Understanding the New Labor Agreement

At press time the players and owners were close to finalizing a new labor agreement. Assuming Jerry Reinsdorf can’t sabotage the deal, here’s what the new contract means for the fans:

At least four more years of labor peace. For at least the rest of the century, we can follow the game on the field without that nagging fear in the back of our minds. The contract will cover the years 1996 through 2000; the Players’ Association wants to extend it through 2001.

Little effect on salaries. While the “luxury tax” on high-payroll clubs is a major victory for the owners, that victory will prove largely symbolic because the tax will have little effect on player salaries.

For 1997, teams with total payrolls under $51 million will pay no tax. This figure rises to $55 million in 1998 and an estimated $58 million in 1999. There will be no luxury tax in 2000, nor in 2001 if the agreement runs that long. In 1997 and 1998, the tax rate will be 35% on the amount of payroll over the tax; this rate falls to 34% in 1999. If the 1997 tax had been in place this season, only four teams -- the Yankees, Orioles, Indians and Braves -- would have paid the tax, contributing a total of $10,930,500. Assuming that these teams would have reduced their payrolls by the full amount of the tax, total player compensation would have fallen less than 1%.

Looking ahead to 1997,many large-market clubs remain far under the cap. For example, the Cubs, Dodgers, Angels, Phillies and Marlins could increase their payrolls by at least $10 million next season without owing the tax, while the Mets and Tigers have more than $20 million to spend. Nor should the luxury tax significantly reduce salaries in future years, since the threshold rises by 8% in 1998 and at least 6% in 1999.

Moreover, the tax-free year in 2000 affords any competent GM a way around the tax. Instead of signing a free agent to a four-year deal at $3 million/season for 1997-2000, high-payroll teams can offer $2 million/year for 1997-98-99 and $6.5 million for 2000, shifting salary into the year with no tax. [This loophole was closed in the final agreement.]

Greater revenue sharing -- more for the Royals, less for the Sox. The owners will finally phase in the revenue-sharing plan they adopted in 1994. This plan will ultimately boost the revenues of MLB’s smallest-market clubs by about $10 million/year -- money diverted from teams like the Red Sox. To help fund this revenue-sharing agreement, the players have agreed to pay a two-year, 2.5% tax on their salaries, estimated to raise about $50 million. Three-fourths of this sum will be used to fund revenue sharing, the other 1/4 for a joint labor-management fund.

Though the owners don’t seem to realize it, revenue sharing will be more effective than the luxury tax at checking player salaries. If the large-market teams share a higher percentage of their revenues, they have less incentive to improve themselves by spending more and less money with which to sign free agents. Meanwhile, the small-market teams will be able to hold onto more home-grown talent -- without revenue sharing the Twins could never have afforded to re-sign Chuck Knoblauch for $6 million/year.

Faster negotiations next time. This time around the owners argued for seventeen months before agreeing on a proposal to submit to the Players’ Association. Under the new contract they’ll be operating without a luxury tax until a new agreement is reached, which will increase their incentive to talk.

Expansion. The Major League Baseball will expand to 32 teams by the end of the century. In addition to the Arizona and Tampa franchises awarded last year, which will join the majors in 1998, the owners will select two more franchises in 1999 to begin play by 2002.

Interleague play. Like it or not, interleague play appears here to stay. In 1997, the Sox will play three games against each team in the NL East: one series at Fenway against two or three of the Braves, Expos, Marlins, Mets and Phillies, one road series against the others. (Does that set your heart a-flutter? Thought not.) And with the DH only used in AL parks, watch for some really ugly highlights during those road games... For 1998, Arizona and Tampa will probably be assigned to different leagues -- creating 15-team leagues which will assure at least one interleague series at all times.

Longer first-round playoffs. The agreement allows the owners to extend the first-round playoffs from best-of-five to best-of-seven games, an option sure to be exercised as soon as the TV networks agree to pay more for those games.

So was this agreement worth disrupting two seasons and destroying the 1994 World Series? Perhaps for the players, who lost 2-1/2 months’ pay and suffered a PR black eye, but fought off proposals which would have permanently reduced their collective income by about 15%. Not for the owners, who sustained long-term damage without winning significant restrictions on player compensation. And certainly not for the fans, many of whom remain hurt, alienated and distrustful of a business whose key division -- between large- and small-market owners -- has left it virtually incapable of governing itself.

Copyright © 1996 Doug Pappas. All rights reserved.
Originally published in the September 1996 issue of Boston Baseball.

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