2011 CBA Negotiations Primer

The current collective bargaining agreement between MLB and MLBPA is set to expire in 2011, five years after the most recent round of negotiations and sixteen years since the last major conflict of any note. The two sides probably have the best working relationship in any pro sport. They both saw how much damage the 90s conflict had on the game, and see the game growing at an unprecedented rate. The CBA is an enormously important document which basically covers all aspects of the game. The players can pretty much negotiate for anything they want from rule changes to retirement benefits to the structures of how players are paid. In practice, all the things that would grow the game in general (rule changes, international exposure, etc) is agreed upon between the two sides right off the bat, and the real conflict comes down to structures governing player salaries.

The 2006 CBA negotiations were really boring. Basically, everything  stayed the same. MLB increased the minimum salary, changed some draft pick compensation rules, and gave clubs draft picks for draftees who failed to sign. That’s it. While I don’t think there is anything close to a threat of a work stoppage looming, I do believe that this round of negotiations will be a lot less boring.

First off, as I mentioned briefly here, there is a growing disparity between league revenue and player salaries. The graph from that post:

[image title=”Mean-player-salary” size=”full” id=”24066″ align=”center” linkto=”full” ]

I can say with 100% certainty that the MLBPA will attempt to shift that little red line upward. The NFL, NBA, and NHL players all receive somewhere around 55% of league-wide revenue. MLB players were there around 2000-2001, but since then salaries have grown much more slowly than revenues. In fact, this graph may understate the pace of MLB revenue growth, since clubs are increasingly finding alternate means of making money through certain kinds of equity (like the Yankees’ stake in YES) that probably doesn’t show up in league-reported numbers.

This means that average player salaries, which are now ~$3.5 million, should (in the MLBPA’s eyes) grow to somewhere around $5 million dollars. Some of this will come as newly-richer clubs spend more on free agents and extensions which buy out free agency, but that won’t make all that big of an adjustment. Clubs (unless they collude, a real possibility) will naturally adjust to some sort of market price equilibrium in free agency and at the draft – and we’ve seen those prices rise with revenues.

However, most MLB players start out being paid the league minimum or close to it for three years, and then have their salaries governed by 3 years of arbitration or negotiations revolving around arbitration. This sets a price baseline that affects all other player salaries – free agents (especially the low-to-middle types who tend to sign 1-year deals) would be paid more if the substitute of using a young guy is increased.

Below are five changes that I think we could see, after the jump:

Big minimum salary increases – The 2006 CBA increased the minimum salary to $400,000, plus a cost of living increase. The easiest way for MLBPA to capture more revenue would be to increase the minimum salary. This would not only directly increase player salaries in the obvious way, but would have other consequences. Players often sign long term team-friendly deals early in their careers because they want to make sure they are set for life in case they get injured or begin to play poorly. This risk aversion costs them a lot of money long term, even if it is understandable. A higher minimum salary would make it easier for players to be a little less cautious and hold out for the big payday. This would mean more players hitting free agency, so more big paydays will be dolled out.

Change to Arbitration Rules – Pendulum Arbitration, also known as Baseball Arbitration, generally favors a moderation of result. For those who don’t know, in baseball arbitration consists of the two sides submitting sealed bids for a fair salary, and an arbiter picks the best between the two of them. In other sports and settings, neither side submits a bid, but rather makes an argument for what the appropriate salary is for the player, and the arbiter sets the salary. This results in higher salaries in two steps. First off, the ranges of salaries awarded in arbitration increases, as top-level salaries aren’t held down by players making risk-averse conservative offers. Second, these new top-level salaries act as both new precedents and magnets for future arbitration cases, compounding salaries. In general, people believe that baseball arbitration favors ownership.

Draft pick compensation changes – This is the closest thing to a no-brainer in the 2011 CBA. The current system awards teams with a 1st round draft pick when they sign a Type A free agent, plus a sandwich round pick. This has screwed quite a few players in recent years who were offered arbitration but weren’t good enough to warrant losing a 1st round pick for. Rafael Soriano and Grant Balfour are in that boat this year. I think that we may see a raised standard for what qualifies as a Type-A free agent, which should at the very least make it tougher for relievers to qualify. It’ll increase demand for free agents, pushing prices mildly upward. Players don’t like accepting below-market value deals because of the draft pick, and teams hate to surrender draft picks. 

Lowering Service Time Requirements – Currently, it takes 6 years of service time for a player to be eligible for free agency, and 3 years of service time for them to be eligible for arbitration, unless they are Super-Two, in which case players can go to arbitration after two years. Going to 5 years for free agency is probably not going to happen. However, I definitely think that players could demand a lower service time requirement for Super-Two eligibility, since the rules right now allow teams to avoid it by waiting until May to promote a player who would normally make the team in spring training. A more logical cut off would be half a season of service time.

Incentives For Small Market Spending – No one in baseball was happy when the Florida Marlins were the most profitable team in baseball. Baseball spent much of the last two CBAs correcting imbalances in team financing via revenue sharing and the luxury tax. However, some teams figured out that it made economic sense in a small market to spend very little and pocket the extra money. If these teams spent more money, free agent salaries would rise. Many larger-market teams would likely be happy, since their revenue sharing money is making the league more competitive, growing the game, and making the league more viable and national. I think there’s a pretty good chance that the league does something about this. I have a bunch of ideas, which I’ll suggest in a future post.

E.J. Fagan been blogging about Yankee baseball since 2006. He is a Ph.D. student at University of Texas at Austin.

About EJ Fagan

E.J. Fagan been blogging about Yankee baseball since 2006. He is a Ph.D. student at University of Texas at Austin.

2 thoughts on “2011 CBA Negotiations Primer