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August 7, 2002

The Daily Prospectus

Optimism

by Joe Sheehan

In 1994, I never did believe there was going to be a strike. It was inconceivable to me that such an amazing season could be interrupted, or that the World Series could go unplayed. That was the kind of thing that happened in the formative days of baseball, certainly not something to worry about in the latter part of the 20th century.

I was wrong, of course, and in the process of being wrong learned a lot about labor relations, economics, and how those things apply to baseball.

This year, I've been more pessimistic, and have been saying for most of the season that there would be a strike. Whether that was the bitter memory of '94 clouding my judgment, or just a realization that there were no significant differences in the owners' strategy between then and now, I don't know, but I've been convinced that the players would have to walk out before any settlement would be reached.

I've changed my mind. The last three weeks have brought progress at the negotiating table. Yes, it's mostly on secondary and tertiary issues, but "negotiations" and "progress" are two things that simply didn't exist in 1994. Additionally, and I've said this for a while, the players want no part of a strike this time. Not that they ever do, but the memory of 1994 and the heightened sensitivity to potential disaster scenarios is weighing heavily on them.

At this point, there are three central issues on the table, and two of them appear to be resolvable:

(Yes, three. I'm leaving drug testing out of this, because it's just not a critical issue in this negotiations. It's a media thing, mostly, and any agreement or lack of same is not going to hold up a Collective Bargaining Agreement. If the sides can agree on something and get everyone some good press, great.)

  • The two sides are reasonably close on changes to the draft. Like their NBA brethren, the MLBPA seems willing to sell out future members as a bargaining chip for the current ones. I have a real problem with this, but then again, I have a real problem with the draft, which denies the top talent entering the industry the right to negotiate market-level compensation for their services, while simultaneously taking away their bargaining rights for eight to ten years. Adding a "slotting" system like the NBA has would only make the problem worse, but that's the direction in which they're headed.

    I might be a bit more supportive of this if players didn't sound so jealous of draft bonuses, but it does seem as if the willingness to make these changes is coming from the same place that makes fans say things like, "those darn players make too much money."

    That said, making players outside the United States, Canada and Puerto Rico subject to the draft is a net positive, in that it ends the silly dichotomy between an 18-year-old kid from Miami and an 18-year-old kid from San Pedro de Macoris, wherein one has no negotiating rights and the other can deal with 30 organizations. There may be a small effect in that it makes current non-participants in international development more likely to get some of that talent, but the impact of the current, free-wheeling system on the game is vastly overstated. Big-money foreign signings have been a failure more often than not.

    It's unfair, but it's unfair to everyone. If there has to be a draft--and the MLBPA isn't fighting the notion--than having everyone be subject to it is the best way to go.

  • Increased local revenue sharing is still on the table, and while there are philosophical differences in how it will be implemented, and it's a stretch to say they're down to the short strokes, it doesn't look like this is going to block an agreement.

    We've made this point before at BP, but it's worth repeating: straight-pool revenue sharing is a bad idea for the game as a whole. It limits the incentives of top revenue producers to grow revenues, it increases the incentive to hide baseball revenues via related-party transactions, it doesn't address the real problems of differing potential revenues among markets, and it institutionalizes the insanity of teams that maximize low potential-revenue streams paying money to teams that do a craptastic job of accessing large potential-revenue streams (the Cleveland/Philadelphia problem).

    Straight-pool revenue sharing simply allows franchises to make money regardless of the quality of their management, by glomming on to the success of teams that are doing a better job. It also acts as a drag on salaries, by slicing the value of an individual player to a team. If a team can only keep 50% of the marginal revenue created by a player, it will only offer him that much. That's not just a drag at the top of the scale: it's a drag on the entire scale.

    This last point is why revenue sharing is subject to collective bargaining: it affects wages.

    There's a solution here. I'm not privy to the negotiations, but I believe that we'll see some moderately complex system, hopefully one that takes payroll--the disastrous element of the last agreement that killed baseball in Montreal--out of the equation, while making some effort to distribute revenue to the teams in a manner that addresses potential-revenue imbalances. I doubt it will be as complicated--or as effective--as Keith Woolner's proposal, but at the very least, I think the two sides are in the same room on this issue.

  • That leaves the luxury tax, which looms as the big deal-breaker.

    I wrote this over the winter.

    As a practical matter, the MLBPA would be unable to prevent significant revenue sharing.

    If the owners propose to share a lot more of their revenue without asking the MLBPA to agree to an external salary restraint, they will get a good chunk of what they want in labor-cost reduction, and they will have backed the Players Association into a corner. It would be difficult, perhaps impossible, for the MLBPA to stand in opposition to owners deciding to share lots of revenue without asking the players to compensate them for doing so. It's a fight they can't win.

    I still believe that. The owners can have revenue sharing that acts as a drag on salaries as long as they divorce the idea from an external payroll constraint. The problem, as it has always been, is the division among the owners: the external salary restraint is a sop to those being hit hard by large-scale revenue sharing. This hasn't changed in ten years, and remains the core conflict in this labor negotiation: not players vs. owners, but owners vs owners.

At this point, things are pretty much up to the owners. I believe that if they let go of the luxury tax--which they're not going to get without a work stoppage--we would have an agreement within a matter of days. Would it be the best agreement for the game as a whole? Probably not, because the straight-pool revenue-sharing system is going to create a ton of problems on its own. It would, however, be a huge win for management, which would get expenditure caps in the draft and in the market--worth repeating: straight-pool revenue sharing will act as a drag on salaries--while avoiding a war.

If they make a stand on the luxury tax, it's going to lead to a strike, and will make clear once again that this negotiation is not about the good of the game, but about capping labor costs.

I'm cautiously optimistic, and I haven't been that way for some time.

Man, it feels good.

Joe Sheehan is an author of Baseball Prospectus. 
Click here to see Joe's other articles. You can contact Joe by clicking here

Related Content:  Strike,  Economics,  MLBPA,  Draft,  Labor Negotiations,  Labor Relations

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