The true cost of Cuban players

On Monday, the Red Sox won the bidding war for Cuban prospect Yoan Moncada, reportedly agreeing to pay $31.5 million as a signing bonus, plus another $31.5 million as a tax to the commissioner's office for going over their allocation for international spending. That totals a $63 million acquisition cost for the organization, making Moncada one of the most expensive prospects in baseball history.

But if anything, the signing cost was perhaps a little bit on the low side of expectations, which had been rumored to be in the $30 million to $40 million range for months. And while $63 million is a lot of money, the Red Sox actually guaranteed $72.5 million to fellow Cuban Rusney Castillo last year. Castillo broke the record for most money for a Cuban signee, set the prior year when the White Sox gave Jose Abreu $68 million. The Diamondbacks clearly used those two contracts as the inspiration for their $68.5 million deal with Yasmany Tomas, so Moncada became the fourth Cuban to sign for between $63 million to $72 million in guaranteed money.

On the one hand, you could say that these four contracts represent a pretty clear price range that the market is willing to pay for talented Cuban hitters. But in reality, each contract has its own unique features that make the simple guaranteed dollar amounts a poor way of evaluating the true cost of the player to the team that signed them.

For instance, Moncada -- unlike Abreu, Castillo, and Tomas -- was prohibited from signing a major-league contract, so the Red Sox do not get the benefit of spreading out the cost over the years during which he's going to play in Boston, nor will any of the $63 million they've already committed to pay cover his future salaries when he does arrive in the big leagues. In other words, the $63 million payout for Moncada was simply to acquire his rights, making it more comparable to the posting fees paid to acquire players from Japan in the past.

So, if we want to compare Moncada's acquisition cost to the other three big-ticket Cubans who have signed lately, we have to put it on the same scale. To do this, we can use an accounting tool called Net Present Value, which puts a lump-sum value on future cash flows. Even if you've never heard the NPV term before, you've likely heard the concept described whenever a lottery winner is announced; the guy who just won $450 million often chooses to take a much smaller payout immediately, rather than signing up to receive payments totaling the advertised number over 20 or 30 years. That smaller one-time payout is calculated using present value, which allows one to compare one payment now versus a series of payments in the future.

If we take Moncada's $63 million in present day payouts, what would an equally priced long-term deal have looked like had he been allowed to sign a major-league contract like Abreu, Castillo and Tomas? Well, if we assume that he will spend the entirety of the next two seasons in the minor leagues, and that the Red Sox will hold him down in the minors in 2017 long enough to keep him from getting one full year of service time, then we can create a schedule of payments from 2015 through 2023 -- when he'd finally be a free agent -- that equals the $63 million cost the Red Sox have to pay out up front.

Using the 4% discount rate that MLB and the Player's Association have agreed to use for valuing long-term contracts, below is one example of a contract structure that would equal $63 million in present value.

If the payments were aligned to the years in which Moncada was expected to produce, then an equivalent contract would have been something like $81 million; in other words, the price for Moncada was actually higher than the cost for Abreu, Castillo or Tomas because of the fact that it has to be paid up-front. This deal is basically the reverse of Max Scherzer's contract, which wasn't worth quite $210 million once you factored in all the deferred money; this actual cost to the Red Sox is higher than a $63 million long-term contract because of the payout structure.

And that's before we even consider Moncada's future salaries. In the above example, we're assuming that Moncada will be called up in 2017, which would set him up for arbitration raises starting in 2020 or 2021, depending on the timing of his promotion. Estimating future arbitration payments six or more years in the future for a player who hasn't even set foot in A-ball is a tall order, but if Moncada turns into what the Red Sox hope he can be, industry estimates place his expected arbitration salaries in the range of $25 million to $35 million. On the high side of those estimates, that would then make the Red Sox's cost of owning Moncada during his six-plus years of team control the equivalent of a $116 million contract, dwarfing the amounts received by his fellow countrymen.

That said, just as the minimum guaranteed amount doesn't accurately reflect the total potential cost for Moncada, neither do the $68 million to $72 million figures tell the whole story for the three other Cuban hitters. Abreu's contract, for instance, gives him the right to opt-in to arbitration once he becomes eligible -- which should happen after the 2016 season, barring some unforeseeable trip to the minors at some point in the next two years -- and argue for larger payouts than the last few years of his deal call for. While it's extremely unlikely that Abreu would be able to argue for more than the $10.5 million he's guaranteed in 2017 as a first-time eligible player, he might be able to extract some additional money by 2018 and 2019, when he can compare himself to players who had been through arbitration multiple times.

If Abreu could successfully argue for $15 million in 2018 and $20 million in 2020, he could add an additional $11.5 million to the $68 million the White Sox originally committed, pushing his overall contract price up toward the $80 million mark. It's still well below what he's worth, of course, but Abreu's success is one of the reasons prices for Cuban hitters have gone up so quickly.

Unlike Abreu, Castillo and Tomas do not have the right to opt-in to arbitration, but both obtained opt-out clauses that allow them to hit the open market a bit sooner; Castillo after five years, Tomas after four. While both would be walking away from a good chunk of guaranteed money, they'd only exercise those opt-outs if they knew they could get a raise on a long-term deal instead, so the opt-outs have to be considered real additional value to the player as well. Toss in the raises they can expect to see if they use the opt-outs, and the cost of getting nearly seven years of production from either one starts pushing up toward $100 million, a bit closer to what Moncada is likely to cost if he develops as hoped.

Tomas could potentially even get up into the high-end range of Moncada's projected cost if he turns into the slugging star Arizona is hoping for. He'll clear $36 million in salary before his opt-out, so if he managed to sign a long-term deal that paid him $80 million over the first three seasons -- $26.7 million per year, which isn't unheard of anymore -- he'd also cost something in the range of $115 million over his first seven years in the majors. The path to that level is more difficult for Castillo, both because his opt-out comes a year later and because teams are less likely to pony up for his speed-and-defense skillset than they are if Tomas turns into a big-time home run king.

In the end, though, once you account for the value of paying Moncada's acquisition cost up front and the unaccounted for arbitration salaries, his signing makes him likely to be the most expensive player of the group. Of course, if he lives up to the Yasiel Puig comparisons, even the equivalent of $115 million would be a tremendous bargain.