There are 23 days until pitchers and catchers begin reporting for spring training. There are somewhere in the neighborhood of 150 free-agent players who remain unsigned.
The brutal slowness of this offseason is more than simply boring, and it is long past the point where it might reasonably be seen as a simple accident. The last few weeks have brought repeated accusations of collusion, or spiritual-if-not-literal collusion, or some related form of price fixing. Many of the counter-arguments here begin to fall apart with some closer examination, as Jeff Passan of Yahoo pointed out in a brilliantly written and researched piece last week.
Is this is happening because this free-agent class is especially weak? That’s somewhat true at the upper levels, but certainly not so true all the way through to be a sufficient explanation for 150 unsigned players in late January. Is it because front offices have all become smart enough to stop issuing big contracts to players who will be well past their prime by the time the last few years of the deal roll around? That’s, again, an explanation that applies only to a select subgroup of this free agent class—and requires believing that every single front office would have suddenly snapped into the same way of thinking, for almost every single type of player, at the same time, just a year after a winter where many teams showed no real inclination toward doing so. Is this all because of the new, harsher luxury tax penalties? The Yankees and Dodgers are clearing space for next year’s blockbuster class—despite the fact that their hundreds of millions in annual revenue can handle these tougher penalties—but most teams have plenty of space before they even come close to the $197 million threshold that triggers the first wave of fines. There are 18 teams with a current payroll of less than $150 million, and seven of those are under $100 million.
All of the above situations are shaping the market to some extent; even added together, they collectively still aren’t enough to explain it grinding to a halt. It should be clear that something is wrong here. While the fact of that something is on full display right now, it isn’t limited to this offseason, and it very likely won’t go away with next winter’s crop of big-name free agents. It’s a sign of some deep and fundamental flaws in MLB’s free agency model and the deterioration of what was once professional sports’ strongest union.
The free agency model is unfair to players
The system works like this: unless a player signs a contract extension with his current team first, he becomes a free agent for the first time after he has six years of major-league service time. He gets his first opportunity to negotiate a salary increase a few years before that, with the ability to request an arbitration hearing after three years of service time.
Six years can be a very long time. (Don’t forget problems with teams manipulating that service time to keep players under their control as long as possible.) There’s plenty of debate on this—and, of course, tons of case-by-case variation—but conventional wisdom holds that a player reaches his peak at age 27. The average age of a player who made his MLB debut last year was 24.6, which has stayed more or less steady over the past decade. This means that many players won’t hit free agency for the first time until they’ve already played out several of their prime years for relatively cheap. (A guy can try negotiating an increase a few seasons before that, yes, but the arbitration process routinely underrates and underpays many, if not most, players and of course requires staying with his current team.)
While the foundational unfairness of this system should seem pretty baldly obvious—and has screwed over many a player who peaked early, or got injured at the wrong time, and so on—it hasn’t always affected players to the extent that it seems to be doing so right now. There’s an established model of big-money, big-picture contracts signed with the knowledge that a player will likely only perform at his current level for the first few years—a team willing to eat some money in the last few years of the deal, when the player is expected to begin declining, in exchange for his predicted strong performance in the first few. But this winter, clubs have been unwilling to engineer deals like that, because clubs have been largely unwilling to engineer any sort of big deal in an environment with what amounts to a soft salary cap that’s now getting harder than ever. That brings us to...
...the revamped luxury tax
Under the collective bargaining agreement from last winter, the luxury tax penalties are harsher than ever. The teams most likely to go over the threshold are, of course, also the teams who can absorb the penalties for doing so most capably—but more than ever, the tax gives owners a healthy incentive and convenient excuse for sitting on money that they already have, rather than paying it to players.
Baseball first set up a luxury tax in 1996. The compromise that owners and players agreed upon was that the tax would be triggered by passing not a hard threshold, but rather the midpoint of the payrolls of the teams with the fifth- and sixth-highest spending totals. They’d try the tax from 1997 to 1999, and then it would disappear for 2000 and 2001, and whether the tax was picked up again in a new collective bargaining agreement would be a problem for the future. The tax was picked up, this time with a strict threshold rather than a floating one relative to what teams were already paying. (It started at $117,000,000 for the 2003 season and has increased every year since.) Teams would be taxed more on the dollar for each year they went over the threshold, up to their third consecutive year of doing so. In the 2012 CBA, they added a tier for a fourth consecutive year, which involves being taxed at 50 percent for each dollar a team goes over. (Dipping under the threshold for any one year will reset the clock there.)
Those penalties could be pricy, but the total often amounted to the equivalent of loose change for a team with annual revenue that could exceed half a billion dollars. Last year’s CBA, though, made those penalties even pricier. There’s now an additional 12 percent tax on teams that go over the threshold by more than $20 million, and an additional 45 percent tax on teams that go over by more than $40 million. This is in addition to the existing tax they’re already paying, which, again, can be as much as 50 percent depending on how long their payroll has been over the limit.
The clubs that are going to go $40 million or more over the line can afford these penalties. The Yankees, with their $500 million-plus in annual revenue, can afford this; if they had to, they could afford a full 100 percent tax rate on quite a bit of over-the-limit spending. But why would they want to, when they have such an easy cop-out for not even trying?
There’s more money in the game than ever; league revenue exceeded $10 billion for the first time last year. But here’s how much of that has been making its way to players:
The NBA’s CBA requires that players receive between 49 and 51 percent of basketball-related income; in the NFL, players are supposed to receive between 47 and 48 percent of revenue. Baseball players’ salaries totaled more than 56 percent of revenue in 2002, when the luxury tax and revenue sharing guidelines were installed; that has cratered to less than 40 percent in the decade and a half since, as Nathaniel Grow noted at FanGraphs back in 2015.
Given what baseball has seen in the first free agency under the newly harsh luxury tax, that situation’s not going to get any better for players any time soon.
The union has been losing the power that they need to confront this
Here’s a choice section from Passan’s big piece:
During the negotiations leading to the 2016 basic agreement that governs baseball, officials at MLB left bargaining stupefied almost on a daily basis. Something had changed at the MLBPA, and the league couldn’t help but beam at its good fortune: The core principle that for decades guided the union no longer seemed a priority.
“It was like they didn’t care about money anymore,” one league official said.
Though something of an oversimplification, there was more than a kernel of truth to it. Meaningful negotiating time was spent on issues the league happily accepted in exchange for stronger financial positions. The players wanted a chef in the clubhouse. The players wanted two seats apiece on spring training buses. The players wanted more off-days. Lifestyle and amenities took precedent more than ever.
In 1994, the players went on strike in response to the idea of a salary cap. But they’ve ceded a bit of ground there in each of the five collective bargaining agreements that have been negotiated since, and the luxury tax now functions more or less as an implicit one. And this is to say nothing of the fact that players did agree to a hard spending cap for international free agents in the last CBA. There’s nothing new in the union being willing to sell out foreign or amateur players to better protect their own interests, but a salary cap for international free agents is still a salary cap—and that the players would allow it at a time where they’re already getting an increasingly small portion of booming league revenue, particularly without any major financial concessions in return, does not bode well.
Last week’s news that MLB is hoping to implement pace-of-play changes unilaterally, over the objections of players, is only further proof of how much power the union has lost. Nothing is official there yet, but that the league would feel comfortable pushing it publicly is a sign that they’re not particularly concerned with the desires of the players and don’t think that the union has any real power to stop them—continuing the pattern seen in last winter’s CBA negotiations, where players handed over luxury tax penalties that give teams an easy excuse not to pay players and a cap that outright blocks opportunities for foreign players to be paid what they’re worth, while getting relatively little back in return.
The stage was being set here before 2013, when Tony Clark became the first former player—and the first person who was not a lawyer or veteran labor organizer—to take the union’s top leadership spot. But from a financial perspective, the situation for players has only worsened in his tenure.
Players are already losing the public battle
There is a belief out there that this sort of anti-labor frugality is just a symptom of teams being smart. As an MLB Network segment two weeks ago said, spending money is a simple lack of discipline. Look at the last two World Series champions: teams who stripped down to the bare minimum in order to build themselves back up. Further, look at just about everything that fans are conditioned to consider “smart.” Moneyball, after all, wasn’t anything but a way to win without paying to do so.
There are several ways in which this way of thinking is not really smart at all. There is, for one thing, the fact that the owners are the ones who pushed for and agreed to this situation. They are not trapped under a luxury tax that the league thrust upon them; they wanted a way to excuse spending less, and they got it. This is all calculated. There is, for another thing, the fact that the idea of rebuilding has increasingly become warped into one that focuses heavily on the initial stripping down and much less on the actual reconstruction that is meant to follow. A team cannot claim that it is perpetually rebuilding if it refuses to eventually invest in anything that could be useful for building a team that might win. Fans are asked to trust front offices here, but that trust won’t get you very far if front offices aren’t operating in good faith. This winter alone has given ample evidence that many of them don’t.
After trading away key franchise players Andrew McCutchen and Gerrit Cole for relatively little in return this month, Pirates owner Bob Nutting was asked what it would take for the team to break their cycle of “develop, then sell when gets too costly.” Here’s his answer:
“I think you’d have a fundamental redesign of the economics of baseball. That’s not what we’re going to have.”
There was a time when the thought of a hard salary cap represented a worst-case scenario for the players; the specter of one even led to that previously mentioned strike in 1994. Now, two decades and change later, the owners have shrewdly managed to shrink the players’ revenue share to an unacceptable figure, and they’ve done it all without the benefit of a hard cap, or even the perception that they had to try all that hard to do so. The owners have successfully frozen the market and driven down costs, and they’re currently winning the public-relations battle thanks to their recent ability to leverage the concept of analytics as an anti-labor tool.
This is why Nutting’s answer should terrify the union. The owners currently enjoy a position of tremendous strength, and when they start talking about further reshaping of the economics of the sport, they aren’t eyeing a future that is more lucrative for players.