Why in the heck is Lazarito Armenteros gonna get $20 million?

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This post is not meant to assess Lazarito Armenteros. I am not qualified to do that. Go read Ben Badler at Baseball America if you want a breakdown on the 16-year-old Cuban prospect. Ben knows his stuff when it comes to that.

No, I pose that question because I want to link an excellent article that seeks to answer it and, in turn, tells us so much about the relationship between the rules MLB sets for international signings, how international players are paid and what it all means for competitive balance in general.

It comes from the folks behind NEIFI, a baseball performance and analytics company which provides projections and all manner of other analytics for its clients. This article is a bit out of their usual bailiwick, but it’s nonetheless enlightening and speaks directly to the question posed in the headline and, more significantly, to the problems and inefficiencies of player development, both on the international stage and in the draft.

The short summary: based on talent and scouting reports alone, there is no reason for Lazarito Armenteros to get the $15-20 million he’s likely to get when he signs with a club soon. He’s getting it because there is a “Cuban Premium” out there on the market, which inspires teams to spend more for Cuban prospects than for equally-talented Dominican or Venezuelan players. The premium is a function of some rather high-priced Cuban signings in the past which, in turn, were based on some weird and arbitrary rules and deadlines MLB set with respect to Cuban free agents, not because there was some sense that they were better.

That expands to a conversation about anchoring effects (i.e. if you say, in the first instance, something is worth $X, someone will tend to believe you and not think too hard about it) and black pearls (i.e. they were considered worthless until someone said they were valuable). It more significantly expands into a discussion of how international bonus pools and luxury taxes and things impact team behavior and how, given the current setup, they lead to things like the Dodgers having an outsized advantage in international signings.

The final bit: a proposal of the best way to set up rules regarding the draft, international signings and total player development outlay in such a way to even the field.

To be clear, the authors do not think they have some perfect insight. They note, quite correctly, that any new set of rules, their own proposed rules included, have a much larger impact on the competitive landscape than the rulemakers usually anticipate and that the name of the game is managing a team’s incentives, not its payroll or budget directly. Give a team a number and they’ll unleash their army of analysts on it in order to exploit their limitation. Give them a set of incentives and disincentives, however, and you can more finely manage their behavior.

It’s heady stuff which gets down to the issues we’ve been talking a lot about lately with respect to tanking, slotting and the like. Give it a read.