False Start Business

Baseball Labor Deal Could Protect Players But Curb Spending

Schedule and roster changes should preserve players' health but international amateurs remain outside the sport's mega-riches

False Start Business
Major League Baseball Executive Vice President Rob Manfred — Getty Images
Dec 01, 2016 at 2:55 PM ET

Major League Baseball and its players’ union agreed to a new collective bargaining agreement on Wednesday evening that extends the sport’s labor peace past a quarter-century of uninterrupted play, protects players’ health, invigorates the trade deadline, and eases free-agent market restrictions — but also curbs high-end spending despite these boom times and continues diminishing the earnings potential of international amateurs.

As details of the tentative pact leak out — a formal ratification is expected within weeks — it’s becoming clear that this CBA is far from a reinvention of the national pastime’s rules and market structures, nor is such a major change warranted: Forbes has estimated that the sport will set a record with $10 billion in revenue this year.

Consider this the obligatory disclaimer that a CBA provides a complex infrastructure whose long-term ramifications cannot be known within 24 hours and with only partial details having been publicized. That said, two stand out for not receiving enough attention early on amid the torrent of takes hitting the interwebs at all hours of the night.

There was a lot of chatter this past summer about protecting the players by changing the schedule. At one point there was reported “momentum” about reducing the slate of games from 162 to 154, but that always seemed untenable to owners, who’d each be reducing their ticket-sale intake by four home games per season.

Instead, the two sides appear to have reached a pretty workable compromise: four extra off-days will be inserted into the schedule, more manageable travel and start times will be required, and the minimum disabled-list stay will be reduced from 15 days to 10. The latter is especially important because more organizations will be apt to use the DL for minor injuries or even just rest for aches and pains. Fatigue is well known to be the primary predictor of injury; that refrain is echoed by all kinds of medical professionals and true for preventing pitchers’ elbow tears and everyone’s soft-tissue pulls. With a reduced minimum absence, clubs will be less hesitant to rest players to prevent more severe injuries that would require even longer recovery.

The other under-covered policy is the continued hamstringing of international amateurs. The union may have staved off an international draft, but teenagers outside the U.S., Puerto Rico, and Canada may not be any better off.

As FanRag’s Jon Heyman reported, each team will have a hard cap of $5-6 million to spend on international players rather than the previous system by which clubs had between $2 million and $6 million—but with the important caveat that teams could exceed those bonus pools by paying a tax on the overage. Keep in mind that domestic amateurs drafted in the first round last year were slotted to receive between $2 million and $9 million per player; these $5-6 million caps apply to all international free agents a club signs in a given year. It’s worth noting that international amateurs are typically signed at age 16 while drafted domestic players are usually between 18 and 22 (and thus have more predictability of their career development), but the lopsided difference is striking. At the end of the day, amateurs and minor leaguers aren’t yet in the union, so they have no leverage as a negotiating body, and veteran players are more concerned with their own welfare rather than make bargaining concessions on behalf of others.

In other news, a lot of the early ink has been spilled (er, pixels have been displayed) about changes to the byzantine qualifying-offer system. In short, starting next offseason, clubs signing the best free agents will no longer surrender their first-round draft choice to do so. Instead, they’d forfeit their third-highest pick or their second and fifth or just their second, depending on another complicated scale by which teams are slotted as revenue-sharing contributors, recipients, or neutral parties. The clubs losing the free agent will still receive a compensatory draft pick, but its value is contingent on some gory details based on contract value and its own market size. (It’s complicated.)

The best free agents were never going to suffer because their value supersedes the draft pick opportunity cost, to the fallout is twofold: organizations will now be less encumbered to pursue the second-tier of free agents, and those players—such as Ian Desmond last winter or Kendrys Morales and Stephen Drew prior to the 2014 season—will thus have larger markets and get even richer.

You might be feel more confused after reading the two paragraphs than before those words crossed your screen, so this next clause will be infuriating: it doesn’t really matter. Only a small handful of those players were affected each offseason, so while this relaxing of the previously stringent penalties for signing such free agents is helpful, it’s hardly a market-shifting change.

A more dramatic consequence is the secondary effect: the draft-pick reward for clubs losing free agents is lessened, so more front offices will try trading pending free agents midsummer for a package of prospects rather than wait for the first-round pick compensation. Since the advent of the second wild card, more teams fancy themselves contenders each summer, shifting the supply/demand fulcrum and drying up the available talent pool. Expect a more frenzied deadline as a result.

Also significant will be what Fox Sports’ Ken Rosenthal wrote about the spending curbs. The luxury tax—or, as it’s formally called, the competitive-balance tax—now carries stiffer penalties for over-spending the designated threshold, which was $189 million this past season and will creep up to $210 million by the end of the five-year agreement. In one outlined scenario, a club could be taxed 95 percent for every dollar over the limit.

The mega-spending Dodgers, Yankees, Red Sox, Tigers, et al., will now have to consider more seriously the consequences of exceeding that benchmark, effectively turning it into more of a soft salary cap than before. If those clubs become more reluctant to spend, as Rosenthal noted, citing a pair of agents, “the biggest spenders generally drive the market, raising salaries for all.”

On the other hand, this change could help competitive balance. Any team, no matter its payroll, can build a winning roster for a season or two, but sustaining success is a lot easier for the big-spenders, who now face steeper tax rates.

The baseball business is flush with cash and even with good will after the Cubs’ feel-good World Series title. The new CBA ensures another half-decade of prosperity—for almost everyone.