In March of 2016, this author wrote about the “Top Ten Issues and Predictions for the 2017 Major League Baseball Labor Negotiations.” As predicted and for reasons of timing and negotiation leverage, from what we know now, several issues including shortening the Major League Baseball (“MLB”) season, roster expansion, and implementing an international draft were not completed. In the end, labor peace was too important for both sides to maintain as cooler heads prevailed.
What we are going to do here is highlight for you the five most important things that we know today regarding the new five-year collectively bargained agreement (“CBA”) between the Owners represented by Major League Baseball and the MLB Players Association (“MLBPA”).
New Luxury Tax Formula and Consequences
Much was made of the new luxury tax formula in initial media reports that were unfounded and alarming in nature. These reports included (1) the Dodgers being under a debt plan and that (2) the Dodgers were going to be subject to a 92.5% tax rate. We can imagine the childhood “telephone” game here where the Dodgers reducing payroll since President of Baseball Operations Andrew Friedman joined the front office combined with leaked reports of new luxury tax consequences in the 2017-2021 CBA made folks uneasy.
Per ESPN.com SweetSpot blogger David Schoenfield in his December 2, 2016 article entitled “Could teams actually pay a 92 percent luxury tax under the new CBA? Yes — and no:”
“The important thing to know here is the 42.5 percent tax rate, for example, is only on the dollars spent beyond the [money] already above the threshold. So if the threshold is $195 million and a team spends $236 million, a potential 92.5 percent tax rate is applied only to the $1 million over $235 million, not the entire $41 million over the threshold . . .
So while reports of “92 percent tax rate” sound onerous, the highest tax rates aren’t really all that different from the previous CBA. That doesn’t mean the thresholds shouldn’t have been higher, but the tax rates shouldn’t create a deflation of player salaries. Yes, if revenues continue to grow, it’s possible that the players’ share of that revenue will continue to decrease, but that’s a complex issue that goes beyond just the competitive balance tax. (For example, changing aging patterns means older players might simply not got paid as much.)”
In addition, per Maury Brown with Forbes.com:
“Luxury Tax offenders and the draft: Beginning in 2018, clubs with a payroll $40 million or more above the Tax Threshold shall have their highest selection in the next Rule 4 Draft moved back 10 places, except that the top six selections will be protected and those Clubs will have their 2nd highest selection moved back 10 places.”
Therefore, not much has changed, as the Dodgers, under current leadership, will continue building their strength from within the farm system, while looking to mid-level free agents and headline-type trades to keep the Los Angeles Dodgers competitive and to take the organization to the next level. You can learn more about the luxury tax system here.
No International Draft
As much as many would have loved to see Japanese phenome Shohei Otani and the best players from Nebraska and California and all other states in the Union, Cuba, and others from the Caribbean, Central and South America, and the rest of the World in an international draft, teams, league, and player representatives compromised. Great deal making and relationships are premised and completed upon the altar of compromise. While we do not have the fairest system, the system is now fairer for kids from Monowi, Nebraska, when compared to the best international players playing in Sapporo, Hokkaido Prefecture, Japan, looking to make the trip Stateside to play in a Major League Baseball uniform.
Hard Spending Caps on International Signings
Every MLB team will now be hard-capped to roughly $4.75-5.75 million per year, per club where pool dollar sizes grow with industry revenue. This is the first hard cap in the history of America’s pastime. Per ESPN.com Senior Writer Jayson Stark in his December 2, 2016 article entitled “Tony Clark says new CBA ‘does not change’ union’s view of salary caps:”
“So how did baseball emerge from these negotiations with a system in which all 30 teams will work with a strict total signing pool of about $5 million a year per club, a pool that teams are not permitted to exceed for any reason? It turns out that the disparity between the dollars being spent on foreign-born players versus American-born amateur players had a lot to do with it.
Just five months ago, a 17-year-old Cuban pitcher, Adrian Morejon, signed a contract with the San Diego Padres that guaranteed him $11 million. Meanwhile, less than two weeks earlier, the top pick in the June draft of American players, 18-year-old outfielder Mickey Moniak, signed with the Philadelphia Phillies for a little more than half that amount, at $6.1 million.
The year before, the Boston Red Sox handed out a $31.5 million signing bonus to 19-year-old Cuban infielder Yoan Moncada. To put that in perspective, under the new rules, the international signing pools for an entire division won’t add up to $31.5 million.”
In the 2017-2021 CBA, like all negotiations, nothing is completed in a vacuum. MLB nixed its international draft pursuit in order to get the deal done by the deadline to ensure 27 years of uninterrupted labor peace and to build upon $10 billion in league profits. In exchange, MLB and its owners received some hard caps on international spending as opposed to an international draft. The important point to note here is that teams will have to wait two-more years to sign international players (age 25) to avoid the hard cap. Again, this is a good thing considering the plethora of international free agents who have not panned out for teams. Remember Alexander Guerrero? Waiting a couple years for maturity and development is a good thing. Fiscal and moral responsibility won here.
No First Round Draft Pick ties to the Qualifying Offer and Preventing Teams from Tanking
Teams will no longer surrender a first round draft pick when signing a player whose original team gave a qualifying offer to the free agent player. This helps free agent players with the qualifying offer tag to sign and to sign sooner in the process cause there is no additional fallout for the team signing the player, while protecting MLB teams’ first round draft picks. It was a smart move for both sides. However, the qualifying offer, as Maury Brown writes, “The changes are numerous and complex but address everything from the Qualifying Offer system to those that break the Luxury Tax.”
Moreover, although a draft lottery was not implemented, teams who struggle to earn wins and to spend team revenue on buying wins through players and better facilities were hit hard with revenue-sharing and market disqualification changes. For example, the multiplier tax that existed in the 2012-2016 MLB CBA is now gone in the 2017-2021 agreement, while the number of teams considered displaced by their market size has been reduced from fifteen to thirteen teams. Lastly, revenue splits for certain clubs have been reduced and will eventually be eliminated. Overall, this means the Los Angeles Dodgers will be taxed more for spending more, but will share less for just being in a geographic location.
Drugs & PED Usage
Disciplinary and Preventionary Tools: No Smokeless Tobacco; Increased Suspensions for Using Performance–enhancing Drugs; Domestic Violence Policy updates; other enlightened matters
Some of the most robust changes occurred in the some of the smaller and often overlooked details. These changes include additional travel days, All-Star bonuses, games player overseas, minimum salary raises, and disabled list length reduction. Players will receive more rights in arbitration disputes, but stricter punishment for violations of certain policies.
Lastly, often what is in an agreement is as important as what is absent from it. The National League will not be receiving a designated hitter and the pace of play and length of season were left unchanged for now. Although the 2017-2021 MLB CBA is yet to be signed, fans and experts alike can say hurray for labor peace.