Here's why baseball's economic system might be broken

MLB columnist
Yahoo Sports

Never did Tony Clark utter the word. He didn’t have to. Every question he asked, every implication he made, dripped with its presence. Early last week, as top officials from Major League Baseball and the MLB Players Association met and discussed the sport’s debilitated free-agent market, Clark, the executive director of the union, wanted to establish a few things for the record. Does baseball’s labor-relations department give advice on free-agent contracts? No, he was told. Was free-agent strategy discussed at the most recent owners’ meetings? No again. Clark continued. The answer never changed.

Diplomacy kept him from uttering that word, the most loaded in the baseball lexicon, one with a sordid history of imperiling past offseasons: collusion. In the minds of those who see every other rationalization for the frozen market as little more than an excuse, the notion of teams working with one another to suppress free-agent prices had crept from paranoid delusion to entirely possible.

With no smoking gun, it, too, is merely a theory, one the league rejects. In a statement to Yahoo Sports, MLB said: “There are a variety of factors that could explain the operation of the market. We can say that without a doubt collusion is not one of them. It’s difficult to pinpoint a single cause, but it certainly is relevant that an agent who has a long track record of going late into the market controls many of the top players.”

That agent is Scott Boras, who represents first baseman Eric Hosmer, outfielder J.D. Martinez, pitcher Jake Arrieta and third baseman Mike Moustakas – the first three of whom entered the offseason expecting to fetch $100 million-plus deals and, like so many others, are jobless with pitchers and catchers reporting in less than a month. At a time when teams combined for record profits of $981 million in 2016 according to Forbes, players are wondering what happened to their cut. Only 51 free agents have signed this winter for a total of $655 million. Just 13 are position players. Stars and scrubs, old and young, hitters and pitchers – this market does not discriminate; it has said, simply, if you play baseball, you must wait.

Sports agent Scott Boras answers questions during a news conference at the annual MLB baseball general managers’ meetings, Wednesday, Nov. 15, 2017, in Orlando, Fla. (AP)
Sports agent Scott Boras answers questions during a news conference at the annual MLB baseball general managers’ meetings, Wednesday, Nov. 15, 2017, in Orlando, Fla. (AP)

Of all the agents in the game, Boras is the likeliest to loiter in the market until the best deal reveals itself. That fact does not capture the reality of his nine-figure free-agent contracts. He has negotiated 13. Eight came before January. And not once has he taken multiple high-end free agents into a new year, let alone four.

“I wouldn’t blame the baker if the flour doesn’t show up,” Boras told Yahoo Sports.

Agents are logging discussions with teams and the union hunting for patterns to explain why clubs, whose franchise values have exploded from $18.1 billion to $46.1 billion over the last five years, will propose top players contracts with average annual values in excess of $20 million or deals for more than three years but are loath to offer both. “It’s way too uniform,” one agent said. “The book has been printed. It’s out there.”

Maybe, of course, the agents are just reading the wrong book, looking in the conspiracy section when the answer is under business disruption. Over the last month, as Yahoo Sports spoke about the state of the market and the possibility of collusive behavior with more than four dozen people – officials from MLB and the union, agents, executives and players – what emerged was a game asking itself questions far more important than whether collusion exists: Is the foundation of the sport, a structure in place since the advent of free agency in the 1970s, still viable? Or is baseball’s economic system, its underpinning, broken?

What’s clear is the free-agent impasse represents a reckoning long in the making – one that marries shifting power in labor relations, the emergence of analytics and cookie-cutter front offices, and the willingness of teams to treat competitiveness as an option, not a priority. Combined, they pose the greatest threat to a quarter century of labor peace and have people at the highest level of the sport asking whether a game-changing overhaul in how baseball operates isn’t just necessary but inevitable.

“I’m just not sure that the structure that’s been in place for all of these years makes sense anymore,” one union official said. “Now, whether anybody is prepared to blow that up is a completely different question.”

“Of course it doesn’t make sense,” a league official concurred. “We pay you the minimum for three years and arbitration for three or four years, and then you get paid more in free agency for your decline?”

As baseball grapples with this new reality in which MLB wrested control of the sport following decades of union dominance, players sit around, waiting, wanting to still believe in this system and all the while wondering how, exactly, it wound up here.

***
The first step of trying to ferret out collusion, which involves a secret agreement or agreements among rivals that attempt to disrupt a market, is to dispel the other theories offered for the lack of spending. Take the Boras excuse. Every year he negotiates the same way. And every year teams gladly move on. Suddenly, they’re waiting on Boras? As if baseball free agency is a top-down proposition, where the top players sign before those under them? Never has an offseason gone that way. Then again, never has baseball witnessed an offseason as laborious as 2017-18’s.

The media’s willingness to take at face value clubs’ rationalizations only has bolstered the canards. The status of Shohei Ohtani and Giancarlo Stanton stalling the market? Complete nonsense. The pennies-on-the-dollar cost of Ohtani, the Japanese star, would not have broken even the lowest-revenue team’s budget. Stanton’s serious suitors consisted of the St. Louis Cardinals, San Francisco Giants and the New York Yankees, with whom he eventually landed in a trade from Miami. Twenty-seven teams were plenty capable of signing other free agents during the Stanton sweepstakes.

Shohei Ohtani wears an Angels jersey during a news conference in Sapporo, northern Japan Monday, Dec. 25, 2017. Los Angeles Angels-bound Ohtani bid farewell to fans of his former Japanese club Nippon Ham Fighters on Monday as he sets off to join his new team. (AP)
Shohei Ohtani wears an Angels jersey during a news conference in Sapporo, northern Japan Monday, Dec. 25, 2017. Los Angeles Angels-bound Ohtani bid farewell to fans of his former Japanese club Nippon Ham Fighters on Monday as he sets off to join his new team. (AP)

The idea this year is a weak group of free agents? Perhaps compared to the bonanza due on the market in the 2018-19 offseason, but it’s certainly better than last year’s dud of a class, which didn’t face a freeze on account of its mediocrity. And the reasoning that teams are saving for Bryce Harper, Manny Machado and Clayton Kershaw, the gems of that next class? Some teams, sure. Most will not tread near a player who wants $40 million-plus a year, the game’s revenue imbalance acute as it is.

That hasn’t stopped the two highest-earning teams, the New York Yankees and Los Angeles Dodgers, from essentially skipping this offseason’s free-agent market in an attempt to dip under the threshold for the luxury tax. This is the latest gambit, and it has succeeded in offering a pair of financial juggernauts what seems like a reasonable objective for austerity.

Getting out of luxury-tax jail sounds infinitely better than it is in reality – particularly for a pair of teams whose $500 million-plus in annual revenue could more than sustain payrolls past the $197 million tax threshold. Should the Yankees and Dodgers stay under it this year, their baseline tax for exceeding it in future years would reset from the current 50 percent to 20 percent.

Suppose the Dodgers splurge in 2019 and carry a $246 million payroll. If they reset this year, it would save them only $12 million in luxury-tax penalties next season. Combined with another several hundred thousand dollars taken from their amateur budgets, it’s something. Just not a lot of something.

Certainly not enough for the threshold to act as some sort of a de facto salary cap. At some point, should the free-agent market this winter crater enough, it would make complete sense for the Dodgers or Yankees to jump back in, because the marginal value they could gain from relative bargains in free agency would outstrip the nominal savings achieved by resetting their tax number. That’s not a cap. It’s an inflection point.

More than anything, the tax serves as a well-branded pretext for teams not to spend. All of the excuses are. They’re not necessarily proof of collusion but that the league is winning the public relations battle. The MLBPA still has not objected to the free-agent market publicly. Why? Some officials fear it will make the union look even weaker than it already does.

***
During the negotiations leading to the 2016 basic agreement that governs baseball, officials at MLB left bargaining stupefied almost on a daily basis. Something had changed at the MLBPA, and the league couldn’t help but beam at its good fortune: The core principle that for decades guided the union no longer seemed a priority.

“It was like they didn’t care about money anymore,” one league official said.

Though something of an oversimplification, there was more than a kernel of truth to it. Meaningful negotiating time was spent on issues the league happily accepted in exchange for stronger financial positions. The players wanted a chef in the clubhouse. The players wanted two seats apiece on spring training buses. The players wanted more off-days. Lifestyle and amenities took precedent more than ever.

Tony Clark, head of the MLB Players Association, stands on the field before the All-Star Futures baseball game, Sunday, July 9, 2017, in Miami. With spending on international amateurs capped, Major League Baseball might not be the No. 1 choice for all Latin American prospects. Teams in Japan and South Korea could be more lucrative alternatives. (AP)
Tony Clark, head of the MLB Players Association, stands on the field before the All-Star Futures baseball game, Sunday, July 9, 2017, in Miami. With spending on international amateurs capped, Major League Baseball might not be the No. 1 choice for all Latin American prospects. Teams in Japan and South Korea could be more lucrative alternatives. (AP)

The union made its bones bludgeoning the league on financial matters. When Marvin Miller took over as head of the union in 1967, the average player salary was $19,000. Today, it exceeds $4 million. Miller’s successor, Don Fehr, fought through three years of collusion in the mid-1980s and won a $280 million settlement from ownership. The MLBPA was recognized as the most successful union in America.

Following the 1994 strike, MLB started chipping away at the union. Free agency is supposed to be Valhalla for players because it is unfettered. Today’s version comes with a marionette’s worth of strings attached. And the 2016 negotiations exposed fissures in the union – the sort that used to be far more commonplace among infighting owners.

Leading the negotiations for the players was Clark, who took over as executive director of the union in 2013 following the death of the Fehr-trained Michael Weiner. Miller was an economist, Fehr and Weiner lawyers. Clark was a player, which is not meant as a slur so much as a window into his motivations and tactics. He vowed to represent the players’ wants and needs. Clark had spent 15 seasons as a switch-hitting, slugging first baseman. Before he was in charge, he was a card-carrying union member.

In past negotiations, he heard players’ voices ignored. He promised to listen. And when a cadre from Latin America bellowed at the possibility of an international draft that would include the Dominican Republic and Venezuela, the MLBPA scuttled it. Rather than a draft, the union offered something MLB desired even more: a Pandora’s box.

Under Weiner, the union had acceded to a bonus-pool with penalties in the domestic draft – a soft cap. This was a hard-capped international system, with an unbreakable ceiling on spending. To MLBPA lifers, it was heresy. The union saw it as a moral imperative to cancel the World Series in 1994 because of ownership’s insistence on a salary cap. Now they were introducing one into the document that governs the game.

Already baseball was witnessing anti-competitiveness grow across the game. Teams that pare back on spending or simply commit to losing justify it by pointing to the last two champions. The Chicago Cubs and Houston Astros stripped their organizations to the studs and within half a decade were being fitted for World Series rings.

“There’s less interest in winning than I’ve ever witnessed before,” one union official said. “MLB has done a fantastic job of convincing the public that’s OK. I think fan bases are accepting of losing now. Sometimes they even want their team to lose.”

Whether on account of a rebuild or the desire to profit, at least eight teams have no intention of being serious players in the current free-agent market: the Atlanta Braves, Chicago White Sox, Cincinnati Reds, Detroit Tigers, Miami Marlins, Oakland A’s, Pittsburgh Pirates and Tampa Bay Rays. The Kansas City Royals and San Diego Padres could join them.

That’s 10 teams, a full third of MLB. The Marlins, Braves and Pirates haven’t spent a penny on a major league free agent this winter. Neither have the Rays nor the Baltimore Orioles. Both harbor playoff aspirations; each is waiting for the market to cave deeper. Players are panicking. Some are threatening to fire their agents if they don’t have jobs by the end of this week. It’s fertilizer for bargains.

Tearing down to build up is a business model; that it has the added benefits of job security for front offices and profits for ownership is a feature, not a bug. Efforts to discourage it in the basic agreement – flattening the gap in bonus-pool sizes domestically and internationally – had little effect.

Even if the union had sought greater anti-tanking provisions, perhaps this was preordained. The current generation of like-minded general managers had tired of a system that didn’t make sense to them. After the union’s power grab half a century ago, they were ready to take back the game.

***
This is what baseball teams in 2018 do: They push, bend, cajole, twist and massage every last rule. They cheat in Latin America. They hack one another. They fail because it might later give them a better chance to win. They operate with the ruthlessness of corporate raiders. And if they will go to incredible lengths in every other corner of the baseball world, why wouldn’t they do the same in free agency?

The inefficiency of the operation and the expectation that they must spend money there offends their sensibilities. And they’re not wrong. Players’ best years come in their 20s. Most free agents, then, are asking teams to guarantee them large sums of money for multiple years based on the performance of years they’re statistically unlikely to repeat. It’s not impossible, sometimes not even improbable, for them to do so. It’s just a risk, and as teams weigh the risk against that of seeking the same production from low-cost players they have developed, it’s one they’re less and less willing to take.

Amid the bastion of uniformity that is MLB – in which teams have similar data and processes and philosophies – copycatting is rampant and advantages have the lifespan of a carnival goldfish. Teams have almost destroyed baseball’s so-called middle class of veteran non-stars. They prefer scouring the trade market, whether over the winter or during July. “Why would I pay a guy now when I can trade for one every bit as good in July and give up almost nothing?” one GM said. Every team tries to sweet-talk its young players into under-market long-term contracts that delay their free agency, leading to a paucity of 26- and 27-year-olds in free agency.

So if what separates most teams is negligible, how, then, in addition to winning, can executives show they aren’t fungible?

“Brian Cashman has been one of the best GMs for 20 years, and this is the first year he’s really been recognized as a good GM. Why?” one official said. “Because [the Yankees] cut payroll. Because he had more homegrown talent, as if that means a damn thing. And because you can’t be a genius if you spend money. You can only be a genius if your team wins through not spending money. And that’s ridiculous. It’s absolutely ridiculous. But they’ve done a good job in conditioning the whole world to see it that way.”

FILE – In this Oct. 3, 2017, file photo, Miami Marlins part owner Derek Jeter speaks during a press conference in Miami. Jeter is trying to revive a moribund Marlins franchise, and so far the former New York Yankees captain appears out of his league as a CEO. (AP)
FILE – In this Oct. 3, 2017, file photo, Miami Marlins part owner Derek Jeter speaks during a press conference in Miami. Jeter is trying to revive a moribund Marlins franchise, and so far the former New York Yankees captain appears out of his league as a CEO. (AP)

The most egregious winnowing has come in Miami, where the Marlins, under the stewardship of new owner Bruce Sherman and CEO Derek Jeter, are gutting the team as part of an effort to raise $200 million from outside investors. Large-market owners are livid that the Marlins will reap $60 million in revenue-sharing money this season, according to sources, and the union plans to press the Marlins on whether the money is being spent on payroll and perhaps file a grievance.

And that’s important, because the entire impetus behind the revenue-sharing system – the compromise that ended the 1994 strike – was that it promote competitive balance. Commissioner Bud Selig insisted that baseball was healthiest when every team could compete, and that New York and Boston and Los Angeles subsidizing cities without inherent advantages was the fairest and most reasonable plan to ensure a game with parity and not one in which the behemoths lavished every free agent as they surely could.

As 33 percent of baseball teams declare themselves unwilling to spend and others still pronounce themselves unfit yet to win and the free-agent market locks up and the players stew, it becomes increasingly obvious that Selig’s hypothesis may have been nothing more than a salary-suppression technique in fancy clothes. After a half-century of labor relations and a quarter-century of revenue sharing, the system is failing. And the health of the game may depend on someone fixing it.

***
Recently, one of the best free agents available this offseason met with a friend, and he admitted something shocking: He was preparing to sit out until the middle of the season. The market for his services this winter was so thin, the offers so incompatible with his production, that he worried he was going to need an external force to compel teams to pay him what his numbers say he’s worth. Maybe it would take a playoff race.

Across the game, profits have soared. Baseball should cross the $10 billion mark in revenue this year. Each team soon will receive a $50 million payment from the sale of MLB Advanced Media’s streaming arm, BAM Tech, to Disney. And amid that opulence, one of the best free agents available is preparing to sit at home.

When an elite player would rather not play baseball than play baseball, that’s a problem. When teams are restricted on spending everywhere except with major league free agents and still don’t want to reward someone whose production more than sufficed for a bonanza contract in the past, that’s a conundrum: Is this the manifestation of an inefficient market turning efficient, or is it something dirtier?

The trends show no sign of abating. Teams love this market. One assistant GM interested in center fielder Lorenzo Cain thought about the possibility of offering him a multiyear deal. “I’d rather just give him one year at $24 million,” he said, and maybe he didn’t realize that the one-year deal was a hallmark of collusion, and maybe he did.

Nobody is certain what comes next. There’s naïve hope that all the stars this winter will get what they want, that the Class of 2019 will reinvigorate the market, that this is but a momentary blip. Far likelier, top officials say, is that leading up to the expiration of the collective-bargaining agreement Dec. 1, 2021, baseball will consider its greatest economic paroxysm since Miller and his counterpart, John Gaherin, struck a deal after the advent of free agency in 1975. Baseball could, for example, offer free agency after three or four years, hoping to tilt its salaries toward younger players. Doing so, officials from both sides said, also could cause an NBA-type system in which superteams stack themselves with $40 million- and $50 million-a-year players while the low-revenue teams lose their stars early and are left with the dregs.

Major League Baseball commissioner Rob Manfred delivers remarks during a news conference at the annual MLB baseball owners meetings, Thursday, Nov. 16, 2017, in Orlando, Fla. (AP)
Major League Baseball commissioner Rob Manfred delivers remarks during a news conference at the annual MLB baseball owners meetings, Thursday, Nov. 16, 2017, in Orlando, Fla. (AP)

Blasphemous though another option sounds, one veteran agent said recently: “We’re entering a world now where we may be better having a cap.” Though an MLB official downplayed the desire for one – “Whether it’s by cap or by nature, there’s going to be a percent teams spend on players,” he said, pointing to around 50 percent of revenues going to players, “and how you want that allocated, we really don’t care” – the agent’s admission highlights the league’s gains over the last 20 years.

In that time, Rob Manfred has ascended from the MLB’s chief negotiator to its commissioner, and his bargaining skills have forced the union to look hard at what it truly wants. Clark learned from his first negotiations, and nothing helps the cause of a union more than aggrieved members. Confused, perplexed and angry, the players are just that.

“The desire to push back is easy,” one union official said. “In the past, it was almost a foregone conclusion for a work stoppage. In this climate, at this time, the other side knows that if tensions are left to rise to that magnitude, the entire industry is going to suffer no matter where we land. That has to be something they take into account when this push comes.”

The fight is just beginning, and as the sides dig in and consider the consequences, they’re not sure conflict can be avoided. They’ve got time to map their strategy, rile up their constituencies and ready for what one official called the most important labor negotiations since 1994.

“All that’s hanging in the balance is the future of baseball,” he said. “That’s all.”

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