Yesterday, before Game Three of the World Series, Commissioner Selig and MLBPA Executive Director Donald Fehr announced a new Collective Bargaining Agreement that will run five years and end on December 11, 2011, thus giving baseball an unprecedented 16 years of labor peace between management and the players. No prior labor agreement has been longer in duration.
In a striking case of good relations between the parties, the deal was brokered nearly two months before the deadline of Dec. 19th. The deal was hammered out in sessions that went well into the night on both Friday and Saturday. Owners were briefed on the deal Tuesday. The CBA must still be ratified by both sides before becoming official. When it is ratified, the current agreement will expire and be replaced with the new agreement.
The new agreement will not differ greatly from the current agreement. Key aspects of the new agreement are:
Revenue SharingLastly, the union asked for, and got, language that will allow them to more easily file a grievance in instances where they feel owners are pocketing revenue sharing dollars. Revenue sharing recipients are to spend receipts to improve on-field performance, but the prior agreement does not stipulate that the monies all be spent at the major league level, thus creating the belief that shared monies were not being spent correctly. This provision adjustment must have been an interesting piece to negotiate. Management has been on record repeatedly that there has never been a grievance filed, and therefore, the clubs were investing per the spirit of the provision. By rewording the provision in the new agreement, MLB could be viewed as agreeing that there may have been improper use of the revenue sharing dollars by some of the recipients.
Revenue-sharing will remain in place, with adjustments to the system.
The total of net transferred revenues will remain at the same level as they did for 2006 at $326 million. The net amount transferred will climb over time as revenues increase and with changes in disparity.
One key factor in the new agreement is the setting of a single marginal rate for all the clubs. In the prior agreement, clubs at the bottom of the revenue-making pyramid paid a higher rate than those at the top (by 2005 this rate was 39 percent for the top clubs with the lower revenue-making clubs paying 47%). This had the effect of lower revenue-making clubs not doling out monies in player payroll. It created an environment where it is believed some clubs held on to their revenue sharing dollars instead of reinvesting.
Overall, the rates for the clubs will be reduced to 31% from 40% (high revenue clubs) and 48% (low revenue clubs) under the old agreement. This is a key aspect of the deal as theoretically salaries should go up.
What is unknown at this point is the details around a new central fund redistribution mechanism, which will reduce the marginal tax rates for all recipients. The question is, what is the mechanism? Could MLBAM, television, or possibly secondary ticket sale revenues be pulled in to this fund? Stay tuned.
Competitive Balance Tax (Luxury Tax)
The luxury tax will also remain in place with the figures for the thresholds and the percentage paid for exceeding those thresholds adjusted. Coming to an agreement before the December 19th deadline was crucial as the luxury tax was set to expire at that time. Management was pressured into reaching the agreement before the deadline to ensure that the tax would remain in place. The threshold for the 2006 season was $136.5 million, and will jump to 148 million in 2007, $155 million in 2008, $162 million in 2009, $170 million in 2010 and $178 million in 2011, or approx. 5% a year. clubs that exceed those total team payroll figures would be hit with the tax. The jump from 2006 to 2007 represents an $11.5 million jump from the old agreement to new. Asked at the press conference about this, Fehr was heard to respond that the figure was reached based on MLB's rosy financial well being. The expectations is for revenues to continue to grow, hence the large increase.
On the rates for the tax, they will start at 22½% for clubs over the threshold the first time, 30% for clubs over the threshold the second time, 40% for clubs over the threshold the third time, and repeated at the 40% rate for the remainder of the agreement.
The Yankees are reported to be the only club to break the threshold in 2006 (numbers have not yet been officially released) and paid will the 40% rate this year. That 40% rate will be applied to the Yankees, should they break the threshold in 2007. The Union actually had tried to get the clubs all reset; that is, not hold any clubs accountable for breaking the threshold in the prior agreement. This would have benefited the Yankees almost exclusively, and with that, it's easy to understand why the union backed the reset: When the Yankees escalate player payroll, the other clubs need to follow suit.
Minimum salaries for Major League players will increase from the current $327,000 to $380,000 in 2007, $390,000 in 2008 and $400,000 in 2009, with cost of living adjustments (COLA) to 2011. The jump to $380,000 shows a 22% increase from the minimum salary for 2006 of $327,000. With the increase, one wonders if the value of low level talent will be lessened in favor of players that may sit more toward the middle.
Adjustments to the minimum salary structure will be $60,000 in 2007, $62,500 in 2008, $65,000 in 2009.
New minimum for first time roster players of 50% of minor league minimum was announced, but the figure was not revealed.
Tired of your draft picks holding out for higher salaries? The new system moves the signing date to August 15th other than college seniors. This might have a negative impact on player development, however, as noted by Dave Cameron at USS Mariner.
The use of what is referred to as the draft-and-follow process with junior college players will be impacted by moving the date up. With the old system, JC players could be evaluated during their season, and still leave time to sign. Now, with the signing date moved forward, the DFE process will be eliminated.
The new system will certainly place a drag on the amount of monies spent in bonus payments to amateurs. Clubs now have the ability to pass on certain players knowing that they will retain a similar pick the next season.
Draft Choice Compensation
There had been word at the end of the summer that draft pick compensation would be fully removed from the CBA. That was not the case, but there were several adjustments to the system.
Starting in 2007, the percentage of Type A players will be lowered to 20% from 30%. A Type A free agent brings two picks to the Club that trades away the player -- one in the first round and one sandwiched between the first and second rounds.
With this adjustment from 30% to 20%, the Type B and C players get impacted.
Type B players become 21 percent - 40 percent at each position (rather than 31 percent - 50 percent in the prior agreement). Type C players are eliminated in 2006.
Also in 2006, compensation for type B players becomes indirect (sandwich pick) as opposed to direct compensation from signing Club.
Type C free agents are eliminated in 2006, so this off-season sees this wrinkle.
The new agreement eliminates the December 7th, December 19th, January 8th and May 1st deadlines for free agents. Deadline for clubs to offer salary arbitration to their former players who became free agents is moved to Dec. 1 from Dec. 7. The deadline for players offered arbitration to accept offers is moved to Dec. 7 from Dec. 19. The Tender Date is now December 12.
In more detail, the December 7th date was the last day for clubs to offer salary arbitration to their former players who had filed for free agency, and a club not offering arbitration lost all rights to negotiate with and sign that free agent until May 1st. This created lulls where the likes of Roger Clemens' status would hang out there for five months.
The December 19th date was the last day a free agent could be offered salary arbitration by his former club to accept or reject the offer. If a player rejected the offer to go to arbitration, his former club could continue to negotiate with and sign him until January 8th.
The May 1st date was the earliest date a former club could re-sign a free agent player who was not offered arbitration or was offered arbitration on December 7th and remained unsigned after January 8th.
Joint Drug Agreement
The JDA will remain in effect as it was in the prior agreement. There will be no changes to the penalties for violation of the policy. It will now be attached to the CBA, meaning that it will no longer be on a separate cycle than the CBA. This created problems as negotiations in mid-agreement would need to occur.
While the agreement remains the same, it does not mean it is locked for the duration. The sides can add substances to the list deemed in violation of the JDA. If, for example, some reliable method of testing for HGH via urinalysis were to be unveiled, the sides could agree to add a testing protocol for that substance to the list.
While there are a great many details to the agreement that are still unknown, by and large the new agreement seems like a continued step in the right direction. The biggest win in all of this was reaching an agreement in advance of the December 19th deadline, and the length of the agreement. By creating an environment where we will see 16 years of uninterrupted labor peace in baseball, the league should continue to see an increase in revenues, for the most part. After all, it is far easier for businesses to invest in baseball, and the fans invest emotionally in baseball, if they know that the threat of a strike or lockout isn't always looming on the horizon.
As an aside, by the end of this agreement, the chances are we will see not only a new commissioner of MLB, but a new executive director of the MLBPA. If that is the case, let's hope that we see this continued labor peace in the future.
Maury Brown is the editor of The Biz of Baseball and an author for Baseball Prospectus. He can be contacted here.