Sports & Law
MLB Labor Agreement
By Patrick L. Abramowich & John R. Gotaskie, Jr.

Major League baseball players began reporting to training camps February 14 under a labor agreement that expired in November 2001. After six years under a contract that brought relative peace to the game but failed to address the economic problems that hinder competitiveness and threaten the viability of several franchises, the professional version of the nation's pastime faces another opportunity, through the collective bargaining process, to implement sweeping change. If recent history is any indicator, fans should not be overly optimistic.

The National Labor Relations Act requires MLB owners to meet and confer with the MLB Players Association regarding the essential terms and conditions of employment, including the allocation of revenue between players and owners and among franchises. If management and labor fail to reach an agreement, a situation called "bargaining to impasse," owners are free to implement their last, good faith proposal. In 1994, baseball owners, after unsuccessful bargaining, attempted to implement a salary cap without instituting meaningful revenue sharing. The result was a 232-day strike that deeply damaged baseball's image and mass appeal.

The 1994-1995 strike was ended by an ineffective compromise that did little more than bring the players back on the field. The owners adopted a "luxury tax," a form of revenue sharing whereby the five teams with the highest aggregate player payrolls were required to contribute 35% of their payrolls in excess of $51 million into a pool to be divided among small market teams. The luxury tax has not slowed free agent spending by large-market franchises and has not infused enough revenue into small market franchises to allow them to compete for top free-agents or retain more than a token number of home-grown talents.

In July, 2000, the MLB Commissioner's Blue Ribbon Panel on Baseball Economics ­ which includes former U.S. Senator George Mitchell, former Chairman of the Federal Reserve System Paul Volcker and columnist George Will ­ issued a report recommending sweeping changes designed to achieve a so-called "competitive payroll ratio" of the highest teams to the lowest teams of approximately 2:1. At the time the report was prepared, baseball's competitive payroll ratio was 3.5:1-and is likely even more lopsided today. At the same time, the NFL competitive payroll ratio was less than 1.5:1, while the NBA enjoyed a competitive payroll ratio of 1.75:1.

In order to bring the baseball's competitive payroll ratio into line with the other leagues, the Blue Ribbon Report recommended a 50 percent competitive balance tax (luxury tax) on payrolls above $84 million, unequal distribution of MLB ­ but not local ­ television and licensing revenues, a competitive balance draft of players not on the 40-man rosters of the eight playoff teams, a worldwide amateur draft, and strategic franchise relocation.

The expiration of the 1996 stopgap "solution" now presents another chance for to consider the recommendations of the Blue Ribbon Panel and make sacrifices necessary to reshape the economics of the game while preserving labor peace. However, the major initiative of MLB in the off-season has been the attempted elimination ­ enjoined by the Minnesota courts in the case of the Twins ­ of two or more uncompetitive franchises. Even if contraction is successful, it is an approach directed at the worst symptoms of baseball's economic ills, not their cause.

During collective bargaining negotiations that renewed in January, 2002, the owners proposed a 50 percent luxury tax levied against teams exceeding $98 million in payroll and increased revenue sharing whereby 50 percent of local revenues, after deductions for ballpark expenses, will be placed in a pool to be redistributed to all teams, an increase of 30 percent from last year. The Players Association has already decried the luxury tax as a disguised salary cap that will effectively limit free agent salaries. Whether the continuing negotiations can produce a meaningful solution that fairly distributes baseball's bounty between management and labor will be critical to the competitive future of the game.

Patrick L. Abramowich and John R. Gotaskie, Jr., are associates at DKW Law Group, PC. For more information, visit www.dkwlaw.com.