MLB Hot Stove: Shohei Otani's extremely complicated free agency process, explained
Frontunners for Otani? The posting system? International free agency? It's all in here
A topic of much interest around baseball right now is Shohei Otani, the Japanese superstar who might be headed to the major leagues in time for the 2018 season. Whether that happens is a complicated stew of financial considerations, so this begs for the FAQ treatment. Let's jump right in ...
Who is Shohei Otani?
Shohei Otani is a 23-year-old Japanese phenom who profiles as a future star whether he's on the mound or at the plate. Across five seasons with the Nippon Ham Fighters, he has put up a line of .286/.358/.500 at the plate (he has produced at an even higher level over the last two seasons). On the mound, he owns an ERA of 2.52 with 624 strikeouts in 543 innings.
How good is he?
Really, really good. This extended highlight reel from his 2016 season should give you an idea:
On the mound, Otani can touch triple digits with his fastball, and he also boasts a devastating slider and can change it up with a nasty splitter. A repeatable delivery in addition to three plus offerings all in an ideal pitcher's frame? That's a frontline starter in the major leagues. At the plate, he's got a disciplined approach and raw power potential, and he's also got some speed on the bases. That's an exceedingly rare package of skills.
Will Otani be a two-way player in MLB?
Otani reportedly wants to play both ways in the majors, and assurances to that end might come up in eventual negotiations. The default assumption is that he'll be a primary pitcher. At this point, he has a higher ceiling as a pitcher, and organizations when presented with viable two-way threats tend to lean toward the pitching side of things. Maybe this gives a National League club an edge for Otani, since at least he'll be guaranteed to bat on his start days.
Then again, we haven't really seen the likes of Otani's broad base of skills, at least not in a long time. Consider what one veteran MLB scouting director told MLB.com's Jonathan Mayo in September:
"I've been doing this 26 years, seen as many players as anybody, but I've never seen a skill set like this. This guy is polished like [Rays prospect Brendan] McKay with [Reds prospect Hunter] Greene's tools, but he's faster than Greene. There should be giddiness; no one has ever seen it. We'll see how it turns out."
Given the number of teams willing to challenge perceived wisdom these days and given Otani's desire to be a two-way star, don't be surprised if a mold gets broken. Hey, if Brooks Kieschnick can give it a whirl, then why not Otani?
So is he going to make the leap to MLB before next season?
It's looking likely, but it's not yet certain. Otani has reportedly secured the services of a stateside agent, which is a strong indicator. His desire to pitch in the U.S. is also an open secret. The posting system, however, complicates matters.
What's the posting system?
The posting system is the mechanism by which players in Japan's Nippon Professional Baseball or the Korea Baseball Organization make the leap to the U.S. major leagues. After a player has racked up nine years of service time in those leagues, he's an unrestricted free agent (e.g., Hideki Matsui when he signed with the Yankees). If, however, a player (like Otani) seeks to go to MLB before that point, his team can choose to "post" him.
How does the Japanese posting system work?
This is where things get complicated for Otani. Under the system that just expired, MLB teams would bid up to $20 million for the right to negotiate with a posted player for a period of 30 days. That posting fee of up to $20 million would go to the player's club in Japan if and only if an MLB team signs the posted player. If no agreement with the player is reached, then he returns to his Japanese team and the MLB club gets back its posting fee. Usually, though, the player signs.
For example, when the Yankees signed Masahiro Tanaka to a $155 million contract, they also paid a $20 million posting fee to Rakuten, his team in Japan. That system, however, is likely to be different going forward.
How is the posting system changing?
It's changing in two ways. First, the amount of money a player like Otani can sign for is being drastically limited. Under the new collective bargaining agreement (CBA), which governs the labor relationship between players and clubs in MLB, international free agents under the age of 25 are subject to international bonus pool money restrictions for the July 2 signing period.
What's the July 2 signing period?
That's when MLB clubs are free to sign international free agents -- i.e., players who are at least 16 years of age or foreign professionals under the age of 25 -- who aren't from the U.S., Puerto Rico or Canada (those amateurs are subject to the June MLB Draft). However, MLB clubs must work within hard-capped budgets. Those budgets are $5.75 million, $5.25 million or $4.75 million depending upon market size and revenues (the larger the market size and revenues, the lower the starting budget). Also, teams can trade cap space -- up to $250,000 at a time, for a total of 75 percent of their base budget in 2017-18 and 60 percent of their base budget in future signing periods.
On the other side of things, it's also possible to lose budget space. MLB.com explains:
Beginning in the 2017-18 offseason, any team that is over the luxury tax threshold and signs a Major League free agent that has rejected a qualifying offer will lose $1 million from their international signing pool in the following signing period. A team that is not over the luxury tax would only forfeit $500,000 of its signing pool in the subsequent period.
Beyond that, a number of teams have their current international signing capabilities heavily limited as punishment for exceeding their budgets under the old CBA, when the caps weren't hard but did carry significant penalties.
How will this affect Otani?
As noted above, foreign professionals under the age of 25 are now subject to these July 2 rules. That includes Otani. We're talking about a young player who would easily fetch nine figures on the open market, but now he won't be able to crack a $4 million bonus. To call this an artificially restricted market is to indulge in criminal levels of understatement.
Why wouldn't he just just wait two years until he's 25?
That's a great question. It seems like the rational decision. After all, he wouldn't be subject to those international bonus money restrictions if this were, say, the winter of 2019-20, when he would be 25. Then he would be getting that aforementioned nine-figure contract. Otani, though, seems badly to want to make the leap now, and he trusts his skills enough to assume the money will come later. He can also get his MLB arbitration clock running now, but it's still a big risk. For whatever reason, the new system seems not to have dissuaded him.
Wouldn't a team be able to get around these rules by agreeing to a future contract extension with Otani in secret?
Speaking of rational responses, this would seem to be a reasonable approach by teams heavily interested in Otani. You pony up the posting fee, pay Otani the relatively tiny bonus he's allowed under the July 2 rules, and then on the down-low negotiate a long-term contract with him that won't be announced until a year or three down the line. However, reports are that MLB is heavily invested in deterring such an arrangement, and that would presumably entail major penalties should a club seek to skirt the rules in such a manner. How MLB can ensure compliance isn't entirely clear, but the potential for under-the-table dealings is very much on the league's radar. Obviously, they'd need ears and eyes on the negotiation process because at some point down the line plausible deniability sets in, and a contract extension for a young frontline talent like Otani becomes impossible to prevent. This makes for an investigative challenge for MLB.
OK, above you said the posting system is changing in two ways. We talked about the July 2 thing. What's the other way?
Oh, yeah. Well, soon enough teams in Japan aren't going to be able to fetch a $20 million posting fee. Starting with the 2018-19 offseason, the posting fee will be 15 percent of the guarantee of a major league contract (i.e., for a player 25 years or older) or 20 percent of the signing bonus if a player is subject to those international bonus pools. That's according to a recent Associated Press report. In other words, the posting fee for Otani next year, when he's 24 and thus still subject to international limits, would be much lower than the $20 million under the old system. That old system, by the way, expired not long ago.
So what does that mean for Otani's team in Japan?
That team is the Nippon Ham Fighters. Obviously, they're not going to post him next year if it means getting such a lesser posting fee. They'll either do it now or when he's 25. The case for doing it lies in reports that Otani will be grandfathered in under the old system, which would allow Nippon to land that $20 million fee.
So he's good to go then?
Not necessarily. The MLB Players Associated doesn't really love the idea of a team making so much money off a player while the player gets, in this instance, roughly one-fifth of the posting fee. That objection is probably why Otani took the early step of hiring a certified agent. That still may not change the structural impediments that stand between Otani and his getting a 2017-18 signing bonus that even approaches his market value. The Players' Union, though, has been pretty "cooperative" with owner interests in recent years, and they may not ultimately stand in the way of a player who wants to come here, even in face of patent unfairness.
Given Otani's seeming interest in joining MLB right away and the likelihood that Nippon is permitted to receive a posting fee under the recently expired system, the MLBPA's reservations may be the most significant hurdle remaining.
Where would Otani rank in this winter's free agent class if he joins it?
Obviously, an international superstar who's that young and that good will have plenty of suitors. As it stands now, Yu Darvish and J.D. Martinez are the top free agents of this offseason. Otani, though, profiles as a real difference-maker on the mound and at the plate. As such, Otani would easily be the most coveted free agent of the 2017-18 class.
So who are the front-runners?
It's hard to answer this question with any precision. However, if we assume that Otani hits the market under those July 2 rules, then, according to numbers acquired by the AP, just three teams -- the Rangers, Yankees and Twins -- have more than $3 million in pool money available to sign Otani. Of those three, the Rangers have the most room in the budget, with $3.535 million available. Just three other teams have enough room to sign Otani to a seven-figure bonus.
That said, if Otani is willing to make the jump now under such a restrictive system, then an up-front payday obviously isn't his priority. As such, he may be willing to give a look to those teams who aren't able to pay him as much as the Rangers, Yankees, and Twins.
As you may have already surmised, all of this is very, very ... developing.
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