Monday, February 14, 2022

The Joe Sheehan Newsletter, February 14, 2022 -- "Lift the Lockout"

This is a preview of the Joe Sheehan Baseball Newsletter, an e-mail newsletter about all things baseball, featuring analysis and opinion about the game on and off the field from the perspective of the informed outsider. Joe Sheehan is a founding member of Baseball Prospectus and has been a contributor to Sports Illustrated and Baseball America. He has been writing about baseball for nearly 25 years.

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There have been nine work stoppages -- strikes or lockouts -- in baseball history. So far, just three have cost games. Each of those three has been over a critical issue in the game’s infrastructure.

In 1972, it was the player pension system. In the union’s earliest days, this had been its entire raison d’etre. The pension system had been established in 1946 and was the center of union/management fights for the two decades before Marvin Miller came along, two decades of explosive revenue growth as television began pouring money into baseball.

During the CBA negotiations in ’72, the players proposed an increase in the owners’ pension contribution to keep pace with inflation. The owners balked. The amount of money in play was small, about a million dollars a year, but the owners used this moment to show strength in an attempt to beat back a union that, since Miller arrived in 1966, had become more aggressive in asserting player rights. They picked an issue that had come up time and again, one that affected every player. The owners had already decoupled pension contributions from TV revenue and were looking to keep more of that TV money to themselves. At that time, before arbitration and free agency, the only monetary guarantees most players had were the minimum salary and the pension.

The players went out on strike on April 1. They stayed out for nearly two weeks, including the first scheduled week of the regular season. In the end, the league used a surplus in the pension fund to meet the players’ demands. The missing games were never made up.

Nine years later, a single issue was at the core of the next players’ strike. The fifth CBA in baseball history had been completed in 1980, with a single issue -- free-agent compensation -- kicked to a committee for consideration in 1981. Owners had gotten their taste of the free market in the years after the 1975 Seitz decision, and while some adapted quickly, most didn’t care for it. They wanted brakes on free agency, specifically compensation: A team signing a free agent would have to return a comparable player to the team that lost the free agent.

This was anathema to the players and, particularly, to Miller, who rightly argued that free agency with compensation wasn’t free agency at all. Just four years after the players got the reserve clause lifted and saw what was possible in a competitive market for their talents, they weren’t about to give it up. The owners, for their part, saw compensation as only fair given the time their teams spent developing young players into stars who could attract big free-agent deals. The two sides couldn’t even agree on what they’d agreed upon in 1980 -- owners’ negotiator Ray Grebey had issued a statement making compensation seem like the default in the absence of a settlement, something with which Miller and the union disagreed.

The committee went nowhere, and in February of 1981, the league implemented its compensation system. The players set a May strike date, went to court to demand access to the teams’ books (failing to get it), and eventually walked out on June 12. The 50-day strike would fracture the 1981 season, alienate many fans, and in the end be settled with a Goldberg contraption of a compensation system that satisfied neither side.

After the next two CBAs were negotiated with short work stoppages that didn’t cost games, negotiations for the game’s eighth Collective Bargaining Agreement would bring disaster. The owners wanted to change the entire system, implementing a revenue-sharing and salary-cap system akin to what the NBA had had for a decade and what the NFL had negotiated beginning in 1994. If compensation had been a rear-guard attack on free agency, this was a frontal one, an attempt to negotiate a league-wide limit on the competition for players.

The owners trapped themselves by negotiating a deal within their group that needed player agreement to work. The high-revenue teams would agree to share revenue with the low-revenue ones, but only if they got a cap system that lowered the cost of paying players. This triangulation -- rich teams, less-rich teams, and players -- is still with us today. To prepare for this fight, the owners ran Fay Vincent -- who had undercut them in 1990 -- out of office, leaving the game without a commissioner and with their labor leader, Brewers’ owner Bud Selig, to do as he pleased.

The seventh CBA expired in 1993, and the two sides went into 1994 with no agreement. It became clear that the league’s plan was to bargain to impasse and, as was its right under labor law, implement its last, best offer in the 1994-95 offseason. The players set a strike date, walked out on August 12, and stayed out into March 1995. The owners implemented their system in early 1995, and were eventually found to have engaged in unfair labor practices in doing so, with the National Labor Relations Board ordering them to restore the previous system.

The pension. Free agency. A salary cap. Baseball fans weren’t happy watching any of these disputes play out, but even moderately engaged ones could have told you what each of them were about. The players and owners went to war three times over issues that were critical to both sides.

That is not the case now. The current dispute isn’t about core issues, isn’t about league structure, isn’t about principles, it’s entirely about money. The owners, having established a favorable rule set and business practices to match, want to maintain their advantage in limiting their labor costs while expanding the playoffs to garner more television money. The players, having lost a lot of ground since 1994, didn’t come into this negotiation trying to get it all back, trying to change that rule set, but have instead built a platform designed to pick up small gains in a few key areas: the minimum salary, the way young stars are paid, the “competitive balance” tax threshold. The players have dropped the biggest proposed changes -- age-based free agency and diminished revenue sharing -- from their platform.

We have now seen, if too slowly, a few back-and-forths between the sides. We have a good idea of what each is offering, and the gap between them can be almost entirely quantified.

Minimum salary: The players are asking for a minimum salary of $775,000, rising to $875,000 over the life of the deal. MLB has countered with a couple of proposals that start at $615,000 for minimum service time players and rise to $700,000 for pre-arb players with at least two years of service time. The projected difference would be around $100 million a year, perhaps rising to $125 million by 2026.

Pre-arbitration players: The players have proposed a $100 million bonus pool to be split among 30 pre-arb players. The owners have moved to $15 million in their latest offer. That’s an $85 million difference each year.

Payroll tax: The players want a $245 million threshold in 2022 rising to $273 million in 2026 and the elimination of non-cash penalties. The league has proposed a $212 million threshold in 2022, rising to $220 million, with increased tax rates and increased pick penalties at higher thresholds.

Quantifying the payroll tax gap is a bit harder, but in 2021, two teams paid the tax and another six were above $200 million but short of being billed. If we assume that all those teams are being constrained by the threshold, then the players’ offer could yield an additional $254 million in spending in 2022 as compared to the teams’ offer, rising to more than $400 million in 2026.

If the owners were to accept all of the players’ numbers today, it would cost them perhaps $440 million in 2022 (almost certainly less given the many free agents who have already signed), rising to perhaps $610 million in 2026. It would return overall player pay in 2022 to less than what it was in 2018, when it peaked at $4.55 billion, and lock in a rate of rise over the next five years that will almost certainly lag the growth in revenues. The players’ current proposals on financial issues are already a win for the owners.

There are proposed changes outside these areas as well. Both sides seem ready to end free-agent compensation, though the specifics of that matter are as yet unknown. We seem to have an agreement on the universal DH and a draft lottery of some kind. The playoffs will almost certainly be expanded, though whether to 12 or 14 games is unknown. Each side has a complicated plan for addressing service-time manipulation in a looking-backwards fashion, the union’s a bit more direct than the teams’.

What we don't see, though, is an issue like the pension, like free agency, like a salary cap. The two sides have a basic agreement on what baseball should look like in 2022: pretty much like it did in 2021. They’re just carving up marginal dollars right now; the differences between the two sides max out at about 4% of the league’s projected revenue in 2022, and lower percentages than that as the deal wears on and league revenues rise. There are no structural changes on the table: Free agency and arbitration will remain the same, and the minimum salary will still be low enough to make tankbuilding profitable.

Fans unengaged with the labor process will often dismiss both sides as being greedy and only caring about money. They’re usually missing larger points about free markets and competition. This time, though, those fans are right. A negotiation that had the potential to be transformative is now just about bucks, the differences between a 55/45 revenue split and a 57/43 one. That’s not enough to warrant losing games, alienating a fan base, having a second fractured season in two years. It’s only money.

I call on MLB to lift the lockout immediately while continuing to negotiate with the players. The league has already won by holding steady on revenue sharing, arbitration and free agent eligibility, and the minimum salary, while getting expanded playoffs of some kind. What’s at stake is just money, whether the owners will be in line to pay an additional 2% or 4% of the league’s revenue to the players. That’s not enough to risk the damage being caused by this stoppage.

This isn’t a call for peace at any price. We know the price, and it’s not worth paying. Lift the lockout, MLB, and get the conversations re-focused on Ohtani and Scherzer and Betts and Harper and all the other reasons for that $11 billion a year you’re so eager to pocket.