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Status Quo No More: Breaking Barriers and Investing in the Oakland A's Future

Part of an ongoing discussion regarding Oakland's financial abilities.

Intense focus is the key.
Intense focus is the key.
Kenny Karst-USA TODAY Sports

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.

Will June 9, 2016 become a watershed date? Clearly the A's went in a different financial direction last season (ironically Lew Wolff's last as the managing partner) when 21% of their actual spending went towards signing amateur talent. The team is poised to make a similar commitment this year but it's their willingness and ability to continue this trend that will ultimately determine if this is a blip or an actual change in the tenor of the organization. Only time will tell. But for now the team has made clear moves to invest in its future.