The Road to Baseball Labor Peace–New York or Florida?

“Salary cap”

Those are two words you are unlikely to see when the 2011 collective bargaining agreement is reached, if the Yankees and other large-market baseball teams have their way. Equally unlikely, given the perennial opposition of both small-market teams and the MLBPA to it, is the likelihood that “salary floor” will appear in the final draft of the next CBA. Exhibiting a stunning degree of convergence with the Players’ Association, major-league baseball—prodded by criticisms from both the players’ union and the sports’ wealthiest teams—the MLBPA, and the Florida Marlins issued a joint statement asserting that the Marlins will make greater efforts to spend revenue-sharing dollars on players’ payroll. Just two days later, the Marlins promptly signed star young pitcher Josh Johnson to a four-year, $39 million extension, with most of the money back-loaded in the final two seasons.

What is the connection between the MLB missive, the Marlins’ payroll (more precisely the lack thereof), and next year’s CBA, you might ask? The letter, and the Marlins’ susequent capitulation, represents a shot across the bow of the small-market teams by both the MLBPA and, crucially, the large-market teams such as the Yankees, Red Sox, and Mets signaling their deep dissatisfaction with the current revenue-sharing system. In a good piece at ESPN.com last week, Jayson Stark explored the simmering issue of revenue sharing, which he described as “potentially the most volatile issue standing in the way of baseball’s next labor deal,” and one whose consequences will “sooner or later…come crashing down on” the union’s “side at the bargaining table.” Stemming from pressure from major-league baseball and the Players’ Association, the Florida Marlins issued a joint letter with MLB and the Players’ Association declaring that they would commit more revenue-sharing money to payroll in the next three seasons.

Big deal? Actually, it is. As Stark correctly said, both the joint statement and the Johnson contract followed pressure from various sources such as Red Sox owner John Henry, agent Scott Boras, and purported threats by the MLBPA to file grievances against teams for not utilizing the revenue-sharing money for payroll reinvestment. Several teams reportedly received letters from the MLBPA—not just the Marlins but likely the Padres, Pirates, Nationals, and Reds—strongly suggesting that they were sitting on revenue-sharing dollars generated from higher-revenue and larger-market teams and, if they did not reinvest them to a greater degree, the MLBPA would act.  Act the Marlins did and swiftly so, locking up in Johnson one of the game’s premier young pitchers.

This was exactly the intent of revenue-sharing in the first place—the strategic reinvestment of revenue-sharing dollars in players’ payroll and internal farm system development. Yet their payrolls reveal that this is exactly what the Marlins, Pirates, Nationals, and others have largely failed to do. This is because, while the theory of the revenue-sharing system outlined this, the actual structure of it especially in the current CBA did not mandate it, widening a loophole through which revenue-sharing recipients could receive, but not necessarily distribute, this money.

The clear result has been an enormous cash boon for lower-revenue teams, but not for their players. While consistent and accurate figures of revenue sharing in the last several years are difficult to attain, the Marlins have received roughly $200 million in revenue sharing from 2002 to 2009, while their salaries have roughly totaled $295 million. (Salary figures are from Cot’s Baseball Contracts, which are unofficial but reasonable estimates.) That is, not counting locally generated revenue such as stadium tickets, parking, concessions, media revenue, or the MLB Central Fund of national, international, Internet, and other shared revenue streams, the Marlins have approached offsetting their payroll merely from the largess of richer teams such as the Yankees, Red Sox, Cubs, and Mets. In recent years, as baseball has become a $6 billion annual behemoth, redistributed revenue has approached $400 million annually, with half a dozen smaller teams receiving over half that sum, and the Yankees and other large teams contributing nearly three-quarters of that. Hence the union allegations of misuse of said revenue, the united front consisting of large teams, the league, and the players’ union, and the Marlins’ initial capitulation leading to the Johnson contract.

Assessing the implications for the next CBA, however, is murky. One reason is because of the decreased availability of reliable revenue-sharing data, as Maury Brown noted last June. In some ways, this is not surprising since owners as a whole do not have an interest in reminding paying and viewing audiences, mired in the deepest economic malaise since the Great Depression, of the likelihood that baseball teams remain awash in cash.

Baseball’s chief labor liaison, Rob Manfred, tacitly acknowledges as much when admitting that while teams may be guaranteed tens of millions of dollars before a single regular-season game is played, they also have additional costs such as the “player-development system,” “…the cost of paying 15 players on the [40-man] major league roster who are not in the big leagues,” the amateur draft, and more. His argument is subtle but crucial, for Manfred is at once saying that teams have crucial costs beyond salaries, yet is also not denying that teams have ample resources for those expenditures. Baseball has money, make no mistake.

Also making predictions for the 2011 negotiations more difficult is that journalists such as Stark reactively describe negotiations and their prelude as “potential labor unrest.” This is misleading, for while players and the Players’ Association might bicker during negotiations with owners, clear signs including from Stark himself indicate that as much as between the union and owners, a rift has widened within the ranks of owners. Indeed, the MLBPA letter putting the Marlins and other tight-fisted teams on notice reveals what I anticipated last year a convergence of interests between the MLBPA and the owners of larger, wealthier teams that generally drive up players’ salaries.

In a phone conversation, noted sports economist Andrew Zimbalist, author of several books including Baseball and Billions and May the Best Team Win, concurs. “There is [a convergence], and the larger teams led by the Yankees and Red Sox will try to improve the existing system, since there is growing and widespread dissatisfaction about the system of revenue sharing,” Zimbalist said. When I asked him about the likelihood of a possible players’ strike or owners’ lockout—which looms in the NFL—Zimbalist responded, “I don’t think that’s likely. I see the two sides modifying the existing structure of revenue transfers.” Nor did Zimbalist envision a system or serious negotiations over “a salary cap and floor.” Rather, the MLBPA letter to Zimbalist represented “…a signal that they want a system whereby the revenue transfers will promote compliance, which is not what is occurring right now.”

On this last point, Stark failed to assess that there appears to be a shift away from arguments for a salary cap—and floor. Despite loud cries from various owners, including Henry and Houston’s Drayton McLane, for a salary cap after the Yankees’ spending spree before the championship 2009 season, the MLBPA has historically resisted both a cap and floor. Yet Henry himself has abandoned his calls for a salary cap—not coincidentally in an off-season in which his team signed John Lackey and Mike Cameron, and remains saddled with the hobbled Mike Lowell’s $12 million salary in 2010—shifting his focus toward streamlining the revenue-sharing system.

Among owners, when proposals for a salary cap circulate to curtail the spending of the wealthiest teams, the immediate response is for a salary floor to ensure payroll minimums which, for small-market teams, is as much a non-starter as a cap is for New York and Boston. Rays owner Stuart Sternberg revealed as much in a February 2009 interview:

I don’t know if it would help us. I’m not a believer in a salary cap. I believe in a salary structure, and unfortunately the word ‘cap’ has got a connotation to it. You cap salaries, that’s great. But if there’s a minimum, I can’t afford to run my business. So then you have to share more revenue, but teams don’t want to share more revenue.

The major sports overall have experienced a pronounced shift in the balance of power between owners and players, with football and possibly basketball owners poised to wield the cudgel of a lockout in upcoming negotiations, just as hockey owners did in the 2004-2005 season. While such a battle between owners and the MLBPA might occur during negotiations for the 2011 CBA, don’t be surprised to see the more powerful teams in baseball modify a system without negotiating a salary cap—which the NFL is about to shed in 2010, if not beyond. In this way, the potential convergence of interests between large teams and the players’ union, and apparent rift between small and large teams, might provide a way around labor strife that may befall football and basketball. Yet it also masks current issues facing the players that a CBA likely will not solve, especially the scores of free agents currently without a contract, declining salaries for many veteran free agents, and fewer new contracts of three-plus years than at any time since the strike-shortened 1995 season.

This may seem far off but, as football and basketball have shown, the parties involved in sports labor negotiations have been chewing on such matters for some time.

(Many thanks for Dr. Zimbalist for his time and the interview.)

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4 Responses to The Road to Baseball Labor Peace–New York or Florida?

  1. e mills says:

    refreshing and good read…something different than Winn, Hoffman, Damon, and expiring contracts. Thx

  2. good work jason– though i'm against revenue "sharing" if it is going to remain in place i think it should be stipulated that it is to cover additional payroll tom players only and with no provisions or loopholes that would allow cheapskates like multi-billionaire Pohlad to pocket the money

  3. Thanks for the kind words, e mills and Mike. Glad you found your way over to BBD, Mike. I too have serious misgivings about the system and structures of revenue sharing, not as much because I think it's a bad idea in and of itself, but primarily because, in its current form, it lacks safeguards against abusing it. What it does, to me, is remind that owners and managerial systems of different sizes and types–small and large/wealthy teams in this instance–find their own ways to work systems to their advantage and often to the detriment of players and fans. That is, such a scenario de-mythologizes the binary often presented in sports–wealthy teams bad/poorer teams good–that foists the "white hat" on the Pohlads of the world.

  4. Brian Burkhart says:

    This is some really interesting stuff and you do a good job of putting it all together. Salary structures in sports are very complicated. I find it funny that people point to the NFL as the paragon of a successful structure, yet the NFL is getting rid of the salary cap and may have a harder time finding labor peace than MLB. Not to mention, while NFL players certainly get paid well, with non-guaranteed contracts and a hard cap they have far less economic certainty. Consider that NFL players risk their health and have very short careers, you wonder if they should get paid more.

    For some reason fans resent players for making money and tend to favor systems that limit player salaries, which in essence is cheering for billionaire owners to make more money rather than the people who actually entertain.

    I think the free market approach in baseball is working to a degree, as salaries are changing along with the economy. Revenue sharing is in need of a big overhaul though.

    Anyways, great read.