Summary of New Collective Bargaining Agreement

Duration: Five years, 2002-06 Agreement is retroactive to start of 2002 season and expires December 19, 2006 – the last day before owners have to offer contracts to unsigned players for the 2007 season. This was a last-minute compromise: the players wanted the deal to run through December 31, the owners wanted it to expire on October 31.

Local Revenue Sharing: Rises from 20% under the 1996-2001 CBA to 34%, net of ballpark expenses. Revenue sharing money divided equally among all teams. Following the recommendation in their Blue Ribbon Economic Panel report, the owners had originally proposed sharing 50% of local revenues.

Central Fund Revenue Sharing: $72.2 million (based on 2001 revenue figures) taken from clubs which are net payers in the base revenue sharing plan and given to those who are net receivers. This amount will fluctuate in conjunction with the base plan, and is phased in: 60% in 2003, 80% in 2004, 100% in 2005-06. Money is paid and disbursed in proportion to a club's distance from the average. Fluctuations intended to assure that the projected amount of revenue is transferred each season from the combination of local and central fund revenue sharing.

Discretionary Fund: $10 million from central fund to be placed within the Commissioner's control, to be allocated at his discretion. The owners had originally proposed a $100 million discretionary fund, most of which seems to have been replaced by the central fund revenue sharing formula discussed above.

Luxury Tax Threshold: No luxury tax in 2002; $117 million in 2003, $120.5 million in 2004, $128 million in 2005, $136.5 million in 2006. Luxury tax expires on the final day of the 2006 season, so if the parties play under the terms of the expired agreement in 2007, there will be no luxury tax. For luxury tax purposes, payrolls are defined to include salaries plus earned bonuses for all players on the 40-man roster, plus a fixed amount per team in benefits and related expenses. All multiyear contracts are valued at their average annual value regardless of the actual payout in a specific year – which means that for luxury tax purposes the 2002 Yankees have a payroll of about $171.2 million, even though their actual cash outlay in 2002 is about $30 million less.

Luxury Tax Rates:
2002: No tax
2003: 17.5%
2004: 22.5% for first-time violators, 30% for second-time violators
2005: 22.5% for first-timers, 30% for second-timers, 40% for third-timers
2006: No tax for first-timers; 30% for second-timers; 40% for third- and fourth-timers

Luxury tax money to be used for player benefits, the industry growth fund, or player development in countries lacking organized high school baseball. The owners had originally demanded a 50% luxury tax on payrolls over $98 million.

Minimum Salary: $300,000 in 2003 and 2004, with two-year cost of living adjustment in 2005 and one-year COLA in 2006. As of 2003, minor leaguers on split contracts must receive at least $50,000/year while in the minors, up from $40,500 under previous CBA

Amateur Draft: Rules for a proposed worldwide draft to be established by a jointly appointed committee. Committee will decide whether clubs will be allowed to trade draft picks and will determine the number of rounds: the players want 20, the owners want 38. A club which fails to sign its first-round draft pick will receive a corresponding compensation pick in the next year's draft; one which fails to sign its second-round pick will receive a "sandwich" pick between the second and third rounds. Draft pick compensation for losing Types A, B or C free agents eliminated – which means that unless the final CBA contains language in which the owners agree to continue bargaining with the players over the draft, they're probably free to change it in the future without bargaining the changes with the MLBPA.

Contraction: Clubs agree to maintain 30 teams through 2006. They may elect to eliminate two teams for the 2007 season; if they do, they must notify the players by July 1, 2006. Players agree that if they do, they will not argue before the NLRB that contraction is a mandatory subject of collective bargaining. If owners elect to contract in 2007, their July 1, 2006 notice does not have to tell the players which teams will be contracted. The current contraction grievance will be withdrawn – a decision was supposed to come by July 15, but it's widely suspected that arbitrator Shyam Das deliberately held off in hopes of prodding the parties to resolve the matter between themselves.

Discipline: Same as current system: suspended players to receive full salary. Owners dropped proposals to authorize suspensions without pay and to establish a system of automatic fines and suspensions for certain offenses

Salary arbitration: Same as under prior CBA Owners dropped proposal to eliminate arbitration for "Super Twos" and to allow clubs to release players after exchanging arbitration figures

Club Debt: Cannot exceed 10 times EBIDTA (earnings before interest, depreciation, taxes and amortization), except that clubs which have moved into new parks within the past 10 years can have debt equal to 15 times EBIDTA. Three-year grace period, at the end of which the Commissioner must choose between this debt limitation and the old 60/40 rule. "Debt" defined to exclude money owed to players on long-term contracts.

Interleague Play: Expressly reauthorized for the duration of the CBA.

Drug testing: Random testing of all players for illegal steroids in 2003. If 5% of players test positive, mandatory random testing during the next two seasons; if 2.5% or fewer test positive in consecutive years, mandatory random testing ceases, replaced by survey testing. The first time a player tests positive, he is placed in a treatment program; subsequent positive tests bring suspensions of 30 days to two years. No testing for other illegal drugs, or for legal drugs such as androstenedione.

Benefits: Clubs' contribution increased from $70 million in 2002 to $114-$115 million.

Expense allowances: Annual cost of living increases for spring training and meal/other expense allowances.

Injury rehabilitation: Players with less than five years of major league service can be sent to a club's spring training facility for rehabilitation; however, each day starting with the 11th counts toward the maximum length for rehabilitation assignments (30 days for pitchers, 20 days for others)

Second opinions: Clubs will pay for players' transportation expenses if they seek a second medical opinion anywhere in the country. Formerly the country was divided into three regions; players paid for their own transportation if they went outside their region to seek the second opinion

Contract tenders: All contract tenders to unsigned players on 40-man rosters will be made by the Commissioner's office instead of individual teams. The owners dropped an earlier demand to require all clubs to report offers to free agents to the Commissioner's office, which the players viewed an an open invitation to collusion.

Waivers: Additional round of waivers added: current waiver period of Nov. 11-30th day of season is split in two, with the first period ending February 15 and the second beginning February 16.

Jayson Stark of ESPN has estimated that even without accounting for the effect of the luxury tax, the changes in the revenue sharing formula will take another $16 million from the Yankees, $10 million from the Mariners, $9 million from the Mets and $8 million from the Red Sox in 2003 as compared to 2001. The biggest net gainers will be Commissioner Selig's own Brewers (surprise!) and the Pirates, each receiving $5.9 million more, followed by Oakland ($4.4 million), Minnesota and Kansas City ($4 million each).

Copyright © 2002 Doug Pappas. All rights reserved.
Originally published in the Summer 2002 issue of Outside the Lines, the SABR Business of Baseball Committee newsletter.

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