Swing and a Miss? Baseball’s CBA Negotiations Near Critical Juncture

Major League Baseball’s postseason is in full swing as Houston/Boston and Los Angeles/Atlanta battle for the AL and NL Pennants, respectively. Despite my disappointment over last week’s nonsensical check swing call by Gabe Morales, I’ve been trying to make the most of these games because it will be some time before we see baseball again, and it could be even longer than usual before we get regular season baseball back. This week, I appeared on the Simply Amazin’ Podcast with Tim Ryder, where we talked about the parameters surrounding the upcoming Collective Bargaining Agreement (CBA) discussions.

For those that are not aware, the current CBA will expire on December 1 of this year. Under federal labor regulations, both sides must make the other aware of their intention to seek a change in labor terms more than 60 days before the expiration of the existing agreement and must inform a mediation service within 30 days of giving notice[1]. Major League Baseball and the MLB Players Association (MLBPA) both filed such notices with the Federal Mediation and Conciliation Service at the end of August.

In 1994, Major League Baseball suffered a months-long work stoppage that only ceased when then-NY Federal District Judge Sonia Sotomayor ended the 232 day lockout by reinstating the previous labor agreement and order baseball to start its season with its regular players and not replacements while the negotiations proceeded[2]. It took some time for the game to recover, and that is my current fear for the game. For the first time in a while, Major League Baseball has done an effective job at marketing its young stars. Shohei Ohtani, Fernando Tatis, and Juan Soto are superstars that have now joined other marketable stars like Bryce Harper at the top of the game. Now may be the worst time ever for baseball to avoid playing its next season on time. With that said, this negotiation will come down to money, not fan concerns, so let’s look at what the two sides will battle over.

Key Battles

In 1994, MLB owners were hoping to implement a salary cap to create cost certainty. Today’s goals are not dissimilar. It’s not that the owners are openly campaigning for a salary cap akin to that found in the NFL or NBA, but instead for the new CBA to clarify service time and arbitration costs. This is the primary battleground for negotiations.

Currently, MLB has a luxury tax that acts as a soft cap on team spending. The “Competitive Balance Tax” is currently set at $210M for the 2021 season and penalizes teams that go over that threshold by adding a “tax” to each dollar over that threshold. In the first year of exceeding the threshold, the team must pay 20% tax on the excess, 30% in the second year, and 50% in the third year[3]. Generally, teams try to stay below this tax threshold or reset their tax status after a year or two above the threshold. Some teams, however, don’t even exceed $100M in salary. MLB’s recent proposal during their first face-to-face meeting with MLBPA seeks to address both issues. First, MLB proposed creating a salary floor, which would require teams to spend at least $100M. However, the proposal also calls for a new, lower luxury tax threshold of $180M with a new 25% tax on excess spending[4]. The taxes collected would be shared with certain low-budget teams to help those teams reach the $100M threshold. Despite a salary floor being a win for the players, a lower salary threshold may have a chilling effect upon player salaries, which is obviously a primary concern for the players.

MLB teams used to control a player’s rights forever. However, these days they are limited to 6 years of service time, as agreed upon by the MLBPA and the owners. MLB’s new proposal suggests a universal free agency age of 29.5 years. The result would be young stars like Juan Soto and Vladimir Guerrero, Jr. being controlled by their clubs for 10 years before they could reach free agency due to their early debuts. Under the current system, players are eligible for arbitration after 2 or 3 years of service time. MLB has proposed doing away with the arbitration system, which rewards players with higher pay for their good play. Instead, arbitration-eligible players would receive some portion (as determined by a new algorithm) of a $1B pool, which would be tied to league revenue in the future. The concept of tying a salary pool to league revenue is eerily similar to a salary cap, which will undoubtedly be a source of consternation for the players[5].

Final Thoughts

At this moment, I have serious concerns over whether a deal will be reached between the owners and players ahead of the expiration of the current CBA on December 1st. There seems to be a lot of daylight between the MLB proposals and the players’ goals for the next generation of baseball. These proposals theoretically create methods for the owners to make more money by selling their teams because cost certainty leads to greater organizational value (see NBA, NFL), but may fall short in compensating the players for giving more freedom away. Any delay in reaching an agreement would have disastrous consequences for the game, beginning with pushing back the ability of teams to retool their rosters due to market uncertainty, and ending with a canceled World Series in the worst case scenario. Additionally, the MLBPA’s lawsuit against the owners, focused on Commissioner Manfred’s decision to unilaterally implement a 60 game season in 2020[6], hangs over these negotiations. My fingers are crossed for a fair and timely deal, but I won’t hold my breath. Keep it tuned to Conduct Detrimental for more on this issue as it develops!

Tarun Sharma is a current 3L at the University of Minnesota and former Baseball Operations Professional for the San Francisco Giants and Arizona Diamondbacks. He is an occasional co-host on the Conduct Detrimental podcast and handles some social media and legal research for the Conduct Detrimental Group, as well. You can find his thoughts in the weekly Big Boom(!) Sports Law Newsletter by Conduct Detrimental or on twitter @tksharmalaw. Sign up at conductdetrimental.com to get the week’s biggest sports law news in your inbox!

[1] “MLB, Players' Union File Labor Notices as Expiration of CBA Nears.” ESPN, ESPN Internet Ventures, 23 Sept. 2021, https://www.espn.com/mlb/story/_/id/32263799/mlb-players-union-file-labor-notice-expiration-cba-nears. [2] Fleisher, Larry. “Remembering the Time Supreme Court Justice Sonia Sotomayor Saved Baseball from Using Replacement Players.” Forbes, Forbes Magazine, 3 Apr. 2020, https://www.forbes.com/sites/larryfleisher/2020/04/03/remembering-the-time-supreme-court-justice-sonia-sotomayor-saved-baseball-from-using-replacement-players/?sh=752577674271. [3] Pistone, Andrew. "MLB Luxury Tax Explained: How It Works and Why It Exists." Franchise Sports. 15 July 2021. Web. 18 Oct. 2021. [4] Anderson, R.J. "MLB Proposes $100 Million Salary Minimum and $180 Million Luxury Tax in Latest CBA Negotiations, per Report." CBSSports.com. 19 Aug. 2021. Web. 18 Oct. 2021. [5] Axisa, Mike. "MLB Proposes New Service Time Rules in Latest CBA Negotiations, per Report." CBSSports.com. 02 Sept. 2021. Web. 18 Oct. 2021. [6] Axisa, Mike. "MLBPA Seeks $500 Million in Damages in Grievance against MLB over Shortened 2020 Season, per Report." CBSSports.com. 13 May 2021. Web. 18 Oct. 2021.