SBJ/April 3 - 9, 2006/SBJ In Depth

Improved finances may bring big changes to future labor talks

One thing is for certain in Major League Baseball’s new era of free-flowing revenue: Management will need an entirely new approach for labor relations.

MLB’s growing bottom line could pose a challenge to how
quickly Donald Fehr (left) and his players union can come
together with Selig and team owners on the next labor deal.
For decades, owners have so reliably claimed financial distress at the bargaining table that Roger Noll, a Stanford University professor who’s published numerous studies and books on the game’s economics, remarked in 2001, “Baseball is always on the verge of bankruptcy just before negotiations open. The players could play for free, and we’d still be hearing baseball is in terrible shape.”

Baseball’s financial outlook is now so robust that major changes are afoot. MLB Commissioner Bud Selig in February said he will seek far fewer economic concessions from the MLB Players Association in this round of negotiations than in years past. “Labor peace is really the No. 1 reason for our success of late,” he said.

Replacing an aggressive stance from the owners, however, are two pressing questions. First, is the 34 percent sharing of locally generated net revenue — a key underpinning of baseball’s fiscal rise of the past four years — the correct figure for the future? And second, will major debate and friction stem from the striking fall in player compensation during the current labor deal, as a percentage of revenue, from 67 percent to about 50 percent?

The first question promises to be a centerpiece of the entire labor story, with the internal battle among owners perhaps trumping the negotiations between management and labor.

Several small-market clubs, including Kansas City, Tampa Bay, Pittsburgh and Toronto, hold a strong desire to see teams share even more local revenue, perhaps as high as 50 percent. Others a step closer to baseball’s economic middle, such as Oakland, see no reason to rock an already successful boat — particularly given the union’s reluctance to embrace higher revenue sharing — and don’t anticipate moving much off that 34 percent figure. And top end, economic juggernauts such as the New York Yankees and Boston Red Sox are growing more irate each year as they watch tens of millions of their dollars shipped off in revenue sharing with no commensurate increase in the recipients’ payrolls.

MLB executives have called such correlations “Mickey Mouse analysis,” and insist the recipients must account for spending of those checks, whether they go into major league payrolls, debt reduction, facility development or farm systems. But that hasn’t stopped some owners from speaking out harshly.

“Baseball has to address the disincentives created by large-scale transfers of revenue from successful clubs to less successful clubs,” Red Sox owner John Henry told the Boston Herald in February, echoing comments made by the Yankees’ George Steinbrenner for years. “At high enough tax levels, the incentive is to invest somewhere other than in baseball.”

Henry, a huge advocate for revenue sharing while owner of the Florida Marlins, has since declined to comment further on the issue, and late last month team president and CEO Larry Lucchino said, “It’s really more appropriate for us to keep those matters private.”

As to the second question, the union is keeping a similarly muted public stance. Historically, the union has focused less on a specific percentage of revenue going to players, and more on structural terms and whether the marketplace contains enough incentives for teams to spend on talent. And revenue sharing, which the union interprets as strictly for major league talent, falls under that inquiry.

“The revenue-sharing money is to be used to improve the team on the field. And we’ll be examining, among all the other things, whether that’s been done across the board,” said Donald Fehr, MLBPA executive director.

Management believes its revenue-sharing recipients, and the owners’ spending in aggregate, will stand up to scrutiny, pointing to aggressive offseason investments by clubs such as the New York Mets and Toronto.

“We’ve had a very vigorous free market this offseason,” said Rob Manfred, MLB executive vice president for labor relations and human resources. “Overall spending goes through up cycles and down cycles, but that’s what you get in a market-based system. We’re still seeing a lot of activity out there.”

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