The Major league baseball players’ Association (MLBPA) and owners signed a new five year collective bargaining agreement (CBA) that went into effect for the 2012 season. One major change to that agreement was that the signing bonuses that newly drafted players can receive from clubs now have been severely limited.
Prior to the new CBA, commissioner Bud Selig’s office would provide clubs with a list of "slot recommendations", suggesting the amount of bonus that players should receive based on where they were drafted. The higher a player was drafted, the higher the slot amount.
Clubs did not have to accept the recommendations from Selig’s office but any club that went over the recommended bonus had to provide an explanation to the commissioner’s office. The Tigers did this with Rick Porcello, Nick Castellanos, and others. These high school players fell to draft slots below their true value because of signability concerns.
Selig and the owners negotiated hard to get a harder slotting system, with very severe penalties for clubs that went over slot. The current members of the players association had little to lose by bargaining away the rights of players who were not yet members of their association, yet.
Under the new system, each draft slot is assigned a certain value. The first overall pick in the first round of the 2013 draft was assigned a value of $7,790,400. The No 2 overall pick was valued at $6,708,400, and down from there. The Tigers, picking at No. 20 were assigned a value of $2,001,700 for their first round pick.
Each club totals up the values of all the slots where they pick during the first ten rounds, plus supplemental rounds of the draft. The more picks and the higher clubs pick, the larger their "bonus pool" will be. The Tigers had a supplemental first round pick which they received in the Anibal Sanchez trade, and that slot is worth $1,433,400, so the Tigers' bonus pool increases by that amount. The total bonus pool equals the total of the slot values of all the picks that a club has in the first ten rounds.
If a club does not sign a player to a contract, they lose the value of that player’s "slot value". So, if the Tigers didn’t sign their first round pick, they can not take his $2,001,700 and pay that out in bonuses to other players. This is true of all the slot values.
However, if a club signs a player to a bonus that is less than the slot value, they may then reallocate the unused bonus to another player chosen in another round. For example, if the Tigers signed their first round selection to a bonus of $ 1,500,000, they would have an extra $ 501,700 in their bonus pool to spend on other players, without paying a penalty.
The Houston Astros, who selected first in 2013 had a total pool amount of $11,698,800 for the first ten rounds. The Tigers had a total bonus pool of $6,467,400. The slot values and the total bonus pool amounts for each team are listed here by Baseball America.
Players chosen after the first ten rounds may not receive a bonus for more than $ 100,000. Any bonus above that amount is deducted from the club’s total bonus pool. For example, if a club signs a player selected in the 15th round to a bonus of $ 150,000, the overage of $ 50,000 is deducted from their bonus pool.
Penalties: Here are the penalties that are assessed to clubs that pay bonuses over their allotted bonus pool.
0- 5% over- 75% tax on the overage
5- 10% over- 75 % tax on the overage and loss of the team’s first round pick the next year
10- 15% over- 100% tax on the overage and loss of the team’s first and second round picks next year
More than 15% over- 100% tax on the overage, and loss of the first round picks in the next two years’ drafts
So let’s say that the Tigers with a total bonus pool amount of $6,708,400, spend a total of $ 7 million in bonus money on all of their selections in the first ten rounds of the draft.
= $ 291,600 above bonus pool amount
or 4.3% over
The penalty would be 75% of the overage = $ 218,708.25
If they went 5 to 10% above their pool amount, the tax would be 75% of the overage plus they’d have no first round pick in next June’s draft.
If they went 10 to 15% above their pool amount, the tax would be 100% of the overage, plus no first or second round selection next June.
If they went more than 15% over, the tax would be 100% of the overage, plus no first round selection in 2014 or 2015.
The tax is always on the overage, and there is no tax as long as the total amount spent does not exceed the total slot values assigned for the players who were signed from the selections in the first ten rounds. Individual bonuses are not taxed. The total overage is what draws the penalty.
The purpose of the new slotting system was not "parity". Nice try, Bud. The purpose is to increase the profits of owners, plain and simple. Players didn’t buy into the narrative that limiting bonus money for "unproven" prospects would free up more cash for clubs to sign free agent veterans.
Major league baseballs draft slotting system, bonus pools, and penalties explained here.