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
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
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.
- 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
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
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
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
Copyright © 2003 Doug Pappas. All rights
Originally published in the April 2003 issue of Boston
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