Over a month has passed since Major League Baseball’s owners locked out the players and abruptly cut off negotiations on a new collective bargaining agreement (CBA), freezing all player transactions at the same time. The Athletic reports that the owners are preparing to finally make an offer to the players some time before the end of January. And it’s about time.
MLB commissioner Rob Manfred declared that the lockout would put pressure on the players and help to move the talks along. It has done neither, and it was never intended to do so. The lockout, as well as the reason that owners have made no serious proposals, is to gain leverage as the date nears when players begin to lose salaries due to games being potentially canceled. They’re playing a high stakes game of chicken with the MLB season.
The recently expired CBA, which was generally accepted as a big win for owners, was agreed just before the clock struck midnight on the previous deal five years ago. Owners hope to secure a similar result this time around, only with the season—or the partial loss thereof—as the drop dead date. Both parties may feel they have nothing to lose by holding out for last minute concessions.
The last time that the two sides sat down in November, the owners demanded that the players withdraw their proposals to reduce the service time required for free agency, and their proposals to reduce revenue sharing between teams as a precondition to any further talks. The players refused any preconditions and the meeting abruptly ended after seven minutes.
Where the talks left off
The owners had climbed down from their proposals to eliminate arbitration and replace it with an algorithm to determine salaries, and for reducing the “competitive balance tax” threshold to $180 million. But they still never made anything that could be considered a serious offer intended to produce an agreement. Instead, they opted for a lockout, a freeze on player transactions including free agent signings, and a long period of doing nothing as the season, and the day when players would start losing money—draws closer.
On the players’ side, there appears to be no appetite for a salary floor, and what Manfred called a demand to reduce revenue sharing by some $100 million makes little sense if their objective is to get smaller market teams to spend more money. It’s not yet clear which of their many demands hold the highest priority, and we won’t know that until the owners make serious proposals, but we can reasonably speculate which items on the wish list are more likely to be worked out.
Key outstanding issues
Competitive Balance Tax
What we do know is that both sides have included the tax in their proposals, meaning there could still be a de facto salary cap in place, much to the players’ dismay. They could reduce the penalty by eliminating draft penalties or scaling back the tax on repeat offenders.
Players have proposed that the tax threshold be raised to $245 million, increasing each year thereafter, while the owners have offered a tax of $214 million (a 1.9% increase), inching up to $220 million (less than 1% per year) over the term of the agreement.
Owners want to increase the tax rates, while players would reduce them. Splitting the difference would result in a tax threshold of $230 million, increasing at about 2% each year. That would take it to $254 million in five years. I’d bet the under on the thresholds and expect tax rates to remain steady.
Minimum salary
The minimum salary has increased every season under successive CBA’s, but the rate of increase over the most recent agreement was just 5.4% in the first year of the deal, and just 1.3% per season thereafter. From 2003- 2016, the minimum increased over 5% per year.
MLB has proposed raising the major league minimum salary from $570,500 to a series of tiers: $600,000 for players with less than a year of big league service, $650,000 for at least one to two years, and $700,000 for two plus years. Each tier would increase $10,000 per season, to $640,000, $690,000 and $740,000 in 2026.
Expect a significant boost in the minimum this round, partly because the players have made getting paid earlier in their careers a top priority, because it helps so many players, and because the net cost to a team of paying a higher minimum salary is much less than the many millions that adjusting free agency or arbitration eligibility or boosting the tax threshold would cost them. Don’t be surprised if the minimum goes up toward $1 million, even if it’s phased in over several years.
Arbitration eligibility
Arbitration has been part of every CBA since 1973. A two year threshold remained for 15 years until 1987, when eligibility was bumped to three years. Super two status was introduced in 2007 with 17 percent of the two year class becoming eligible, expanding to 22 percent in 2012, where it has remained for ten seasons.
Current rules provide that players are eligible for arbitration after three seasons, but those in the top 22 percent of the two year class are also eligible as a super two. That translates to two years and 116 days this winter. The owners are proposing three years and the players two. Two and a half years would be 2.086, or 30 days sooner than present. There has been some suggestion by players to make top performers eligible sooner. Say 2.086 or 2.00 for all stars?
Revenue Sharing
Manfred claimed that the players wanted to reduce revenue sharing by $100 million, and demanded they drop that proposal as a precondition to further talks. That claim is surely misleading as it makes no sense for the players to want less revenue sharing.
More likely, the players are pushing for conditions on revenue sharing, requiring that the dollars be spent on salaries- and not just minimum salaries. That would cut to the heart of the tanking issue. If teams must spend it to get it, that will be money in players’ pockets, and an increase in payrolls for many teams.
The current CBA requires teams to spend revenue sharing money on “improving their team”, but that definition is so broad that it’s easy for teams to circumvent. The union has filed grievances against three teams for failure to spend revenue sharing money according to the agreement. teams take in more via revenue sharing than they spend on payroll. Surely at least some owners have grown tired of paying into revenue sharing while other owners don’t spend it on their teams.
Free agency eligibility
The owners proposed getting rid of the six year service time requirement and replacing it with an age threshold of 29-1/2 years. That would solve the manipulation of service time issue, but would render some of the game’s biggest stars like Carlos Correa, Corey Seager, Javier Baez, and Trevor Story ineligible until eight years of service and Juan Soto for ten years into their MLB careers. That was a complete non starter.
The players proposed a phase in of five years service for those at age 30-1/2, then 30, then 29-1/2, keeping the six year requirement for younger players. It’s hard to see the owners budging from six years after they demanded that the proposal be dropped as another precondition before they cut off talks and imposed the lockout.
Under the radar
An International draft has long been a wish of owners, but there has been no word of it recently. Most of MLB’s goals were satisfied with a hard bonus cap structure that limits what teams spend on international signing bonuses.
The big grievance that isn’t really part of the current talks, but could be resolved in the process is the players’ complaint for $500 million for MLB’s refusal to schedule “as many games as possible” in the pandemic shortened 60 game season in 2020. It won’t be settled for the full amount, and it won’t be thrown in for nothing, but talk about a way to break the ice in frozen negotiations.
The most likely changes
Expanded playoffs have been proposed by both sides. The owners want 14 teams in the post season, which is what the NFL has, and the players have offered 12. This is by far the owners’ greatest desire in negotiations, because it’s worth hundreds of millions in revenue. In fact, the new contract with ESPN includes provisions to carry the new first round of games that aren’t even agreed just yet. There will be some posturing, but expect the players to concede on this one.
Designated Hitter: The owners tried to extract a concession expanding the playoffs in exchange for the universal DH, but the players didn’t bite. It will take a lot more than the DH for the players to play their biggest bargaining chip. Still, most observers believe that the DH is almost surely coming to national league parks.
Draft pick compensation, or at least the payment thereof, is on the endangered species list. Teams may still receive compensation for losing free agents, possibly with a requirement to make a qualifying offer, but owners have offered to drop the requirement that teams pay compensation for signing players.
The current scheme has mainly benefited wealthier teams who tend to keep their players for a full six years before making a qualifying offer, and only a handful of players decline qualifying offers each year. It has acted as a deterrent to signing some free agents but it has not helped competitive balance in any way.
The amateur draft will be revised in some form. Owners propose implementing a lottery such as the NBA and NHL have, where non playoff teams have a shot to get a top three pick. Players want more substantive changes, like basing the order partly on market size and banning teams from getting a top five pick in successive years. If the objective is to prevent tanking, we’ve explained why that won’t necessarily work, but some tweaking of the draft is in the cards.
Uniform advertising will probably become a feature of major league apparel as part of the new agreement. Patches on uniforms are worth $6 to $8 million per team, and the players have already put it on the table before gaining any significant concessions from owners. Seems like a done deal.
There will be some increase in the tax threshold, some increase in the major league minimum salary, and some compromise on arbitration eligibility. Those gaps can be closed, Movement on free agency eligibility is less likely, and forcing teams to spend revenue sharing dollars on salaries is more complicated.