This will not go quickly…
June 9, 2016 could end up a watershed day for the Oakland Athletics.
It’s the day Rich Hill got placed on the Disabled List.
It’s the day Oakland traded Chris Coghlan to the Chicago Cubs for Arismendy Alcantara.
It’s the day the A’s took A.J. Puk sixth overall in the MLB draft.
It’s the day the organization committed itself down a path that would invest $21,531,300 towards signing 33 draft picks and 12 international free agents; a fiscal investment in amateur talent that would far exceed anything the franchise had ever done before. This commitment wasn’t due to a surge in revenue but a refocusing of existing monies from the big league roster into player development and the farm system.
Last June, just a few days before all these actions came to fruition, I wrote an article that attempted to break down Oakland’s financial plan for 2016 with a particular emphasis on the June Draft and International signing period. Using the best available information and sound logic I came up with the following projection:
2016 Opening Day Payroll: $85,442,900
Cash Reserve: $5,981,000
Draft Pool: $10,730,500
International Pool: $4,190,000
Total Projection: $106,344,400
What I noted at the time was that the 2016 A’s were projected to exceed the $100 million mark for the first time in the organization’s history and I questioned whether we’d see some sort of in-season correction to drop that amount below the nine-figure threshold. My stance then (as it remains to this day) was to never assume the team would be willing to go beyond previously established payroll limits; let’s see where the 2016 Oakland A’s finished in terms of spending on payroll and amateur signing bonuses.
2016 Final Payroll: $83,218,830
Draft Spending: $11,200,400
International Spending: $10,331,300
Total Actual: $104,750,530
There is a caveat to the final numbers that I’ll address in a bit but the bottom line is Oakland was willing to stretch their available money to new limits in the pursuit of acquiring amateur talent. Trading Chris Coghlan freed up the necessary money to pay Lazaro Armenteros a $3 million signing bonus. But it was the subsequent deal that sent Rich Hill and Josh Reddick to LA that helped create enough room in the budget to cover the cost of going over the team’s $3,818,700 International pool. I originally projected the A’s to budget just over $4 million for signing bonuses but they ended up spending $7,075,000 on their 2016/2017 international summer class; costing them an additional $3,256,300 in penalty taxes to MLB. The A’s signed 12 players at a total cost of $10,331,300 and this big ticket spending spree offered a stark contrast to the team’s bulk buying approach in the amateur draft.
Oakland had a $9,883,500 Draft allotment but teams are allowed to spend up to 4.9% above their allotted cap at the cost of a 75% penalty tax on the money spent above the initial allotment; therefore I had projected the A’s to budget $10,730,500 million towards the 2016 Draft. My figure included the cash necessary to cover the 4.9% overage ($484,000) plus the resulting penalty tax ($363,000). But the team went beyond even that projection, spending just over $11,200,000 on their 2016 Draft class. The A’s spent over their allocated budget by $326,800 thereby incurring an additional $245,100 in penalties. Their big investment came after the first ten rounds, the rounds that make up each team’s allotted cap pool. For Rounds 11 – 40 teams can sign a player to a bonus up to $100,000 and not have those dollars count towards the cap. (Any money over $100,000 counts towards the cap, though.) The A’s invested $745,000 uncapped dollars into signing the 8 players they drafted in Rounds 11 – 18.
The final total of $104,750,530 spent on payroll and signing bonuses does come with an asterisk. One of the more noteworthy aspects of Oakland’s 2016 payroll is the $10,525,000 earmarked to 5 players who would spend the entire season on the Disabled List: Henderson Alvarez, Eric Sogard, Felix Doubront, Sam Fuld and Jarrod Parker. That money represented 12% of Oakland’s Opening Day payroll last season and could have provided an unexpected supplement to the team’s revenue by being partially covered by insurance policies. Player contract insurance in baseball is a rather nebulous topic; MLB doesn’t have a standardized plan that covers all players like most professional sports. Teams that go this route are required to purchase insurance on players individually and like most individualized plans the terms can vary greatly. But a general rule of thumb is that a team can recoup at least half the contract dollars provided the player misses a sufficient amount of time. In Oakland’s case, the players in question missed the entire 2016 season and that would entitle the A’s to the maximum refund available if the team had insurance policies on the players.
I reached out to the A’s and asked about the team policy towards contract insurance… their policy is not to discuss such matters publicly. If the team had policies covering those players they’d have received at least $5,262,500 back to help cover the lost salary; money that I would count against the above mentioned total, dropping the year-end expenditures to $99,488,030 or just under what the club spent in 2014. I admit that I (probably) place breaking the $100 million barrier at a higher level of import than most as it’s the centerpiece of my expectations when I look at what the team is willing to commit to financially. I don’t trust what the Oakland Front Office tells me they can do… I trust what they’ve done in the past. I bring this up because with the lack of clear evidence I have to guess at whether or not the A’s received money back from contract insurance policies. I have to speculate on Oakland’s spending power in 2017 and beyond without knowing for certain if a new threshold has been achieved.
My guess is the team did not have insurance policies on any of these players.
Henderson Alvarez, Felix Doubront, Sam Fuld, Eric Sogard and Jarrod Parker were all on one year deals. They were essentially lottery tickets and who buys insurance on a lottery ticket? Alvarez had the largest guarantee at $4,250,000 but he was coming off shoulder surgery and it’s likely the A’s would have had difficulty finding an insurance carrier willing to insure Alvarez’s shoulder without setting exorbitant premiums. Parker would have been in a similar situation with his elbow. There’s no such thing as a bad 1 year contract, because if the player busts you’re free to try again next season.
So I believe $104,750,530 set a new standard for what the Oakland A’s are able to spend in their current financial situation. This is what I project their budget looks like for the 2017 season:
2017 Opening Day Payroll: $78,257,500
Cash Reserve: $5,478,025
Draft Budget: $13,135,750
International Pool: $1,250,000
Norge Ruiz: $4,000,000
Total Projection: $102,121,275
The Opening Day payroll I’ve listed covers 26 players as the team knew Chris Bassitt would start the season on the 60 Day Disabled List and therefore earn a big league salary. The A’s tapped into their cash reserve early, filling in behind Sonny Gray and John Axford and unable to demote Daniel Mengden, Jake Smolinski and Joey Wendle due to injuries sustained during the winter/spring. The Draft budget includes the pool allotment ($11,407,500) + the 5% overage ($559,000) + the penalty tax ($419,250) + an additional lump sum ($750,000) to sign players drafted in Round 11 and later and whose bonus money won’t count against the Draft Pool. Separate lines for Ruiz and International signings might seem odd but the Cuban pitcher is considered part of the A’s 2016/2017 International class; the pool projection above is for the 2017/2018 class. Because Oakland went so far beyond their International pool last year the team can’t give out a signing bonus higher than $300,000 starting July 2.
Thanks to the peculiarities of international signings, the time between now and June 15 creates a unique opportunity for Oakland to pursue the last big ticket player available on the international market: OF Luis Robert.
Luis Robert is a 19 year old Cuban defector who was recently granted free agent status by Major League Baseball, allowing him to sign with any team starting May 20. At 6’3” 205, Robert has 60 Grade Power and 70 Grade Speed. Average arm strength only helps his CF profile. His RH bat rates a 55 Grade but scouts note he had some swing and miss when he played for Cuba against North American teams last summer. Of course, at 19 he has plenty of time to hone his skills and some of the scouting community thinks he could start at Low-A as soon as he signs.
There is no question that Robert is a great amateur prospect; the question that needs answering is what will it take to sign him?
Let’s try and set the range of the salary bonus it’s going to take for someone to sign Luis Robert. The new CBA put a hard cap on international spending. Teams start with either $4.75/$5.25/$5.75 million dollars in their international pool. A team can increase their pool by 75% of their starting figure or they can trade away every last dollar. When the new international signing period starts on July 2 no one will be able to spend more than $10,062,500 on foreign talent; Major League Baseball simply won’t approve the contracts if a team tries to spend more. Robert’s handlers pushed MLB to get him approved prior to the new rules going into effect, therefore it makes sense that $10 million is the low end of our range. Just over two years ago the Boston Red Sox set a new record when they signed the then 19 year old Yoan Moncada to a $31.5 million signing bonus; the switch hitting Moncada is considered the better prospect due to a better Hit tool because at this price point teams need the guys to be difference makers with their bats. In late April FanRag’s Jon Heyman wrote about a rumored $25 million offer but that has yet to be confirmed by any other source; yet it seems a fair mark for the upper end of our range.
Oakland is one of six teams pursuing Robert and of the six only the Chicago White Sox have not blown past their 2016/2017 international singing pools. Even the White Sox are near their pool cap and whoever ends up signing Robert will owe Major League Baseball a penalty tax equal to the value of the signing bonus; thus a $10 million bonus to Robert becomes a $20 million investment and a $25 million bonus begets a $50 million price tag. How is Oakland going to be able to cover this cost?
Let’s start explaining how the A’s can pursue Robert by clearing up a possible misconception: the A’s can’t just “give” Robert the money they offered to Edwin Encarnacion. Consider this timeline of events:
12/22 – Edwin Encarnacion rejects Oakland’s 2 year/$50 million offer, an AAV of $25 million, to sign with Cleveland.
12/23 – Oakland signs P Norge Ruiz with a $2 million signing bonus/$4 million investment (MLB tax).
1/3 – Oakland signs Rajai Davis to a 1 year/$6 million contract.
1/18 – Oakland signs Trevor Plouffe to a 1 year/$5.25 million contract.
1/20 – Oakland signs Santiago Casilla to a 2 year/$11 million contract, an AAV of $5.5 million.
1/25 – Oakland signs Adam Rosales to a 1 year/$1.25 million contract.
Those five signings represent a $22 million investment for Oakland. Additionally, signing Encarnacion would have meant surrendering the #33 overall pick and the $2 million and change draft slot allotment that comes with it. Signing Edwin Encarnacion wouldn’t have represented a change in how Oakland does business; it would have been classic Moneyball… taking advantage of a market inefficiency that placed maybe the best bat on the Free Agent market in a position where he had to sign a short term deal. The cash Oakland offered EE has been gone and spent.
What Oakland’s Front Office can do is piecemeal the cash together. There’s a $2.6 million difference between Oakland’s 2016 expenditure and what I have projected for them to reach in 2017, let’s call that a budget surplus. Oakland saved approximately $4.25 million last year when they traded Reddick and Hill at the deadline; trading similar expiring contracts this summer would allow the transfer of additional funds towards signing Robert. The following is a list of players scheduled to become free agents at the end of the season and the projected savings to Oakland if they dealt these players at the deadline.
Jed Lowrie: $2.145 million
Trevor Plouffe: $1.7325 million
John Axford: $1.815 million
Yonder Alonso: $1.32 million
The A’s aren’t going to be able to move Axford until he gets healthy and can actually pitch but the other three could be dealt at the Trade Deadline, saving Oakland approximately $5.2 million. But Oakland wouldn’t just be dealing these players for the sake of freeing up cash… Oakland’s Best Case scenario for a successful 2017 involves graduating top prospects Franklin Barreto and Matt Chapman to replace Lowrie and Plouffe, respectively and moving Ryon Healy to 1B full time. We WANT the A’s to be in a situation where they’re looking to move on from these veterans and begin the future of the next great A’s team. Pull a million from the Cash Reserve and a couple hundred thousand from the International Fund, combine that with the trade savings and the budget surplus and we have $9 million that can be put towards a Luis Robert signing bonus. Oakland has the payroll flexibility to handle the (low end) signing bonus but ownership would have to kick in more cash to cover the penalty tax. 2016 saw the A’s increase their total expenditures by 5% over the previous franchise high; signing Robert to a $10 million signing bonus would require ownership to boost spending 10% over what they spent last year.
Getting accurate information about the team’s income is difficult but my sense is a 10% boost in spending to $115 million would still keep the A’s turning a profit at the end of the season. Much has been said about Dave Kaval and the A’s owners not being worried about take home profits and wanting to re-invest in the team… but any good businessman is going to want to stay in the black if at all possible. A situation where the A’s can invest $20 million in signing Luis Robert makes sense across the board. But what if $20 million doesn’t get a deal done? I don’t have enough information to speculate about the profitability of a $10 million dollar signing bonus vs. $11 million, so I’m going to review the situation at intervals of $5 million.
A $15 million signing bonus to Luis Robert would mean a $30 million investment on the part of Oakland. The good news is that the rules for international signings allow teams to split any signing bonus over $1 million over a 3 year period. Looking back at the Moncada signing Boston ended up giving him a bonus that averaged $10.5 million annual for three years and I believe that average annual value (AAV) will serve as a cap for Robert. But I also believe that the team that offers the most upfront money is going to close the deal so Oakland would have to structure a $15 million signing bonus to pay out $10 million during the 2017 season and the remainder in 2018. So the current payroll flexibility is still sufficient to cover the 2017 portion of the signing bonus. The bad news is any bump in Robert’s signing bonus means a corresponding increase in the penalty tax paid to Major League Baseball and MLB’s corporate offices expect their money during the current fiscal year. So Oakland’s ownership group would have to come up with an additional $5 million (for a total of $15 million) to cover the MLB tax. I believe that the additional $5 million puts the team into the red; meaning they’d be operating at a loss for the 2017 season.
As a rule I’m opposed to any business plan that includes finishing the year with an operating loss. But I can see an argument that the Front Office can make to ownership: that this would be a one-time expense and with the team forbidden from spending on big ticket international talent next season the projected expenditures in 2018 would be far lower than the $120 million Oakland would find itself paying this season to land Luis Robert. I also don’t think the team would be “too far” into the red and it’s even possible that moving another salary (Gray, maybe?) would be enough to make the budget balance again. When I combine the opportunity to land a premier talent with an unclear bottom line… there’s enough flexibility to make a deal happen.
But that flexibility doesn’t extend to cover a signing bonus of $20 million or more.
There are limits to how far a team like Oakland can extend itself and I don’t see the loss of several million dollars as being acceptable to a team that is both losing revenue and not in contention. I realize majority owner John Fisher has a lot of money and one of the reasons he does is because he doesn’t go around spending $40 to $50 million every chance he has. The recent influx of funds into the infrastructure of the team and the farm system show a clear desire for sustainability and a balance between risk and reward. Money to increase the scouting and analytical departments is measured in thousands, not millions. Money to improve the game experience via food trucks and stadium renovations are designed to pay for themselves by getting more people to buy tickets and spend on concessions. Spending $40 million or more on a 19 year old outfielder is a high stakes gamble that does nothing to bring fans to the Coliseum this season or next. The return on investment for Robert isn’t until 2020 at the earliest (if at all) and the inherent risk associated with ANY prospect is now compounded by the loss of several million dollars in fiscal year 2017.
This is the type of investment the A’s can only make once between now and the opening of a new stadium. No matter how appealing Luis Robert is spending too much money on a maybe, one day star isn’t part of a prudent business model. I believe Oakland should pursue him up to the $15 million price point but they simply aren’t in a place where they can go much beyond that. They aren’t in a place where they can compete dollar for dollar with the White Sox and Cardinals, the two current front runners to sign Robert.
If the A’s Front Office is going to pound the table and urge their owner to make an extreme financial outlay, it shouldn’t be to spend $40 million on a prospect who can’t be expected to help Oakland win games (or fans) until 2020. Instead they should wait about 18 months and pay top dollar to a legitimate star and sign Bryce Harper.
you are right, it won’t be quick. need to wait for beers to wear off to read
The A’s signing Bryce Harper is so inconceivable to me that I literally cannot picture it. Us, signing a superstar? It’d be like seeing a unicorn.
Even if they wanted to, he’s going to get big money wherever so isn’t he likely to want to go to a contender? Cano’s has to be a cautionary tale.
I have a hard time putting Harper and Cano in the same group though. Cano was pretty good, but Harper is a franchise cornerstone.
but, I do agree that it’s a pipe dream that he comes to Oakland.
I’d actually be fairly surprised if he leaves the Nats. They got a massive arby contract done and letting him leave would completely kill that franchise.
Thanks, and go As.
I was thinking of the group “premier free agent of their class”.
The biggest difference though may be age – Harper will be 26, Cano was 31 (and acknowledged the 10-year deal was what made the difference to him). The only real comp for impact and age is Alex Rodriguez in 2001.
yeah I don’t even know what Harper will get. 15/500?
Thanks, and go As.
Early rumors are closer to $500 million than $400 million and 10-12 years.
At least there’s a chance you’d get 10-12 years out of him … the Cano/Pujols/etc ones are just deferring money on a much shorter-term effective contract. Which also begs the question of what they do when performance drops off so far that you can’t justify the roster spot but they don’t want to retire. Would the Angles just DFA a $30M, 41-year old Pujols?
I’m all in favor of them being in the position to make that call.
If he doesn’t retire, do they have any other options?
Legal options?
Not that I can think of.
Then it’s a good job they’re getting their money’s worth now
… oh.
Robert -> White Sox for 25 million or so
So now that Robert is off the table, what is the plan for the A’s cash reserve (documented so precisely by grover)? While I am on a wave of optimism after the first three games of this Red Sox series, there is really no chance that Oakland will contend with Houston for the division. I still think that Alonso should be traded at the deadline, to capitalize on this breakout season. I’m also fine with trading Lowrie, Plouffe, and Axford, but less optimistic about the returns there.
1. Maybe try to send some cash along with those veterans to try to bring back better returns?
2. I wasn’t aware of the rule that you can overspend on bonuses for slots 11-40. That might be a good use of money this year as well. (but then I double-checked and see that grover has already allocated this)
Any more ideas?
I think kicking cash with vets is absolutely in play and it might even make Axford and Madson more appealing.
I think the A’s can also boost international spending a bit. I expect Oakland to trade most of the pool money for prospects but they can also pursue more guys who’ll cost under $300 K.
The surplus could also make it easier for the A’s to make a waiver claim, ala Valencia, only without the clubhouse punching.
Or $50M+ with tax.
A unicorn?
I don’t see why they can’t bring Mark Ellis back to coach.
where does stadium money come from?
I pay too little attention to what is clearly a crux issue, but I thought they were going to privately finance the stadium while pushing for the city/county to make infrastructure investments. Kaval mentioned petitioning the state legislature to waive some of the environmental statutes like they did for the Kings to speed up the building timeline.
some rosterbaiting
I mean, at least a Chapman-Siemen-Barretto-Healy infield next year would have some promise.
Thanks, and go As.
Has Barretto still been spending time in CF? That position is just as big of a hole as any infield spot. I don’t expect Pinder to keep up a .673 SLG, but he could get a shot at 2B.
That would be good too.
Thanks, and go As.
hmm… he hasn’t been playing any CF for Nashville. It might have only been a spring training experiment? bbref only shows 15 games in CF when he played in the 2015 Venezuelan winter league.
Fangraphs asks: What in the Heck Has Gotten Into Chad Pinder?
I always forget how young Olson is. He could still end up hitting and he at the very least isn’t a butcher with the glove.
I got to watch Nashville this weekend vs. the traitorous River Cats.
Chapman can play 3B. Good range and I doubt I saw all his arm but every throw to 1B popped. The swing has a b ig freaking hole down and away. He faced AAAA SP and they pitched him like a big leaguer; no challenge fastballs and he swung and missed horribly on a 3-2 breaking ball.
Barreto has played mostly SS since coming to the A’s farm but it didn’t look like it when I watched him. He tends to be over-aggressive with the bat, he too K’d on a bad 3-2 breaking ball. Got fooled a couple, ended up on his front foot and still stroked line drives. If you double up on zone and speed he will hit you.
Nunez has legit power and looked to break well in LF.
Brugman turned a double into the first out of Sunday’s game while playing CF.
Slusser is getting in on the rosterbaiting.
She has Barreto as the A’s second baseman as soon as Lowrie is traded, and she got some scout to say that Chapman has a “Nolan Arenado-Manny Machado skill set.”
I really do love that woman
Thanks, and go As.
Great stuff grover – thanks.
Welcome.
Talking of budgets … ugh.
So many lowlights to chose from, but cutting DOE’s energy efficiency & renewables program from $2.3B in FY17 to $1.1B in FY18 is a doozy.
Time to overclock NERSC!
$170M cut in the LBL budget.
$54M (42%) cut in Cosmic Frontier experiment funding.
LSST construction ramp down frees no money for re-purposing (so no CMB-S4).
DESI gets cut 80% and rebaselined.
We’re screwed.
I’m probably being naive, but I think that the budget that eventually gets passed will keep research funding basically intact. Safety net still might get completely destroyed.
Certainly it’s not going forward as-is.
I think climate/earth sciences will get hit hard. And the uncertainty is really destabilizing – would you accept a DESI position right now?
The 3 big categories for DOE:
Nuclear weapons: +11%
Science: – 16%
Energy: – 53%
… and there’s a $2 trillion accounting error.
The spurious $2T in “economic growth” is being used both to offset the revenue lost from tax cuts and balance the budget. And since it’s fictitious anyway, that leaves a $4T hole.
(I was just coming to make that joke)
No, they meant to do that.
Sometimes I wish that we could just pass one of these stupid budgets, so that their bullshit could be conclusively proven to be terrible. Except that would kill thousands of people, immiserate millions more, and cause all kinds of other havoc…
ok! I mean KS!
good point
Ugh, except that the Chicago Tribune commentary that you link here manages to take the slam dunk case that Brownback royally FK’d Kansas up and makes it into a technical complaint about where the Laffer curve actually peaks.
better
Eric Longenhagen of Fangraphs paints this year’s draft as pretty mediocre.
Sounds like we should expect a college pitcher at #6.
The mock drafts I’ve seen have the A’s taking Bukauskas, and compare him to Sonny Gray (undersized RHP).
Fangraphs has him ranked 6th on their board.
I want a HS OF. Jo Adell who’s a toolbox but putting up ridiculous stats in HS or Austin Beck (who’s getting Trout comparisons).