The New MLB Labor Deal: The Death of Parity

The murderers of baseball parity.

As a sports fan, I will remember 2011 not for the Packers winning the Superbowl or the St. Louis Cardinals' amazing run to the World Series title, but for the labor deals (or non-deals in the case of the NBA) that have been the pivotal stories of this year. The NFL and NBA both decided to lockout their players in their respective offseasons and those lockouts led to contentious negotiations and union dissolutions, along with many, many lawsuits filed by both the player and owner sides. The NFL lockout was eventually decided before any actual games (I'm not counting the one cancelled preseason affair) were missed, but the NBA has not been so fortunate. It's still a serious question mark whether the NBA will have any sort of season this year, which is absurd given the insane popularity and success the league enjoyed last season.

With all of this labor chaos unfolding in professional sports, it blows me away that Major League Baseball and the MLB Players Association, who have historically been the bitterest of rivals, worked out a 5 year labor deal without a problem. The deal itself is very interesting and it is quite easy to see why the MLBPA had no problem approving it: nothing really changes for today's players. However, future players have had their earning potential severely curtailed by the, in my opinion, draconian new draft bonus pool system.

But before I get into the nitty-gritty of the economics of this new deal, I'll do a quick rundown of what I think of the non-economic aspects of the agreement. First off, the Houston Astros will be moving to the AL West for the 2013 season, which I think is long overdue. I always found it so weird that the leagues didn't have the same number of teams, and this will rectify that issue. Of course, it'll mean that there will be constant interleague play throughout the season, but I don't have a problem with that. In fact, I hope that this will be MLB's first step towards a fully balanced schedule. Personally, I find the current scheduling format terrible and unfair, due to the seemingly random interleague matchups and the fact that divisional rivals play each other too often. It just isn't fair that the Blue Jays and Rays have to deal with the Yanks and Sox almost 20 times each year, while the Tigers get to beat up on crappy teams like the Royals and Indians. Another non-economic aspect of the new deal is the fact that there will be one extra wild card team added to each league's playoffs, and this team will play the other wild card in a one game playoff to decide who advances to face a division winner. I have no problem with this addition, mostly because I am a diehard Yankees fan and this  basically ensures that my Yanks will never miss the playoffs again (knock on wood). HGH testing was also added to this new CBA, and I'm extremely glad that baseball is out in front of the performance enhancers issue by being the first American sports league to make HGH testing mandatory. Other issues that were addressed include a semi-ban on smokeless tobacco (who cares), a more extensive replay process (long overdue), and enhanced player safety measures (this seems to be a big issue in all sports today).

And now we get to the fun part of this CBA - the economic issues that really define where professional baseball will be going in the future. Let's begin with the changes to free agency rules, which I am a big fan of. There will no longer be any Type A or Type B free agents, which means that there will be significantly fewer compensation picks doled out to any team that doesn't re-sign its top free agents. Also, for free agents that will actually be worth compensation picks (only the few elite players), picks are only granted if the player stays with one team for the whole season. Gone are the days of teams trading for a year-end free agent solely to pick up the compensation draft picks. Thank god. Other changes to the compensation rules increase the minimum MLB and minor league salaries and make an extra 5% of Super-2 players (those players with between 2 & 3 years of MLB service time) arbitration-eligible each season. This new Super-2 rule may actually be a perverse incentive for teams to hold young players in the minors for even longer so as to delay arbitration eligibility. Currently, this is seen when teams often wait until June or July to call up young stars, and this new rule may lead to even fewer call-ups before rosters are expanded in September.

The changes in revenue sharing are very interesting, and I personally find them refreshing. First, the 15 clubs in the largest markets will be totally ineligible to receive any revenue sharing money starting in 2016. I think this is a good thing, as any team in a big media market has no excuse for not making money. Another long overdue change that was made in this CBA involves what revenue sharing dollars can and cannot be used on. Far too often, owners of teams that receive revenue sharing money use this money for 'debt service', which basically means that the Yankees and Red Sox are paying the personal bills of the owners of teams like the Royals and Athletics. This has been a huge problem with the revenue sharing system since its inception, and the Yankees bring it up every year in a fairly scathing letter they attach to the revenue sharing check they send into the MLB offices. I'm extremely glad that Bud Selig finally realized that this has been an issue, and has addressed it in this CBA. It's definitely one of the big positives that has come out of this new agreement.

Unfortunately, the biggest changes that were made by this CBA are fairly negative in nature, at least in my opinion. I'm talking about the wholesale changes to the amateur signing structure, both in the Rule 4 draft and the international arena. These modifications severely hamper the ability of small-market teams to compete, as most lower-budget teams gain talent almost solely via the draft and international signings. In the Rule 4 draft (the MLB draft of high school & college players), MLB is changing from a 'recommended' slotting system that was almost universally ignored to a signing bonus pool system that comes with heavy penalties for teams that exceed their bonus pool. In the new system, teams will be allotted a specific amount of money for their signing bonus pool, which applies to picks in the first 10 rounds of the draft. Each team will only be able to give signing bonuses up to the bonus pool amount without penalty, and these penalties are severe, to say the least. Penalties include at a minimum a 75% tax on the overage, and this figure goes up to 100% once the bonus pool amount is exceeded by 10%. Any team that exceeds the bonus pool amount by over 5% will lose at least one 1st round draft pick, and teams that go over by more than 15% will forfeit their 1st round picks for the next 2 years. These penalties are extremely harsh, and will realistically only be enforced on small-market clubs. These teams often use large signing bonuses to attract young talent, as they believe their money is better used on amateurs in the draft than on high-priced free agents that are the main targets for big clubs like the Yanks and Sox. This is one of the only areas that small-market teams have an advantage in, and MLB looks to be doing all it can to eliminate that advantage. Major League Baseball is also changing the way teams are allowed to scout and sign international players, which is both good and bad. It is good in that the league is attempting to organize an international draft in the future, which would allow the international signing process to be much more transparent and would help eliminate the often sketchy 'academies' that funnel Latin American talent into the minor leagues. When the international draft is instituted and teams get used to it, the process will be much improved. However, until then the process is as bad as ever. MLB has instituted a similar bonus pool system as the Rule 4 draft for international prospects. The overage penalties are just as harsh as those in the draft, and again, small market clubs are the ones that will feel the hurt the most. On a small positive note, the CBA has a provision that redistributes forfeited picks (as the result of bonus pool overage penalties) to teams based on their winning percentage and revenues, but this is a small consolation prize for small market teams that are being severely hamstrung by the new draft and international signing rules.

When I look at this labor deal, it seems obvious that Major League Baseball, which already has the most capitalist economic system of all the major sports, is heading even further towards a system where cash is truly king. As a Yankees fan, I love this CBA, since it makes it even easier for teams like the Yankees to dominate the talent acquisition market. However, as a fan of the sport of baseball, this deal greatly saddens me. One thing that makes baseball my favorite sport is the fact that on any given day, any team can beat any other team. The randomness of each independent game is so exciting to me, and I would be devastated if this aspect of baseball vanished. Unfortunately, Bud Selig and the MLB seem to heading down that dark path. Just consider this post a eulogy: MLB parity, rest in peace.

-Cote