Preview of Upcoming Labor Talks

With the collective bargaining agreement between the owners and players expiring after the World Series, columnists like me are supposed to start speculating about the fate of the 2002 season.

I'm not going to do that. I haven't the foggiest idea if there's going to be a lockout, a strike, a settlement, or an agreement to play out the season while the parties continue to talk. And despite the thousands of words that will be devoted to this subject, neither does anyone else.

But here's what to look for.

First, unlike almost every other labor negotiation, the players have no major new demands. They'd gladly renew the current CBA, with a modest increase in the minimum salary. The real issue is how hard the owners will press for givebacks.

Whether presented as a "salary cap," luxury tax," "industry-wide revenue sharing," or something else, the owners' proposal will be intended to reduce the percentage of MLB's revenues spent on player salaries. The players will be trying to preserve the status quo.

As a result, the players start the negotiations with a big advantage. They don't need a new CBA -- the owners do. Since the terms of the expired agreement will remain in effect pending new developments, the owners can only obtain the changes they want by getting the players to accept them, or by bargaining to an impasse and imposing the terms of their latest offer. Either way, the owners must make the first move.

But before the owners can open serious negotiations with the players, they have to agree on a proposal -- and before they can agree on a proposal, they have to resolve their internal dispute over revenue sharing. While large-market owners have come to accept the principle of revenue sharing, they’re determined to hold recipients more accountable for how the money is used. Whatever you might think of George Steinbrenner, he’s absolutely right to demand that the billionaire owners of the Reds and Twins reinvest the revenue-sharing money in their teams rather than pocketing it.

At press time, neither I nor anyone else outside ownership circles knows what the owners will ultimately decide. For that we can thank Commissioner Selig’s gag order: any owner who leaks details of their internal deliberations can be fined up to $1 million. (Earlier this year Selig fined John Harrington of the Red Sox $500,000 for telling the Globe, "you're not going to see a lockout happen again.") Without knowing what the owners will demand, it’s impossible to predict how negotiations will go – but the owners’ first offer will send a strong signal.

Red light: A proposal for industry-wide “revenue sharing.” In 1994, the owners’ first offer was a 50-50 split of all “industry revenues” with the players. However, (a) the players were already receiving 58% of revenues, so the proposal amounted to a collective 15% salary cut; (b) the owners’ definition of “industry revenues” included the players’ licensing money, reducing the true value to the players even further; and (c) the owners offered no way for the players to verify their calculation of “industry revenues.” A total non-starter -- if this turkey returns, there will be a strike or lockout, and probably not a short one.

Flashing red light: A hard salary cap. The players will never go for it, and the owners’ argument for a salary cap was weakened considerably when their own “Blue Ribbon Economic Panel” failed to recommend one. A salary cap may be part of the owners’ first offer, but the serious bargaining won’t begin until it’s off the table. It might take a labor stoppage to reach this point.

Yellow light: A luxury tax. Some form of luxury tax -- a surcharge to be paid by the clubs with the highest payrolls -- will eventually be part of the owners’ proposal. The players could live with the luxury tax in place from 1997-99: a 34-35% tax on the five highest-payroll clubs, paid only on the increment by which their payrolls exceeded the midpoint between the fifth and sixth highest-salaried teams. Of course, the reason the players can accept that formula is the same reason the owners won’t: it was totally ineffectual.

Negotiating the details of a luxury tax could take months. Key issues include the tax rate, the number of teams liable, the base on which it is computed, and whether that base will rise from year to year. If the owners’ Blue Ribbon Panel recommendation – a 50% tax on all payrolls in excess of $84 million/year – had been in place on Opening Day 2001, seven teams would have paid close to $60 million in luxury tax, with the Red Sox liable for almost $13 million If the parties agree on the concept of a luxury tax, the risk of a labor stoppage will be proportional to the distance between their numbers.

Green light: Revenue sharing, worldwide amateur draft, cap on draftee signing bonuses, almost anything else. If the owners want to redistribute their money, the players won’t stop them. If they want to reduce player-related costs, the MLBPA will protect its members and let non-members suffer the consequences.

So what’s going to happen? Ask me again after the owners’ first offer.

Copyright © 2001 Doug Pappas. All rights reserved.
Originally published in the September 2001 issue of Boston Baseball.

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