A History of the MLBPA’s Collective Bargaining Agreement: Part 3

When we left off, in the summer of 1994, baseball’s owners and players were headed for the showdown to beat all showdowns. The owners were insisting on revenue sharing and a salary cap, and the MLBPA was having none of it.

…

With both sides fully dug in, the players went on strike Aug. 12, a deadline they hoped would convince the owners to compromise before losing the postseason. Both sides, though, remained intransigent. The involvement of the Federal Mediation and Conciliation Service pushed them back to the table but could not initiate any meaningful progress. In early September, the remainder of the season and playoffs were cancelled.

In October, William Usery was appointed as the federal mediator. Unlike arbitrators, mediators have no authority to impose a settlement; their role is to act as a catalyst and neutral advisor. At the end of November, the sides remained deadlocked, and the owners announced they would unilaterally impose their salary cap and revenue sharing plan, and they were prepared to open spring camps with replacement players if the strike was not settled.

Shortly thereafter, the owners declared an impasse in the negotiations, a maneuver which, under labor law, permitted them to implement their plan. In response, the players filed a complaint of unfair labor practice with the National Labor Relations Board, claiming the owners’ impasse declaration was invalid.

While awaiting a ruling, the two sides continued to negotiate throughout January of 1995. The owners made a new proposal with stringent payroll taxes instead of a salary cap (as high as 100 percent for the top payrolls) while insisting on the elimination of salary arbitration. The players countered with a nominal tax that got as high as 25 percent for payrolls well above the average.

Usery hoped to bridge the gap, recommending a luxury tax of 50 percent on payrolls not much above the league average, an end to salary arbitration, and free agency after four years. President Bill Clinton hosted Usery and the negotiators at the White House hoping to catalyze a settlement, but the players angrily rejected Usery’s proposal, and the owners rejected the president’s request that the sides commit to binding arbitration.

“We’re willing to compromise, and we’ve shown that,” said union representative Tom Glavine. “But Mr. Usery’s proposal was outrageous in many instances. We’d be giving away things we struck for previously. Mr. Usery couldn’t answer many questions about what his proposal meant.”

Following through on their threat, the owners opened 1995 spring training camps with replacement players. Owner Peter Angelos of the Baltimore Orioles refused to field a team, leading to the cancellation of their spring games, and the Toronto Blue Jays would not be able to employ replacement players in the province under Ontario law. While foregoing spring training, the real players held a number of meetings among themselves and with union representatives to maintain their solidarity.

At the end of March, the NLRB ruled for the players, and U.S. District Judge Justice Sonya Sotomayor  (now a U.S. Supreme Court justice) upheld the board’s injunction against the owners’ unilateral imposition of their plan, returning the players’ labor situation to the pre-strike system. In response, the players called off their strike.

For their part, the owners released the replacement players and contemplated their next move. Many hardline owners wanted to lock the players out, but they could not garner the 21 votes required under the 75 percent rule (created to benefit the hardliners, it now thwarted them). The owners decided to move ahead with a 144-game season and reopen spring training with regular players on April 5. They also appealed Sotomayor’s decision, which eventually was upheld in September.

With the status quo ante back in place, the players and owners started over at the negotiating table. It would be nearly two years until the two sides signed the next CBA.

Given the bitterness of the long strike and the owners’ delay pending the outcome of their appeal of Sotomayor’s ruling, the two sides didn’t return to serious negotiations until November of 1995. While the owners’ first negotiating salvo contained lower luxury tax thresholds than their previous offers, they also proposed limiting salaries to 50 percent of revenue. Clearly, the players were not going to accept anything resembling a salary cap.

CBA-8

Signed: Dec. 5, 1996
Period: Jan. 1, 1995 through Oct. 31, 2000 (with a union option to extend by one year, later exercised)
Key provisions:

• A minimum salary of $109,000 in 1996 ($150,000 for the final third of the season), $150,000 in 1997, $170,000 in 1998, $200,000 in 1999, 2000, and 2001, plus cost of living increases in 2000 and 2001 if the union does not exercise its option to extend
• Luxury tax on team payrolls (1997–35 percent over $51 million; 1998–35 percent over $55 million; 1999–34 percent over $58.9 million; 2000-2001—no tax)
• A complex revenue sharing plan, with a phase-in period and a marginal tax rate cap of 20 percent
• Interleague play beginning in 1997
• The players to receive credit for service time lost to the strike

After intense negotiations throughout the summer of 1996, in October Fehr and chief owner negotiator Randy Levine reached an agreement. When Selig told Fehr at the World Series the owners were not going to approve the deal, the two men started shouting at each other. A couple weeks later, the owners indeed voted it down, 12 to 18. The players made it clear they were not going to renegotiate the pact, and talks again deadlocked.

Later that month, the White Sox signed Albert Belle to a record five-year, $55 million contract. With this signing, White Sox owner Jerry Reinsdorf–who had been one of the hardline owners throughout the strike and against the recently negotiated deal–lost much of his support. A week or so later the owners ratified the Fehr-Levine pact by a vote of 26-4. The core of the old system–salary arbitration and free agency after six years–remained unchanged.

But there were significant advancements for the owners. They finally had established meaningful revenue sharing among themselves. And they did get a luxury tax (which went into a shared pool) on the highest payrolls. Under the tax, roughly $33 million was collected from eight teams over the three-year period from 1997 to 1999, led by the Orioles, who contributed just over $11 million.

…

In January of 1999, the major league owners established the Blue Ribbon Panel on Baseball Economics to examine payroll disparity among teams and make recommendations on how to redress it. The panel had no union representatives, and only information provided by the owners could be considered. Not surprisingly, the owners got the answer they wanted.

In July of 2000, MLB released the panel’s report. The study concluded that a competitive imbalance existed between high- and low-payroll teams and that baseball needed drastic remedies. Recommendations included an increase in revenue sharing, an increase in the luxury tax, and the possible relocation, or elimination, of franchises. Don Fehr responded, “We always get some report like this before a negotiation.”

A month later, the union exercised its option to extend the existing basic agreement for another year through October of 2001. At this point, negotiations essentially went into hibernation for year, not restarting until November of 2001 after the expiration of the CBA. The talks began ominously when Selig confirmed what had been rumored: Baseball had voted to contract two franchises (widely believed to be the Minnesota Twins and Montreal Expos) for 2002.

In response, the union filed a grievance, arguing that contraction needed to be collectively bargained. More importantly, a district court in Minnesota issued a temporary restraining order, requiring the Twins to play in the Metrodome in 2002, temporarily halting the contraction of the team. Additionally, Selig and others were hauled before a Congressional committee and grilled on the issue of eliminating franchises.

After stumbling through the winter with trust between the sides at its typical low ebb, serious negotiations eventually resumed in March when Rob Manfred took over as lead negotiator for the owners. Finally, on the eve of a late-August strike deadline, the two sides reached a settlement without a work stoppage for the first time in many years.

CBA-9

Signed: Aug. 30, 2002
Period: Jan. 1, 2002 through Dec. 19, 2006
Key provisions:

• A minimum salary of $200,000 in 2002, increasing to $300,000 in 2003 and 2004 with cost of living increases for 2005 and 2006
• An increase in revenue sharing to 34 percent of net local revenue, now calculated on a straight pool approach.
• A sliding-scale competitive balance tax, with a threshold starting in 2003 at $117 million. The first time over the threshold will result in a tax of 17.5 percent. The tax will increase based on the number of times a team exceeds the threshold.
• As an attachment, the CBA included the Major League Baseball’s Joint Drug Prevention And Treatment Program. One key provision called for confidential performance enhancing drug testing (for survey purposes only) beginning in 2003. If more than five percent of the players test positive, mandatory random testing would kick in the next year.

The economic gap between the two sides had narrowed considerably since 1994. Revenue sharing had become mostly an intra-owner issue as long as it stayed within a reasonable range, and the luxury tax had solidified around a small but meaningful number on the highest payrolls. The increase in local revenue sharing from around 20 percent to 34 percent—the complicated revenue sharing formulas belie these exact amounts—finally created something close to an accepted equilibrium between the small-market and large-market owners.

Nevertheless, all was not rosy in owner-player relations. Just as baseball had been beset with recreational drug use (mainly cocaine) in the 1980s, by the early 2000s the issue of performance-enhancing drugs (generally lumped together as “steroids”) had taken over the player-management relationship, at least as far as the fans and media were concerned.

A June, 2002 article in Sports Illustrated in which former MVP Ken Caminiti suggested half of baseball players were using steroids further spotlighted the problem. Both baseball and various government committees began aggressively agitating for action. Shortly after the story appeared, Fehr and Manfred testified before the Senate Commerce Committee on drug use in baseball. The senators left no doubt they wanted action on a drug testing and punishment plan.

The union maintained that testing was unfairly intrusive and detrimental to rights of the players and pushed back vigorously against testing and any associated penalties. Under pressure from the owners and the threat of congressional action, the union agreed to the confidential PED testing noted above.

…

In November of 2003 word leaked out that 104 of the 1,438 players had tested positive for PEDs, above the five percent threshold that triggered mandatory random testing—and penalties—in 2004. The penalties were feeble: The first positive test would result in treatment and counseling; the second, a 15-day suspension or a $10,000 fine and so on up to a fifth positive test, which would result in a one-year suspension or a $100,000 fine.

Intense pressure over the token nature of these penalties forced the union to reluctantly revise the PED portion of the basic agreement in early 2005. Random, year-round testing was introduced with increased penalties. Congress was still not appeased and on March 17, 2005 again held hearings on performance-enhancing drug use in baseball. One now infamous panel included Jose Canseco, Mark McGwire, Sammy Sosa and Rafael Palmeiro, on which Sosa and Palmeiro forcefully denied ever using steroids, and McGwire refused to answer questions about his own use.

In November of 2005, under continued pressure from baseball and the government, the union agreed to even harsher PED penalties: A first offense would now result in a 50-day suspension, a second offense in a 100-day suspension, and a third offense in a lifetime ban, with the right to appeal for reinstatement after two years.

In early 2006, the two sides agreed to a substantially revised Joint Drug Prevention and Treatment Program, or Joint Drug Agreement (JDA), and removed it from the CBA list of attachments. This document has been modified many times in subsequent years, generally resulting in more testing, for more drugs, with harsher penalties. It generally is negotiated separately from the CBA.

CBA-10

Signed: Oct. 24, 2006
Period: Jan. 1, 2007 through Dec. 11, 2011
Key provisions:

• Increases in the minimum salary to $380,000 in 2007, $390,000 in 2008, and $400,000 in 2009.
• Increases in the competitive balance Tax over the term of the agreement
• Modifications to the revenue-sharing program
• Increase by one year the period of time before a player becomes eligible for the Rule 5 draft of veteran minor leaguers
• Move up the signing deadline for Rule 4 amateur draftees to Aug. 15 (except for college seniors)
• No teams will be contracted
• New definitions for free agent compensation: Type A–those who rank in top 20 percent of players at their position; Type B–those who rank from 20 percent to 40 percent; Type C–eliminated
• Slightly revised compensation for free agent signings: Type A–draft pick from signing team as in CBA 9 plus a special draft choice after the first round; Type B–special draft choice after the first round

The PED issue continued to take center stage over economic concerns. Rather than bring closure to this issue, when released in December of 2007, the Mitchell Report further enflamed the controversy. The report offered little new information, principally relying on previously available sources: Most of the 80-plus players named were either previously suspected or admitted users. Most notable among the new names was Roger Clemens, based on uncorroborated testimony from Clemens’ long-time personal trainer, Brian McNamee. Clemens vehemently denied (and continues to deny) the allegation.

…

By 2011, the central issues of the previous three decades mostly had dwindled away. The two sides had settled on something close to a satisfactory compromise on the once-contentious economic concerns of the competitive balance tax, the mechanics of free agency, and salary arbitration. Moreover, the increased PED testing and relatively draconian penalties finally had relegated the drug issue to the background.

Before we move on with our story, finishing with the most recent CBA (and with the next one expected shortly), it may be interesting to digress to summarize the explosion in players’ salaries during the CBA era that put modern ballplayers in a different stratum of American economic life from their predecessors.

The extent of this increase, outpacing inflation by well over an order of magnitude, also can be visualized on a log scale graph.

One final chart illustrates the massive upsurge in player salaries. The graphic below compares major league players with general practitioner dentists. Dentistry is one of the few occupations with a long series of salary data (30 years in this case) and an occupation narrow enough not to be confounded with different types of jobs within the profession. Despite outpacing inflation, dentist salaries (and nearly all others) clearly lag the growth in baseball salaries. More specifically, in 1982 a general practitioner dentist made around $55,000; this had increased to $192,000 by 2011. The major league baseball average exploded from roughly $241,000 to $3.1 million over the same time period.

One more perspective may be useful before moving on: the comparison of the players’ compensation to overall baseball revenues. While there are gaps in the data and differing definitions and calculations of revenue and compensation, the broader patterns can be uncovered. In the late 1920s payroll represented just over 30 percent of revenues. After the financial losses suffered during the Great Depression and owing to the lack of leverage on the part of the players, payroll decreased as a percentage of revenue to around 20 percent, where it remained until free agency. By the mid-1970s, on the eve of free agency, the percentage of revenue allocated to payroll had fallen slightly below this benchmark.

Once free agency got underway, the players’ share of overall revenue increased, but their salaries could only soar as they did because baseball’s revenues exploded as well. By the end of the 1970s, payroll hit 30 percent of revenues and 40 percent by the early 1980s. Collusion pushed this back down a bit, but by the early 1990s the percentage again was over 40 percent. After the 1994-95 strike, salaries again moved up relative to revenue, exceeding 50 percent in the late 1990s and early 2000s.

Over the last dozen years or so, despite the continued increase in payroll, the percentage has fallen relative to revenue and is currently in the 40 percent range according to several researchers. MLB, however, argues the percentage has remained right around 50 percent over the last decade or so because only the net revenues (as opposed to the gross) from MLBAM and the MLB Network should be included in the definition of total league revenue.

Moving back to the CBA negotiations, in the prevailing environment of an economic truce and the receding PED anxiety, for the first time the new CBA negotiations centered on player procurement rules, such as the amateur draft, international player signing limits and free agent compensation.

CBA 11

Signed: Nov. 22, 2011
Period: Jan. 1, 2012 through Dec. 1, 2016
Key provisions:

• Adding a second Wild Card team to each league’s playoffs and moving the Houston Astros to the American League
• A minimum salary of $480,000 in 2012, $490,000 in 2013, $500,000 in 2014 and cost of living increases for 2015 and 2016
• Signing bonus pools, capping the amounts teams can spend in aggregate for their draft picks subject to penalties, are added to the Rule 4 amateur draft
• Competitive balance lottery introduced to give small-market teams a chance at additional draft picks.
• Signing bonus pools, capping the amounts teams can spend in aggregate introduced for international player signings.
• Large-market teams disqualified from receiving revenue-sharing funds.
• Modest adjustments to the competitive balance tax
• Revised process for challenging official scoring decisions
• To minimize losses at MLB Properties, if a player wants to change his uniform number for the following year he must notify MLB by July 31 of the current year. To do so after the July 31 deadline, he must buy out the entire stock of his jerseys.
• Significant changes to free agent compensation:
• Elimination of “Type A” and “Type B” player rankings
• For compensation to be awarded to the club losing a free agent, the team needed to make a qualifying offer equal to the average of the highest-paid 125 players
• The departing player also now needs to have been with the club the entire season for the team to receive compensation
• To the team losing a free agent who rejected a qualifying offer: special draft choice after the first round
• From the team signing a free agent who had received and rejected a qualifying offer: highest available draft pick (top 10 picks excepted). As noted above, unlike the previous CBAs, this pick does not go to the losing team. The pick is simply removed from the draft rotation.
• Quota on number of free agent signings per team abolished

This CBA introduced the first significant changes to the player procurement rules in many years. For the amateur draft, each team now was allocated a bonus pool it could spend to sign its draftees based on its number of picks and spot in the draft order. Exceeding the pool by anything more than a token amount would result in severe penalties, making the bonus pool comparable to a hard cap.

For example, a team going over its allocated pool by more than 15 percent would forfeit its first-round pick in the next two drafts and pay a 100 percent tax on its overage. To further enhance competitive balance, the new CBA also introduced six new draft picks at the end of the first and second rounds that would be allocated by lottery to small-market and low-revenue teams.

Similarly, the owners obtained a bonus pool concept for international signings. Teams would be assigned totals they could spend on signing players not covered by the draft. Older players, those at least 23 years old and who had played professionally for at least five years, would be exempt from the pool.

Here, too, the penalties for exceeding a team’s allowance would be severe: Going over their allotment by more than a 15 percent would result in a 100 percent tax on the overage and the loss of the right to sign a player for more than $250,000 during the following year’s signing period.

This last CBA also drastically reduced the compensation afforded a team losing a free agent. No longer could a team receive more than one draft pick for losing a top player. Moreover, to gain this compensation a team had to make the player a qualifying offer equal to the average of the highest-paid 125 players. Additionally, a player needed to be with his team the entire year to merit compensation. No longer could a team trade for an expiring contract midseason and reap the draft pick windfall.

The impact on the signing team was not drastically changed: only the top 10 first-round picks would be protected as opposed to the top half in previous years.

…

After 40 years of free agency and work stoppages, the owners and players appear to have achieved a negotiated balance. No current owner was in charge in 1976 when free agency came on the scene with so much dread, and the game has prospered enormously since then, mooting much of the angst.

Furthermore, with revenue sharing, small-market teams are now able to compete profitably on a fairly regular basis despite once-unthinkable payrolls and salaries. Also once unthinkable, the next collective bargaining agreement (CBA 12) might be settled quietly, perhaps before the current one expires next month. on Dec. 1. For fans of the game, the end of the CBA is no longer an event to dread.

References & Resources

• Special thanks to researcher Gabriel Schechter, whose long-ago interviews provided several of the quotes used herein, and to Chris Dahl with the MLBPA.
• John Helyar, The Lords of the Realm
• Charles P. Korr, The End of Baseball as We Knew It: The Player’s Union 1960-81
• Marvin Miller, A Whole Different Ball Game: The Inside Story of the Baseball Revolution
• Jon Pessah, The Game: Inside The Secret World of Major League Baseball’s Power Brokers
• The Sporting News annual Official Baseball Guide, 1955 through 2006