MLB Lockout Likely to Leave Players With a Worse Deal

·5 min read

Today’s guest columnist is Joel G. Maxcy, professor and head of sport business at Drexel University’s Lebow College of Business.

The last quarter of the 20th century saw American professional sport unions utilize labor law to make considerable advances in compensation and working conditions. Notwithstanding, the 21st century has seen an about-face. Union gains are hardly erased, but owners have been able to exploit labor laws, and the use of the lockout in particular, to roll back considerable union gains of the last century. The trend of rolling back those advances will likely continue with Major League Baseball’s current lockout, as owners will settle their differences on sharing the spoils at the expense of the players.

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Work stoppages—a lockout, if led by the owners, or a strike, led by a players’ union—are commonplace in unionized workforces, and sports are no exception. Strikes are much more common in industry, yet in professional sports, owner lockouts have entirely supplanted union strikes. The MLB lockout follows the pattern of labor negations in American professional sports since the 1994-95 baseball strike, where every work stoppage has been an owner-initiated lockout. And every lockout—three in the National Hockey League; three in the National Basketball Association; and one in the National Football League—has culminated with significant union concessions. The resulting CBAs have reduced the players’ share of revenue across the board and have included the owner-friendly policies of a hard salary cap in the NHL; a highly punitive luxury tax and limits on individual player salaries in the NBA; and a direct reduction of the players’ share of NFL revenue. Since 1995, MLB has resolved issues before the end of each term and renegotiated with little incident four times, including new CBAs in 2002, 2006, 2011 and 2016.

Typically, when a sports league’s CBA approaches expiration there is some public jockeying, with both sides making a case for what needs to be changed. The side with the most dissatisfaction with the current system or the most to gain from a revision has the greatest incentive to initiate a stoppage. This time it’s the union (MLBPA) putting forth the primary complaints with the current system. For example, many observers believe players have seen their share of total league revenue decline considerably since the early 2000s. The competitive balance tax on club payrolls has proven effective as a de facto salary cap, especially since the 2016 CBA, when penalties increased. The union is also not happy that small market teams are “tanking,” or willfully not competing, for the purpose of reducing their payrolls. Tanking clubs are avoiding the players labor market, and that puts downward pressure on all salaries.

The MLBPA also charges clubs with manipulating players’ service time, through late call-ups to the majors for young minor league stars, which extend the time to reach free agent status. The owners have countered that all players should wait for free agency at 29.5 years of age, instead of after six years of Major League experience.

If the owners have things going their way, why the lockout? First, sports labor negotiations center around the division of revenues; that is, how to split their big-money pie. There are two phases of the revenue-sharing debate that drive labor unrest. One is the obvious split between owners and players, but also fundamental is the allocation of revenues among the owners themselves. CBA negotiations tend to settle on resolution of the former, but it is often a breakdown regarding the latter that triggers a lockout.

The spoils of major league sports are not uniformly distributed across owners. In MLB the lowest revenue teams now earn the largest revenue-sharing subsidies. The current system allows lower payroll teams to pocket the shared local revenues, and there is neither a payroll floor nor a requirement to invest in talent, which benefits small-market owners. Arguably, there should be an enforcement mechanism and an incentive system that ensures that revenue sharing will be used to increase payrolls and diminish tanking.

Owners’ public cries have forever reflected on the financial difficulties besetting some portion of the league’s clubs, maintaining that some subset of clubs is not able to “keep up” financially with their cohorts in the better markets. The grievance is that the needy group cannot afford to compete in the talent market. The poorer market owners could be maintained with distributions from the richer markets. But they could also forge a new agreement that reduces everyone’s biggest expense—player salaries—across the board.

Lockout leverage points to lowering salaries as the preferred option. The NBA and NHL, with very limited local revenue sharing, have been eager to engage in this method. Doubtless, recognizing the success of the lockout by his peers, MLB commissioner Rob Manfred will choose the latter.

Once the lockout is resolved, look for a new CBA where the owners have made much progress. Reducing the competitive balance tax threshold from the current $210 million toward their current proposal of $180 million is likely. The compromise for the union may be a “floor tax threshold” where owners not meeting a $90 or $100 million payroll will also face a penalty tax based on their payroll’s deficit. However, the tax penalty will almost certainly fall short of imposing a significant change on the behavior of the most overt tankers, as they are rewarded by the revenue sharing system. An owner-demanded switch from seniority to age-based free agent status—likely less than the owners’ proposal of 29.5 years of age, and perhaps with exceptions for some early-entering superstars—is also very possible.

The union’s best bet is at last changing the uneven (by league) designated hitter (DH) rule. The MLBPA can be optimistic about extension of the rule to the National League, which would surely extend careers for some players. However, that will likely come as concession for an owner-favored term. All in all, owners have the upper hand, as usual, by implementing the preseason lockout. The new CBA most certainly will continue the pattern of shifting revenue away from players to owners, while putting only minimally more pressure on weak-market clubs to invest in talent.

Maxcy was elected president of the International Association of Sports Economists (IASE) in 2015 after serving as the North American region vice president from 2010-2014.