- Free agency restrictions and player salary disputes could cause MLB to suffer its first work stoppage in more than 25 years.
The Texas Rangers agreed to a $325 million deal to land Los Angeles Dodgers shortstop Corey Seager. The New York Mets got their first 2021 free-agent prize in ace pitcher and Max Scherzer. And to pry Scherzer from the Dodgers, new Major League Baseball owner Steve Cohen agreed to pay the 37-year-old $130 million over three years.
Scherzer now has a $43.3 million annual contract value – a record-high. In addition, those two mega contracts are among the more than $2 billion in player contracts so for in the 2021 offseason.
If you aren't paying close attention to baseball affairs, it seems like normal offseason business for MLB. But baseball is approaching another game of tug of war as new labor problems are unresolved.
MLB's collective bargaining agreement with players expires Wednesday at 11:59 p.m. With no extension or a new deal in place, MLB would likely see its ninth work stoppage, its first in 27 years. The previous labor dispute came in 1994 after a player strike caused MLB owners to cancel the World Series.
It took baseball a few years to repair its image from that billionaire-versus-billionaire-versus-millionaire bargaining battle.
But for all the progress MLB made over the last quarter century to repair its image, the problems this time resemble those of the past.
The MLB Players Association wants players to enter free agency sooner in their career to cash in on Scherzer-like deals faster. Currently, it could take up to six years before a player gets completely free of club control. MLB owners want to retain that control, install a salary floor and add more postseason games. If they vote to lockout players on Dec. 2, baseball business will temporarily stop.
"I look at it as a tug of war," said former MLB executive Marty Conway. "There's a marker in the ground and ribbon on the rope. The winner is the one that pulls that ribbon to their side of the mid-line."
How did MLB get to this point?
Paul Staudohar, a long-time author for the U.S. Bureau of Labor and Statistics, described MLB's relationship with its players the most accurately.
"Baseball's problem is that players and owners do not appear to trust each other," wrote Staudohar in the March 1997 edition of BLS' Monthly Labor Review.
The distrust goes back beyond this century but intensified after a $280 million collusion settlement in 1990. Then, MLB owners were found guilty of manipulating free agency. And to secure the settlement, owners were even required to invest in government-backed securities until it was paid in full, according to the New York Times.
Staudohar documented MLB's previous labor disputes in 1990 and the 1994 season. A former labor arbitrator and professor at California State University, Staudohar used MLB's "bargaining atmosphere" to gauge CBA temperature and relationship status with players.
"If attitudes are favorable," he wrote, "they promote mutual understanding. If not, they lead to conflict and work stoppages."
There were early clouds in the current CBA atmosphere, including last year when the league and the MLB Players Association couldn't agree on terms to play during the pandemic.
League commissioner Rob Manfred and MLBPA executive director Tony Clark traded jabs in the media over language in an agreed-to financial deal. Eventually, MLB installed a 60-game season, much to the union's dismay.
And throughout this five-year CBA, which commenced in 2017, union officials have accused teams of not spending revenue-sharing funds on players to field better teams. The money is generated from baseball deals that include sponsorships and TV revenue and is divided among clubs.
MLB made roughly $10 billion annually before the pandemic, but the MLBPA claims players lost money. According to the Associated Press, salaries declined for a third straight year. The outlet estimated the average MLB salary was $3.7 million for the 2021 season. It projected a $3.89 million average if MLB played an entire season in 2020. Both estimates are down from a record-high $4.1 million in 2017.
Conway, a special assistant under former MLB commissioner Peter Ueberroth, predicted players would be "more aggressive" in current negotiations.
"I think they are committed to gaining ground," Conway said of the MLBPA. "Inside the baseball level, it's about the system of determining free agency, which the owners and baseball operators completely control."
But owners could also argue losses over the last two years as games were played without spectators in the 2020 season, costing them billions. Research firm GlobalData also estimates the league lost $1.78 billion in ticket sales as games were partially restricted to start the 2021 season.
At a sports conference last October, Manfred expressed optimism about reaching an agreement by Wednesday's ddeadline, but that turned into skepticism.
"Time is becoming an issue. That's a challenge," Manfred said at MLB owner's meetings in Chicago on Nov. 18. "We've had challenges with respect to making labor agreements before and we've got a pretty good track record of overcoming those challenges."
The Bud Selig effect
Conway, now a sports management professor at Georgetown University, said baseball's current labor issues go back to Manfred's predecessor, Bud Selig.
The former MLB commissioner and former Milwaukee Brewers owner was around for the 1994-95 strike, and he witnessed how it caused turmoil for MLB's business. The league lost TV deals with ABC and NBC, and fan attendance plummeted 20%, according to the BLS.
Selig was one of the masterminds who helped resolve MLB's labor issues, and he incorporated the MLB's competitive balance tax to help teams stay afloat financially and balance the league.
The 1995 CBA added the tax rule, which penalizes teams who overspend on payroll. Today, teams that exceed the MLB's payroll threshold are taxed between 20% and 95% depending on repeat offenses. And the money collected from taxes is distributed to teams below the line.
The luxury tax sits at $210 million in this CBA, up from $195 million in 2017. Teams above the tax line also miss out on money from MLB's revenue-sharing rebate checks.
Under Selig, MLB also tweaked draft penalties and compensation for teams losing players to rival clubs. In addition, MLB inserted a qualifying offer, also used in the National Basketball Association, and added the international amateur market with luxury tax penalties attached.
Conway said Sigel's direction gave MLB owners more cost control.
"He understood the direction that baseball was going, and he looked to control what they could control – those manageable dials – as opposed to worrying about how big players' contracts are," said Conway.
The former MLB boss passed the baton to Manfred, now aiming to secure his second CBA agreement as commissioner since he took over in 2015.
Here's where things stand in 2021
But as of Tuesday night, multiple CBA proposals have swapped, but nothing seems imminent.
MLB wants to change the game and favor things like a pitcher's clock and a player on second base to start extra innings. The league already installed a three-batter rule and wants to add a universal designated hitter. And the MLBPA likes the DH addition as it adds more jobs.
The union wants changes to service time control and desires a luxury tax overhaul believing that more teams would be willing to spend on player salaries without harsh tax penalties.
MLBPA negotiator Bruce Meyer and MLB deputy commissioner Dan Halem are scheduled to talk again on Wednesday in Dallas. Still, that meeting seems futile, especially after Meyer sent a strong message via The Athletic.
"Players feel like the system has gotten out of whack and really gone too far in favoring the owners," Meyer told the outlet. "The system isn't operating really the way it was traditionally intended to operate. And that's in part because of the groupthink that we see in front offices and analytics."
But what MLBPA is willing to give up for their desires is unclear. When reached by CNBC on Tuesday, Meyer declined to get into specifics of the deal and said any MLB lockout is out of the union's control.
But according to one person familiar with MLB's proposal, the league offered a $100 million salary floor with the belief this will address teams not spending enough on players. However, the union rejected the proposal, so MLB wants to keep the luxury tax at $210 million.
The person agreed to discuss the matter on the condition of remaining anonymous as terms aren't being discussed publicly.
"The one thing about collective bargaining," said Conway, "if you're going to gain in some area, you're probably going to have to give up something else to get that gain because it's already collectively bargained."
Few in MLB circles are frightened by a lockout at this stage. First, it doesn't impact players too much since their paychecks don't start accumulating until the season begins. But it does halt player movement. Hence, agents and teams completed a flurry of deals like the Seager and Scherzer's contracts to avoid a free agency overload should a work stoppage extend to 2022.
"It could also signal that both sides don't see a substantial change to the economic system," Conway said. He then suggested mid-February would be the danger zone.
At that point, spring training is threatened, player routines are disrupted, increasing injury risk, and regional sports networks get nervous.
If MLB games are delayed, already weakened RSNs worry about owing distributors and providing make-good inventory to advertisers. In addition, companies in the sports sponsorship marketplace could shift money to leagues with labor peace. And MLB's national TV money, including the $5.1 billion from Fox Sports that starts in 2022, and more than $3 billion from WarnerMedia, could be in jeopardy.
Former Oakland Athletics executive Andy Dolich said fans could once again tune out MLB. That could impact companies like Fanatics, who owns all MLB's e-commerce merchandise rights.
It would be a significant setback for a sport that gained traction with concepts like the "Field of Dreams Game" and showcasing popular stars like Angels two-way phenom Shohei Ohtani and San Diego Padres all-star Fernando Tatis Jr.
"Both parties in this tug of war – if they fall – they're falling on an incredible mattress filled with money, and no one is getting hurt," Dolich said. "However, the fans – they fall off a cliff and may not come back.
"I wouldn't fool around with that in the time we're living in," he added.