Philly Front Office

Major League Baseball (“Owners” or “the league”) and the Player’s Association “the Players”) recently exchanged their first salvos of terms for their next potential Collective Bargaining Agreement since the current contract is set to expire on December 1. Initial reactions from fans have been pretty negative. I’m here to tell you what happened and why you shouldn’t automatically assume doom and gloom. But first, you need to understand a few things…

Negotiation

In any negotiation involving lawyers, the first offers are generally designed without the intention or likelihood of being accepted. Absolutely no one in their right mind would accept an opening offer. That being said, they are not for nothing. An opening offer can shape where the two sides would like to go with the negotiation. You don’t want to be so far apart that it would be impossible to eventually ensnare the other side in an agreement (it still happens though). At the same time, you don’t want to give up too much right away.

It is important to also know that there are not only several parts to the negotiation, but several levels to each part. Getting one side to agree to something in any possible way even if it is under bad terms may still be considered a win, while giving up one thing for another might be important to a future compromise. Finally, both sides wanting concessions from the other should not be considered as moving in different directions. Just because the Players want more spending and the Owners want less, that is not an impossible gap to bridge. We will get to all of this.

Why Do You Want a Salary Cap?

Players’ Demand

First of all, do not take the term “demand” as divisive. It is really just the term given to the first offer with the follow up being a counter. Anyway, here is the basics of their opening ask:

• Raise the Competitive Balance Tax from $244m to $300m right away then continued raises from there
• Double minimum salaries to $1.5m from $765k
• Eliminating the qualifying offer
• Introduce a Competitive Integrity Tax that essentially creates a salary floor of $150m or the teams do not get to share in certain portions of revenue
• Higher revenue sharing amongst clubs, guaranteeing at least $240m to each team

Essentially, the players want teams to spend as much as they would like but to also get the teams that do not spend in the mix too. As much as the top two bullets seem like the biggest hurdles, the bottom two are the real highlights of this offer.

Players are sick of bottom feeder teams not spending, and they are banking on owners from the big spending clubs to agree. Since you can’t make these cheapskates simply invest in the club, they want to give them the funds to do so. There is already revenue sharing in baseball, but it is more like baseball welfare than distributing the wealth. The teams split national tv money, but that’s only part of it.

Unlike the NFL which completely centralizes TV money regardless of market, MLB teams all contract with their own TV providers for their local broadcast rights. What happens is that teams like the Marlins are making far less than teams like the Dodgers. Currently, the CBA requires teams to pool the first 48% of those dollars but they can keep the other 52%. Honestly, that’s the biggest problem here.

Right now, that split comes to about $40m minimum¹ per team plus around $80m in national broadcast/sponsorship money, and then whatever the 52% is plus merchandise and concessions. If the teams divided that money 100% equally like the NFL does, it would come to $83m plus the Dodgers wouldn’t have an extra $150m to spend. That’s $160m in shared TV money before anyone sells a single ticket or buys a hot dog. This would devalue teams like the Dodgers and Yankees, but would level the playing field for everyone else. The Players go slightly further by guaranteeing $240m, meaning they likely want to centralize the tickets too.

PSP: Andy Messersmith, the Most Important Ball Player You’ve Never Heard Of

Owners’ Counter

The owner’s weren’t about to touch or concede to any of the player’s specific proposals. That is completely normal. Their big talking point is a salary cap.

• Salary Cap Cieling – $245.3m
• Salary Cap Floor – $171.2m
• 50/50 revenue split with players that will cause the ceiling and floor to move each year
• Centralized Fund for all local media

Would you look at that, they actually already agree on something (kind of)! A centralized local media fund would level the playing field in a way that would benefit both parties. That salary cap though.

MLB made about $12.5b in revenue last year. If that’s close to the real number and what would be split, we are looking at around $208m in payroll per team.²

That $208m number is where the league’s cap numbers came from as a middle ground. However, those numbers are simply too low considering how much teams are currently spending. For the last year, this has been what I see as the biggest problem. Since the gap is currently enormous between the top spenders and the bottom, there is simply no middle number that would make all the owners happy. That’s a problem.

Technically, the teams would end up spending more with this model than they do now by about $1b. The problem is that the individual earners would need to be paid less because the teams offering the big dollars wouldn’t be spending anymore. Also, since the players are already wary of cheap teams, there is too much likelihood of teams hovering more at $170m instead of $240m.

Baseball’s $100m+ Club

Wildcard

The salary cap is the big problem here. You can’t get anything you don’t ask for, so the owners have to put it out there. From here we will have to see how entrenched both sides are. It could be that the Players will not accept a cap under any circumstances. If that resolve is real, then the Owners will have to either try something new or dig in themselves. However, it could be that the players might actually be okay with a cap albeit under different terms. If that happens, the owners could offer a much higher cap than they would really want in order to try to reel it in down the road. Getting the cap under any number would be a big win.

This may sound funny, but there is the possibility that a cap under a different name/terms would work. Don’t laugh. This kind of thing happens all the time and it allows people to get what they want while letting the other side save face or have wiggle room in the future.

If both sides are 100% not budging on a cap though, then we are in trouble.

Reason for Optimism

I like the owner’s offer! Again, no one takes the first one. What if they bump those numbers up to something like $200m and $300m though? Players would have to at least consider that, right? Maybe you make that $208m number the minimum, guaranteeing the players get their money, then allowing some teams to go over for various reasons. That would be something like the soft cap we see in the NBA. This way the big earners wouldn’t get their pay cut, owners would have more money to spend but with controls, and the players can save face on a cap.

Then you have the fact that both sides seem to understand that the owners need to centralize their funds to level the playing field. Basically, get your house in order first, then we can go from there. The players want spending on top of that money while the Owners want it to end there. That sounds like a good starting point and a place to build from.

Other tweaks would need to be made, but there seems to be common ground that puts the salary cap phrase in the corner to start so the sides can at least sit down and negotiate. We’ll have to see what happens from here, but this does not seem like the worst case scenario.

Numbers: Spotrac

Photo: Photo by Mike Carlson/MLB Photos via Getty Images

1. 48% of $2.5b estimated local TV revenue divided by 30 teams ↩︎
2. Half of $12.5b divided by 30 teams ↩︎