The Upcoming CBA and the Battles Within It (Part 1)

Before I was on the staff here, Dave Studeman approached me about writing an article for The Hardball Times Baseball Annual 2006 on the upcoming round of collective bargaining, and what kind of battles might be within it. Given this was requested in October of last year, I thought this would be challenging, and it was.

Being the obsessive/compulsive that I am, as well as one who hates to hear, “You really messed up on that one, didn’t ‘cha, Maury?” (it should be noted, I hear this more than I like, but I digress) I thought it might be interesting to watch this subject over the course of the year and write on the process as it develops.

The plan is to monitor negotiations between management and the Players Association, write about it at the beginning of the season, at or around the All-Star break, shortly before there appears to be an agreement brokered (if there is no work stoppage, the latest this would occur would be Dec. 19, 2006), and then do an extensive analysis of the next CBA once it is fully available.

If you haven’t read my article in the 2006 Annual, I make a point of showing that it isn’t just the MLBPA vs. MLB that determines where the battle lines will be drawn. In fact, you can just about bet a Mariano Rivera save that the real battle will be within the ownership ranks this time around.

Kohler, Revenue Sharing, and the Divisions in the Ownership Ranks

I addressed this in the article within the 2006 Annual, and expanded on this on The Baseball Journals in an article entitled, Revenue Sharing, not Contraction, the Issue to Watch, but the press seems to be latching onto contraction as a key component leading up to the next CBA. As I detail in the aforementioned article, I just don’t see that as the key issue.

The key issue will be revenue sharing. The reasons boil down to an increase disparity over the amount of monies paid into the revenue sharing program by the larger market clubs, and lower revenue teams constructing clubs that benefit from the revenue sharing program as it current exists.

Prefacing this subject, one needs to look at the current economic state of baseball, which contrasts considerably from 2001-2002, when the last round of collective bargaining occurred.

Revenues in baseball for 2004 were $4.1 billion, and are projected to be $4.5 billion in 2005—a difference of $400 million in one year alone. It’s where the revenues are coming from that is key. I will be outlining this in an upcoming article once Forbes releases their numbers (normally in April), but you can bet all the tea in China that the $400 million isn’t arrived at by splitting the source up over the 30 clubs. The Marlins sure didn’t increase their revenues by over $13.33 million last year, just as you know the Yankees and Red Sox gained far more than $13.33 million. It should be noted that local revenues do not constitute the whole of the pie, as national broadcast revenues, MLB Advanced Media revenues, and at a certain point, the sale of the Nationals, add a sizable chunk to this figure.

But, history shows that factions within the cabal that is the MLB ownership lodge will affect what type of revenue sharing plan comes out of next round of collective bargaining. In a disastrous 1993 set of ownership meetings in Kohler, WI, the idea of true league-wide revenue sharing system was first addressed, with the regional sports networks (such as the Yankees’ deal with the MSG network) playing a key role.

At the time, the only revenue sharing to speak of were the home teams splitting 20% of gate receipts with the visiting teams in the AL, and less than 5% being shared in such a manner in the NL.

The owners broke into camps with 11 high-revenue clubs caucusing prior to the meetings, and the mid-to-low level revenue sharing clubs doing the same. The acrimony was so high that Selig, then acting commissioner, and Dick Ravitch, the head of the Player Relations Committee at the time, had to shuttle messages back and forth between the camps at Kohler.

It is, and remains, one of the most calamitous meetings by the ownership brethen in the history of MLB, and outlines how tremendous the acrimony between the higher and mid-to-low revenue making clubs can be.

On Jan. 18, 1994 in Ft. Lauderdale, FL, the issue of significant revenue sharing was approved unanimously, with the high-revenue clubs agreeing to transfer $58 million (based in 1993 revenues) to the low-revenue clubs. The main sticking point on this was ratification by the Players Association, which was going to be a tough sell, due to revenue sharing being coupled with a salary cap.

Well, as I’m sure you all know (or would like to forget), the MLBPA did not go along with what was proposed. Don Fehr saw the revenue sharing provision as more than enough to control salaries, thank you very much, and the Strike of ’94 ensued.

When the dust did settle, however, revenue sharing&dmash;without it being tied to a salary cap—was approved by owners and ratified by the Players Association.

The 1997-2001 agreement was as follows:

Pretty is What Changes
Take notice, baseball. Few things endure just as they've always been, casual pursuits least of all.

For the 1997 season, the teams with the five highest payrolls would pay a tax of 35% on the amount by which their payroll was above the midpoint between the fifth and sixth highest payroll teams. This then graduated in 1998 with the formula being the 35% on the top five payrolls on the amount they were above 1.071 times the 1998 threshold.

Thus, revenue sharing was on the way, and the class structure more firmly cemented. The adjustments to the system in the 2002 agreement, which went to a straight pool system based on 34% of Net Local Revenues (search for page 111 of the current Collective Bargaining Agreement for details), along with the Competitive Balance Tax (also known at the Luxury Tax, which I detail in the article within the 2006 Annual article, as well) has further stretched the haves and the have-nots even further apart.

As the proliferation of regional sports networks continues (something I cover in Why RSNs Create Class Warfare in MLB), and the gap continues to widen between the higher revenue clubs and the low-revenue clubs, the issue of revenue sharing will continue to be the flashpoint between the owners. Keep your eyes focused in the press as we come closer to collective bargaining, as already the likes of John Henry, owner of the Red Sox, are marking where the internal battle lines will be drawn.

As Henry stated:

“Baseball has to address the disincentives created by large scale transfers of revenue from successful clubs to less successful clubs,” Henry said. “At high enough tax levels the incentive is to invest somewhere other than in baseball. The disincentives are just as powerful for the lower revenue clubs as for the higher revenue clubs. The Red Sox have taken an aggressive stance in investing in all aspects of the franchise. But one has to wonder how many teams will do so when the financial risks often outweigh the potential financial benefits.

“The commissioner and the union have radically altered the game of baseball for the better over the last few years by transferring enormous amounts of dollars. But as with all taxes, there is a point at which taxation discourages effort and investment to the point that baseball clubs one by one come to the same, unfortunate conclusion. Looking ahead the Red Sox have to take it on faith that investment in baseball on behalf of our constituency—the fans—will make sense. But we cannot ignore the fact that it is their hard-earned dollars we are sending to other cities.”

It may be, therefore, that the owners’ distrust is redirected from their old nemesis, the Players Association, to a more inward enemy: the have-nots. This could become the key focal point when the next CBA starts to come more clearly into focus.

Commissioner Selig has pointed to revenue sharing as the key reform that has allowed for greater parity within MLB. One might suggest parity is more the result of another idea Selig introduced to the game: the Wild Card.

Whatever the case may be, revenue sharing is the only mechanism—short of a true salary cap—for Major League Baseball to try and control runaway spending on the part of the high-revenue clubs. Otherwise, the league will move closer to the day when there are no more than major markets, and a possible separate league comprised of low-revenue clubs.

Look for Part 2 shortly, which will work stadium development factors into the equation. And, we’ll see what has changed since this article was published.

References & Resources

  • Andrew Zimbalist, In the Best Interests of Baseball? The Revolutionary Reign of Bud Selig (Wiley, Hobeken, NJ 2006)
  • Michael Silverman, Henry, Sox feeling the pinch of revenue sharing, luxury tax (Boston Herald, February 16, 2006)

  • Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for freelance and looks forward to your comments.

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