April 2003 Boston Baseball: The Sox and the New CBA

The Sox and the New CBA

The 2003 season opens with a new collective bargaining agreement (CBA) between MLB and the Players' Association. The new CBA will narrow the revenue gap between the Red Sox and the Yankees -- but it will also bring many other clubs closer to the Red Sox.

The key components of the new CBA, which runs through 2006, are an increase in local revenue sharing and the return of a luxury tax. The luxury tax, which could have been a nightmare for the Sox, has instead become their best friend. As implemented, it may as well be called the "Yankee tax," as no other club is ever likely to pay a significant amount. The tax threshold, $117 million in 2003, rises in subsequent years, as does the tax rate:

2003: 17.5% tax on payrolls over $117 million
2004: Tax threshold of $120.5 million; tax rate of 22.5% for first-time payers, 30% for second-time payers
2005: Tax threshold of $128 million; tax rate of 22.5% for first-timers, 30% for second-timers, 40% for third-timers
2006: Tax threshold of $136.5 million; no tax for first-timers 30% for second-timers, 40% for third- and fourth-timers.

The luxury tax expires immediately after the 2006 season, before the CBA does, so if the parties play the 2007 season without a contract (as they did in 2002), there will be no luxury tax.

Entering the 2003 season, the Yankees are at least $50 million over the tax threshold. With Jose Contreras, Jason Giambi, Drew Henson, Derek Jeter, Mike Mussina and Jorge Posada all under contract through 2006 or beyond, and Steve Karsay, Hideki Matsui and Jeff Weaver signed through 2005, they're never going to fall below the threshold. The luxury tax could cost the Yankees $10 million in 2003, even more in the future, without affecting the Red Sox at all.

The Sox will, however, be affected by the new revenue sharing formula. The new CBA requires all clubs to share 34% of their local revenues, up from 20% under the old CBA. Preliminary estimates suggest that this 70% increase in the percentage of shared money could cost the Red Sox at least $8 million/year.

To put this number in context, though, one needs to look at the effect of revenue sharing on the Sox' real competitors. Those include divisional rivals New York and Toronto, as well as potential wild-card rivals Anaheim, Oakland and Seattle. Of these clubs, Anaheim, Oakland and Toronto were projected to be revenue sharing recipients, expected to receive between $2 and $5 million more. (These estimates were made before Anaheim's surprise World Series win, which should boost their income by far more than any change in the revenue sharing formula.) The Mariners and Yankees, though, will pay more than the Red Sox.

All told, between revenue sharing and the luxury tax, the Red Sox will gain at least $15 million vis-a-vis the Yankees, but will lose more than $10 million relative to Anaheim, Oakland and Toronto. If the Sox can't overtake the Yankees, their chances for the wild card may well have dwindled.

The biggest gainers from the new CBA, though, will be rookies. The major league minimum salary nearly all of them receive rises from $200,000 to $300,000 in 2003 and 2004, with cost-of-living adjustments in 2005 and 2006. In addition, the owners' contribution to the players' benefit plan rises by more than 50%.

Fans in Minnesota can also breathe easier, as the new CBA takes contraction off the table until at least 2007. If the owners desire to contract at that time, they must notify the players no later than July 1, 2006. That leaves plenty of time for organized opposition, including state and federal challenges to MLB's antitrust exemption, to emerge. If the Expos aren't moved by then, Montreal and the Florida Marlins would be the likeliest targets.

The most controversial provision of the new CBA is its drug testing program. It provides for random testing in 2003, to become permanent only if 5% of players test positive. Moreover, the testing checks only for steroids, not for other illegal drugs -- and not for any legal substances such as androstenedione or ephedra, the "dietary supplement" implicated in the spring training death of the Orioles' Steve Bechler. Supporters of random drug testing condemn MLB's plan as ineffective, while opponents argue that testing should require an individualized suspicion of drug use.

Commissioner Selig recently declared that the new CBA "has dealt directly with all of the problems and will give everybody, to use one of my favorite phrases, hope and faith." Let's see what he's saying when the next negotiaions open in 2006.

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