Saturday, February 5, 2022

Beware the Self-Inflicted Wound

A CBA Win for MLB Owners Might Cost Them in the Future

I wrote a piece last month outlining why I was skeptical that a new CBA would be reached in time to get the season started as scheduled on March 31. MLB owners seem absolutely committed to not ceding ground to the players on the core economic issues, including the Competitive Balance Tax (or Luxury Tax) and how young players are paid. The owners have relentlessly utilized gains they made in the last two CBAs to hold MLB salary increases well below the rate that revenues have increased over the last few years.

This tweet from Maury Brown, Senior Contributor at Forbes who has covered the business of baseball for decades, graphically shows the disparity between rising MLB revenues, the initial tier of spending that makes teams liable to pay the Competitive Balance Tax, and the Average Opening Day payroll for MLB clubs:

As Brown points out further down the Twitter thread, the Players Association has asked for an increase in the minimum MLB salary from $570,500 to $750,000 — a 31% increase — while MLB has only offered a 5% increase to $615,000. Now, while I understand that $615,000 would be a life-changing salary for most folks, the revenue data would support that MLB owners could afford to be more generous than a 5% increase. But clearly, MLB's strategy has been to put maximum pressure on the players. That only happens when games start being canceled at the beginning of the season.

I'm not going to cry for the players, who have it much better than most of us, but I do think that MLB owners are underestimating the amount of damage they will do to the game with a protracted lockout. Yes, most current fans will come back to the game when it comes back. However, another black eye for the sport will not help reverse the undeniable fact that baseball has continued to lose ground in popularity to football and basketball in recent years. Meanwhile, the average age of baseball fans continues to skew older and older. Eventually, that math works against the sport.

One more tweet for you here. My friend Mack at Mack's Mets retweeted this one that really gives a baseball fan reason to question the sanity of MLB letting this thing drag on:

Think about that. As much as some owners like to cry poverty and Rob Manfred positions himself as the staunch defender of small-market teams, these clubs stand to lose far more if the lockout drags into the summer and casual fans turn away from the game.

MLB owners clearly believe that losing games from the schedule puts maximum pressure on players, and this will help clubs retain the financial status quo that has benefitted them so well over the last decade or so. But what happens if the players stick to their guns, too, causing the lockout to drag on and on as spring turns into summer? You could envision both sides getting entrenched in their positions, as happened in the infamous 1994-1995 strike. Back then, baseball was in a much stronger position as a national sport, and it still took years to recover. There are so many more sports and entertainment options these days for folks to turn to nowadays, it's conceivable that MLB's position could further deteriorate.

When the Competitive Balance Tax was first instituted after the 1994-1995 strike, it was seen as a reasonable compromise to the owner's desire to have a hard salary cap in baseball. The idea was that it would serve as a deterrent to large-market clubs from spending their way to championships while making it much more difficult for smaller market teams to win. Along with revenue sharing, the tax was supposed to help level the playing field. But the addition of penalties that cost teams draft picks probably have come to cause teams to treat the CBT thresholds as more of a hard cap, particularly given how highly teams value prospects these days.

From an article in The Athletic, the owner's latest proposal includes significant cash penalties for exceeding CBT thresholds. There are also pretty dire penalties in both the Amateur Draft and the proposed Internation draft:

A team that is over the first tier would have to surrender a third-round draft pick in the amateur and international drafts. (No international draft has been agreed to, and may not be agreed to, but MLB wants one, and so has included this in its CBT proposal.) A team over the second tier would have to give up a second-round pick, and a team over the third tier would have to give up its first-round picks.

The owner's proposal actually drops teams being penalized draft picks for signing free agents who received a qualifying offer. While that would certainly alleviate a disincentive for teams to ink free agents, the heavy draft penalties would certainly inhibit teams from freely spending. Note that MLB's proposal for those CBT tiers isn't going up very high from the current levels:

The first tier would start at $214 million for 2022-24, go to $216 million in 2025, and rise to $220 million for the final year of the deal in 2026. The second tier would be $234 million for three years, then $236 million and $240 million. The last tier would be $254 million for three years, then $256 and $260 million.

The Mets, after signing Max Scherzer, would already be at a CBT level where they would be surrendering first-round picks in both the US and proposed international drafts. It's likely that this, more so than the cash penalties, would inhibit large-market owners like Steve Cohen from exceeding those thresholds.

I don't blame the owners for looking to hold payrolls down. They're acting in their own interests as the players seek to do what's best for themselves. Unfortunately, MLB seems committed to letting this drag on into the season rather than being creative and finding ways to work with the Players Association to find common ground everyone could live with. MLB owners need to stop looking at this as a zero-sum game about maximizing a win in the short term and realize what a lengthy lockout might cost the value of their franchises in the long term.

 Follow me on Twitter @MikeSteffanos.

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