The new collective bargaining agreement between Major League Baseball and the Players Association was announced yesterday, and while the majority of mainstream media outlets highlighted items of questionable enforceability like human growth hormone testing and mandatory All-Star Game appearances, those closest to the game reacted most strongly to new rules placed on free agent compensation, the first year player draft and international signings.

Let’s quickly (at least in relative terms) go over the new rules surrounding these three items, before discussing their effect and possible exploitation points:

Free Agent Compensation

Beginning next off season, the entire Elias ranking system, which used to dictate compensation for signing free agents, will be scrapped. There will be no more Type A or Type B free agents. Instead, teams can make a qualifying offer to their impending free agents in the form of a one year contract that guarantees a salary equal to the average annual earnings of the 125-highest paid players from the prior season. Players offered this contract will then bring back compensation in the form of a first round draft pick assuming that the free agent signs elsewhere. A team that finishes in the bottom 10 in the majors cannot not lose a first round draft pick, but can lose their next highest pick.

First Year Player Draft

The new CBA sets limits on the total amount of money each team may spend on players selected in the amateur draft. Beginning with the next Rule IV draft, clubs will be given assigned a dollar figure from the Signing Bonus Pool depending on that team’s position in the draft and the recommended signing bonuses to be handed out for their draft picks. This amount of money will apply to that team’s selections in the first ten rounds of the draft. If someone drafted after the tenth round is given a bonus of $100,000 or more, that figure will also be included in the Signing Bonus Pool.

If a team’s draft spending exceeds their assigned Signing Bonus Pool by 0%-5% they will be forced to pay a 75% tax on their overage; if they exceed it by 5-10%, the team will not only be taxed 75% on the overage, but also lose a first round pick in the following year’s draft; if they exceed it by 10-15%, the team will not only be taxed 100% of the overage, they will also lose their first and second round draft picks from the following year’s draft. Teams that spend in excess of 15% of their Signing Bonus Pool will be penalized with a 100% tax and the loss of two first round draft picks from the following two drafts.

In addition, draft picks are only eligible to sign minor-league contracts, which must be registered between July 12-18.

The new CBA also introduces the Competitive Balance Lottery. The ten teams with the lowest revenue from the previous year, plus the ten teams in the smallest markets will be entered into a lottery from which six teams will win a bonus draft pick immediately following the completion of the first round.

International Free Agents

In December, MLB and the MLBPA will form an International Talent Committee with the intention of creating better regulations for the development and acquisition of international talent. For the 2012-2013 signing season, all teams will receive the same amount of money limits for international signings by the Signing Bonus Pool. After that, different amounts will be given out based on the previous season’s winning percentage. At that time, teams will be allowed to trade portions of their pool allowance.

As with the amateur draft, if a team’s international spending exceeds their assigned Signing Bonus Pool by 0%-5% they will be forced to pay a 75% tax on their overage; if they exceed it by 5-10%, the team will not only be taxed 75% on the overage, but also lose the right to sign more than one international player to a bonus that exceeds $500,000 in the next signing season; if they exceed it by 10-15%, the team will not only be taxed 100% of the overage, they will also lose the right to sign any international player to a bonus that exceeds $500,000 in the next signing season. Teams that spend in excess of 15% of their Signing Bonus Pool will be penalized with a 100% tax and not be allowed to sign any international player to a bonus that exceeds $250,000 in the next signing season.

What Does It Mean?

Most immediate reactions to these rule changes claim that the new agreement hurts the teams that were attempting to “game the system.” Teams with smaller revenue streams like the Tampa Bay Rays and Toronto Blue Jays, who compete against the largest revenue streams in baseball in the American League East, were signing free agents based on their future status as compensation bait, while investing heavily in the draft and foreign born players instead of free agents.

There is a difference between gaming the system and finding value where competition hasn’t found it yet. Singing players based on their potential Elias ranking the next off season in order to acquire additional draft picks seems to me to be a clear case of gaming the system. It exploits the arbitrary and unrealistic methods that Elias used for ranking players and allows clubs to justify transactions that aren’t directly related to how the team performs on the field.

However, investing heavily in signing bonuses for draft picks and international free agents is only taking advantage of the competition’s shortsightedness when it comes to the value of having multiple years of team control over players at a reduced rate before they hit free agency.

Eliminating the Elias ranking system allows the market to more ably dictate a player’s worth while simultaneously limiting the degree to which a smart front office can take advantage of unrealistic rankings. Henceforth, only the most valuable free agents will bring back compensation to the team losing him from their roster. To me, this is what was originally intended and the new rules are better described to be closing a loophole rather than oppressing the smaller franchises.

It’s been stated that this should open up organizations to more trades, and while it’s true that the quantity of deadline deals may increase, the quality of players on the move isn’t likely to increase. Where the previous agreement limited wheeling and dealing by forcing teams in need of  a veteran with an expiring contract to come up with the equivalent in prospect quality to a first round and supplemental draft pick, teams will now have to make such deals without the assurance that whatever they give up in acquiring the rental player would at least be compensated when he signed elsewhere. That’s no longer possible with rules stating that only players that have spent the entirety of the season with their club will be subject to compensation.

The trade value of expiring contracts, outside of their effect on the field, will only exist during the off season. What I see this translating into is fewer one year contracts being handed out like the ones that Tamapa Bay gave to Johnny Damon and Manny Ramirez this past off season and more attempted trades for missing pieces in December and January involving soon to be expiring contracts from teams that don’t expect to compete.

In other words, instead of paying money for free agents this off season, pay prospects in an attempt to acquire players like Brandon League and Andre Ethier, in their last year of team control before free agency. Both the Seattle Mariners and Los Angeles Dodgers would then be able to speed up their rebuilding process based on the return, and the acquiring team gambles that neither player would accept a one year $12.4 million deal at the end of this season as they replace the prospect(s) they gave up with the compensation received when they sign elsewhere in 2013.

Next, let’s look at how the changes affect the first year player draft. But before we delve too deeply into it, we must agree on a few principles. Drafted players represent an incredibly good value to teams over the early part of their careers compared to the relatively exorbitant cost of free agents. A limit on signing bonuses for these players should increase their value even further by pushing down their cost. A rebuilding team has less of a need for free agents than they do young players, and so, they are more likely to reallocate their budget to acquiring players via the draft than on the free agent market.

While a rebuilding team will theoretically have a larger Signing Bonus Pool than a currently successful team, they don’t have the luxury of spending as they see fit. A middle of the road team, looking to improve, has even fewer luxuries. I would solve this disparity by embracing the penalties handed out by Major League Baseball and taking advantage of other teams’ unwillingness to do so.

Of course, I’m writing in a theoretical sense and making assumptions at the behaviour of teams under these new rules. This is more in the realm of ideas, and because so much of a team’s decision on how to react to the new rules will be based on how other teams react, we’re not going to know the full effect that these changes have on baseball’s future.

However, there is one major accepted part of all this with which I don’t agree. Dave Cameron claims in his FanGraphs piece on the new rules dictating the amateur draft that:

These penalties are so severe that they essentially eliminate any benefit a team would get from signing a player for more than the slot recommendation, so they equate to de facto hard slotting. Teams no longer have the ability to spend heavily to convince players who were strongly committed to colleges (or other sports) to forego those options and begin a career as a professional.

If one win above replacement is worth $5+ million on the free agent market, as FanGraphs suggests, I don’t see how this can be the case. Only fifteen players in the history of the draft have received a signing bonus of $6 million or more, and almost all of them returned at least one WAR in their first taste of big league action.

The monetary punishments for what would essentially be going over slot still don’t compare to the value gained by attaining the top talent at the draft, and the loss of a first round pick isn’t nearly the punishment it seems to be considering the limits on spending that other teams will follow and the aversion to risk that other teams have exhibited in the past. Not only is there no less reason to be aggressive in the draft, there’s more of a reason to do so because of the likely increase in passivity of other organizations attempting to remain in line with MLB’s expectations.

Instead of increasing the value of drafting top caliber players, these tactics actually decrease the value because of the spending on overage penalties. Of course, drafting like this would work best with prep players who still hold leverage over teams wanting to sign them with the threat of attending college instead of pursuing a Major League career. That threat will theoretically be enough to scare away pool conscious teams and make them more attractive to pool irrelevant teams that may have to wait until the second or third round to select this type of player anyway.

I’m not advocating overpaying for high school talent, merely never avoiding the best available player because of concerns over the Signing Bonus Pool. It should be remembered that one team’s willingness to spend won’t change the leverage balance as drastically as the many more that are attempting to stay under the Signing Bonus Pool.

Most of these principles remain the same for international signings, but with one major exception. Disobeying the limits placed on signing foreign born amateurs actually results in a lack of freedom to sign more elite players in the future. Again, the penalties shouldn’t stop a team from pursuing a player, but if they’re going to do so, they might as well really do it.

In other words, prepare to spend more than any other organization on international free agents every other year. Once again, embrace the punishment as part of the overall cost of doing business (the value added still compares well to the cost of free agency), and pick the spots at which you can land elite talent without regard to what Major League Baseball attempts to impose.

Once again, these ideas only work if all of the other baseball clubs act the way we assume they will. At some point in this attempt at spotting new ways to gain an advantage, it must be mentioned that if the majority of clubs do follow the new rules, the new CBA can be accurately described as being blatantly unfair to amateur players, both domestic and (especially) foreign, groups that without coincidence aren’t properly represented by the MLBPA.

It’s funny to think that baseball’s history is littered with past players sacrificing so that future players can be paid what they’re worth when the newest bit of labour peace between owners and players seems to be so largely at the expense of players yet to be.

Let’s finish this piece with words taken from The Platoon Advantage, one of the more outspoken blogs against the new CBA.

For most of these players, they get one opportunity for a big payday, as at least some compensation for starting their adult lives later than the rest of us. And that’s the day they sign their first professional contract. They get a chance to negotiate a bonus for signing with their new club (understanding that that player doesn’t actually have any choice in who he plays for). These players live hand-to-mouth, some of them supporting young families. To take away from the relative pittance they’re offered by their parent clubs is a crime.

But that’s what the new deal hammered out by the MLB and MLBPA does, essentially limiting the potential for young players’ one big payday. It limits the free market and artificially lowers the amount each player is worth paying. It’s fundamentally unfair in that it demands sacrifices from those who not only are least able to bear that sacrifice, but who have absolutely no voice in the process. What do these amateurs get in return? Nothing. Their earning potential is curtailed after they get absolutely screwed over and betrayed by the people who know exactly what it’s like to be in their position.