of millions on the international amateur market.

 

Sum Total Comparison

Let’s tie all this back into my original concern of whether or not Oakland could fully fund their draft and international free agent pools while spending to put a “representative product” on the big league field? The best way to predict what could be in play this year is to consider what happened in the past.

 

Spending (In millions)
Year	Opening Payroll	Year End Payroll	Draft Spending	International Spending	Total Spending
2013	$63.3145	$66.9775	$5.8941	$2.1	$74.9716
2014	$86.4709	$94.1142	$4.775	$0.8275	$99.7167
2015	$86.6295	$85.207	$5.6	$ 1.18	$91.987

 

Once we grant the $20 million dollar difference in income between the 2013 and subsequent seasons a budget pattern starts to emerge. Oakland has been able to budget their single season expenses (payroll, draft and international free agent pools) into the mid/high $90 million. Would that figure be sufficient to cover the 2016 budget, assuming my guesswork on a built-in cash reserve and my preference for how the draft and international pools would be funded is accurate?

 

Projected Budget (In millions)
Year	Opening Payroll	Cash Reserve	Draft Pool	International Pool	Total Budget
2016	$85.4429	$5.981	$10.7305	$4.19	$106.3444

 

This could be a problem.

Unless I’ve made a mistake in my math, Oakland has never crossed the $100 million threshold. Clearly 2016 represents a year in which that line needs crossing if the A’s are to fund their efforts at fielding a competitive big league roster while fully investing in their future via the draft and international market. I see 3 possible scenarios to explain the projected budget:

1) Beane and Forst have, in the past, suggested that they have additional funds readily available to them if they wanted or needed a larger payroll to accomplish their plans, no strings attached. I start with this scenario because I’ve seen it said… and I don’t believe a word of it. If the A’s FO can tap into extra monies why did they have to push for over $3 million in cash as part of the Lester and Dunn trades? Oakland could have given up less if they already had the cash on hand to afford the new additions.

2) The A’s don’t have sufficient cash to cover everything. In this scenario they probably see 2016 as a year to rebound from the horror show of last year; they built a roster that can be competitive if not a contender. A July sell-off is likely, with the new prospects added through those trades supplemented by an influx of spending on amateur talent… conveniently paid for by the cash freed up by trading away soon-to-be free agent veterans like Hill, Rzepczynski and Reddick. Dealing those 3 by mid-July would have the potential to free up close to $7 million, although that figure could drop if the A’s could sweeten the trade return by including cash in the deals. (I’d have included Coghlan but he needs to hit at least his body weight before he’ll be an attractive trade piece.)

This strikes me as the most “typical Oakland” of the scenarios. And it’s not a bad plan, just one with a bit more ruthlessness than the fan base would prefer. I didn’t see this team as a contender in March, as there were too many question marks in the starting rotation to make me think this team had the arms to support a post-season run. To say nothing of backing a ground-ball leaning staff with a starting infield that included Valencia and Lowrie…

3) The current roster does have a puncher’s chance, though. And as cynical as I am I wouldn’t mind riding Reddick and Scrabble ‘til the end IF there was a way to do it while fully funding the draft and international free agency. I’m not willing to bet on a longshot at the expense of long-term investment or assets, so if the A’s are going to win the whole damn thing than they’ve got to do it with whatever’s already in the system. And I think there’s a way to do it.

 

But that’s the subject for another article.

Thanks for taking the time to make it this far and comments are always welcome.