MLB Lockout: How it Started, What’s Happening, Where We Are Now
Background:
Over three months have passed since Major League Baseball’s (MLB) collective bargaining agreement with the Major League Baseball Players Association (MLBPA) ceased to exist, and a new one has yet to be signed despite the scheduled season being just around the corner.
On December 2, 2021, the previous collective bargaining agreement (legal contract between an employer and the union representing the employees) which was signed in 2017, expired. When the clock struck twelve, team owners implemented what’s known as a lockout, leveraging their control over the MLBPA and players to get certain conditions in the new collective bargaining agreement. There have only been nine lockouts in MLB history, the last one being in the 1994-95 season which canceled 938 games and the entire postseason, including The World Series. A lockout is essentially the owners way of “locking out” the players from all facilities and play until their conditions are agreed upon. So, the MLBPA came back and leveraged the best weapon they could: the players.
To put it lightly, there are extreme discrepancies between the MLB and the MLBPA in terms of what they expect in the new collective bargaining agreement but at its core, the issues primarily surround a redistribution of wealth in the league. Let’s dive into the conflicting nature of the agreement:
Competitive Balance Tax (“luxury tax”):
The luxury tax is arguably where the largest conflict between the two parties lie. Per MLB.com, “each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax — which is commonly referred to as a ‘luxury tax.’ Those who carry payrolls above that threshold are taxed on each dollar above the threshold, with the tax rate increasing based on the number of consecutive years a club has exceeded the threshold.”
In essence, it upholds some sort of a “soft” salary cap. Unlike the NFL and the NBA, the MLB doesn’t have a hard salary cap, but they implement the competitive balance tax to try and incentivize teams to stay within their means. For players, a higher luxury tax threshold means more money for them.
In the previous collective bargaining agreement, the luxury tax threshold grew to $210 million by the time it expired in 2021. Under new negotiations, the MLB is proposing a $220 million threshold from 2022-2024, $224 million in 2025, and $230 million by 2026, when the agreement will expire. The MLBPA has wildly different expectations – they want to see a $238 million threshold for the 2022 season that would see an approximate $6 million increase each year until its final year in 2026 when it would reach $263 million. Part of the MLBPA’s argument lies in the year-over-year revenue growth that the league generates. Since 2002, the league’s revenue has grown roughly 8% each year – but the owner’s proposed luxury tax threshold (funded by the league’s revenue) only increases 4.5% from 2022-2026.
Pre-arbitration Bonus Pool:
Salary arbitration is a process that comes into play when a player and a club cannot agree on a salary for the upcoming season. For a player to be eligible for salary arbitration, they must not be contracted for the upcoming season having played at least three years but less than six. In this arbitration period, the player and the club must agree on a salary for the upcoming season. If they cannot agree, both the player and the club would file a salary and a panel of independent arbitrators would vote in favor of one party or the other (no middle ground) and the salary would be decided right then and there. The idea behind arbitration is that it gives more power to those who sign rookie contracts and have zero leverage in their salary later on despite their results/production on the field. After three years, they are essentially given negotiating power in their salary, which often increases following arbitration.
The MLBPA wants what’s called a pre-arbitration bonus which in essence would allow non-eligible players to receive arbitration-like benefits. So, if a player is overperforming what their base salary is worth but they are not yet in the 3-6 year time period, then the pre-arbitration bonus would “reward” them for outperforming what their salary says that they are worth. This argument becomes especially relevant when comparing salaries of those in the arbitration period to those that are not, but have identical stats. The bonuses are set to benefit non-eligible players that win prestigious awards like the Cy Young Award, MVP, etc. but don’t get paid accordingly.
But the MLB and MLBPA have staggering opinions – to the tune of $55 million. The MLB is willing to open and offer a $30 million pre-arbitration pool while the MLBPA wants to see $85 million in the pool for these players.
Minimum Salaries
The MLB is currently proposing $700,000 to be the minimum annual salary with a $10,000 increase year-over-year. Meanwhile the players union is asking for $725,000 in 2022, $745,000 in 2023, $765,000 in 2024, and increases for 2025 and 2026 to be decided per the consumer price index at the time.
The old collective bargaining agreement set the minimum salary for 2021 at $555,000 plus cost-of-living at the time.
Other Issues
The MLB has wanted to expand the postseason from the traditional 10-team postseason format to 14 teams for a while, admittedly, to bring in more revenue to the league. Meanwhile the players will only agree to a 12-team postseason for several reasons. There are other key debates such as service time manipulation, revenue share, draft-pick lottery, and believe it or not, even more.
Current Update:
Back in December, the league set Feb. 28 as the deadline to come to a deal. That didn’t happen. Then they pushed the deadline to come to a decision to March 1. That didn’t happen.
With neither side willing to budge, the MLB Commissioner Rob Manfred was forced to cancel the first two series of the 2022 season and push back the 15 Opening Day games (originally scheduled for March 31) at least a week. The now-shortened season adds another topic to the conversation – will players get paid for a full season?
The MLBPA released a statement following the non-decision on March 1: “From the beginning of these negotiations, Players’ objectives have been consistent — to promote competition, provide fair compensation for young Players, and to uphold the integrity of our market system. Against the backdrop of growing revenues and record profits, we are seeking nothing more than a fair agreement.”
No matter how fair they believe their agreement to be, a season cannot begin until both parties sign on the dotted line and agree on a collective bargaining agreement that benefits both parties. The question is: how much more baseball is going to be sacrificed before that happens?