Signing bonus

From BR Bullpen

Once selected in the amateur draft, players are offered signing bonuses as inducements to sign with the major league franchise and begin their professional careers. These bonuses are determined by the slot of first round picks or the round of later picks, according to a scale devised by the Commissioner's office.

Signing bonuses for first round picks typically run in the millions, but may drop off quickly after that to just a few thousand dollars for players in the 40th round. Once signed, players are paid the standard minor league salary which is considerably less than the major league minimum salary, so for top amateur players, the bonus is what ensures their financial well-being during the course of their minor league apprenticeship.

Players who play only baseball, have completed their senior year of college or may not qualify to play college baseball academically typically have little leverage and may be offered a signing bonus less than that of a high school senior or a player with scholarships to play other sports. Players like to sign for less than the average for their slot or round are often called signability picks.

Before the amateur draft was instituted in 1965, there was significant concern over the growth of signing bonuses and their effect on competition, leading to the adoption of a bonus rule. That in turn had serious adverse effects. For international players not subject to the amateur draft, there used to be no limits on bonuses paid, but some were instituted in the Collective Bargaining Agreements in the 2010s. As a result, there is now a defined signing period for these players, and teams are issued a fixed bonus pool for all of their signings; if they exceed it, they are subject to penalties in the form of a luxury tax and the loss of said bonus pool in future years. Money from the bonus pool this can be used in trades, something which rapidly became common, as teams figured out quickly that it was sometimes worth it to give up a second-tier prospect in order to acquire enough bonus money to sign a top-rank international player (the bidding for Shohei Ohtani before the 2018 season was an illustration).