SBJ/April 4-10, 2011/In Depth

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  • Ready to play?

    The irony of baseball’s labor landscape is simply impossible to ignore. After more than three decades of vicious warring between management and labor, including a historic 1994 strike that eliminated that year’s World Series, Major League Baseball stands in a conspicuously peaceful place compared with the NFL, NBA and NHL.

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    Baseball's quiet, early start to labor negotiations contrasts the unrest seen in other pro sports leagues.
    Each of those other leagues are either currently in a work stoppage or are soon to begin their own seismic debates on industry economics. But baseball has already held two formal bargaining sessions toward forging a new deal to replace the current five-year accord that expires in December.

    With that start to negotiations, at least several weeks earlier than normal for MLB and the players association, there was no saber rattling and no tough talk publicly of being at “war,” as has been the case between the NFL and that league’s players association. Instead it’s been a quiet, earnest effort to roll up sleeves and get to work.

    “I don’t see either side bargaining for fundamental, radical changes to the system,” said Michael Weiner, MLBPA executive director. Weiner has been with the union for more than two decades, but this set of talks is the first since he replaced Donald Fehr as the organization’s lead figure in 2009. “Both sides are well-prepared for bargaining. There’s been a lot of preparation.”

    Indeed, each side has spent more than a year readying for formal negotiations. MLB Commissioner Bud Selig has invited the 30 team general managers to quarterly owners meetings since January 2010 to canvass opinion on industry issues such as the First-Year Player Draft, postseason format and arbitration rules. Selig made the move in large part due to on-field issues being expected to take a historically disproportionate amount of time and prominence in the talks.

    Similarly, the union’s player relations staff over the course of last year held extensive meetings with players to gather individual insight and opinion, adding to the usual team-by-team canvassing of players that Weiner does.

    After all that preparatory work, there is no desire on either side to risk a work stoppage, particularly Selig, who could be in the final two years of his nearly two-decade tenure as commissioner and is looking to buttress his legacy, or Weiner, who is just beginning to write his. And though no one will say it publicly, many executives within baseball believe the sport now has a major opportunity to distinguish itself with continued labor peace while the other leagues continue or prepare to fight.

    “The philosophical issues in this sport are for the most part resolved. That’s such a major change given where they were at the start of Bud’s tenure [in 1992],” said Marc Ganis, a Chicago-based sports consultant who has advised numerous MLB teams, including the New York Yankees.

    That doesn’t mean, however, the talks will be simple. Selig last fall predicted an “intense” round of negotiations, and many corrections are still needed, particularly with regard to how players enter the sport, are able to manage their own careers through free agency and arbitration, and how teams manage debt. And even in the easiest of negotiations, creating a new collective-bargaining agreement will almost certainly require at least six months of active work.

    But both sides are speaking now of negotiations as an opportunity, as opposed to a chore, to make those corrections, and are trying to maintain their labor momentum over the past decade.

    “2006 [when a deal was struck weeks ahead of the expiration of the prior pact] was sort of a watershed for us. We did the deal in ’02 literally right at the deadline, but ’06 was a big next step in the progression for us,” said Rob Manfred, MLB executive vice president for labor relations and human resources. “Our experiences in those two negotiations have been really instructive. So I’m optimistic that we’ll be able to make an agreement this time with a minimum of problems.”

    To that end, both sides are fully cognizant of the labor woes elsewhere in pro sports, but don’t expect that to infuse the baseball talks.

    “We go in certainly aware of what’s happening, and it’s part of the context of what we discuss,” Weiner said. “That said, we have our own history, our own approach, and we’re going to make our own decisions. I would hope and expect the owners take their cues from our own bargaining relationship.”

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  • Drug policies take on less prominence

    It wasn’t that long ago when Bud Selig was tagged as “The Steroid Commissioner,” and it was widely assumed that moniker would follow him to the grave. But just barely three years since the public release of the infamous Mitchell Report, the issue has largely receded from public view.

    Just three major league players have failed a test for performance-enhancing drugs since the start of the 2009 season, the most prominent being slugger Manny Ramirez, then of the Los Angeles Dodgers. The number of minor leaguers implicated over the same time is more than 160. But in general, there is a growing feeling that baseball’s numerous corrections to its drug policies over the past half-decade are beginning to have their intended effects.

    The issue will take on less prominence during the coming labor negotiations compared with prior rounds, in part because both sides have regularly addressed the drug program since the Mitchell Report’s release. In addition to measures calling for a thorough annual review, new substances that become federally banned automatically become prohibited within baseball’s drug program.

    “We’ve been revisiting this topic regularly. That was one of the big positive outcomes of the Mitchell Report,” said Rob Manfred, MLB executive vice president for labor relations and human resources. “So, yes, it’s fair to say, this one relative to some other issues on the table will not be as major.”

    Human growth hormone, however, is still a particularly thorny problem. A scientifically validated and scalable urine test for HGH remains elusive, despite plenty of attention and money, including from MLB, being thrown at the problem.

    MLB last year began a blood test for HGH in the minors, where there is no players union and such matters are not subject to collective bargaining, and it’s likely the issue will be at least discussed for the major league level. The MLBPA, however, has historically shown great resistance to any sort of blood collection for testing purposes, with concerns including player safety and residual effects upon on-field performance.

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  • Management eyes hard salary-slot system

    As many teams in recent years increasingly embraced younger and cheaper homegrown talent over older, more expensive free agents, the draft has taken on greater importance and prominence.

    Though still nowhere near the spectacle of the NBA or NFL drafts, in part because virtually no MLB draftee goes immediately to the majors without a stop first in the minors, the MLB draft nonetheless is now a prime-time, televised event. And the last two No. 1 overall selections, Stephen Strasburg and Bryce Harper of the Washington Nationals, are both national names.

    But once MLB draftees are selected, there are few rules governing how much they are paid, and management would like to insert more structure into the process, ideally through a hard salary-slot system.

    The commissioner’s office currently issues slot guidelines to teams for top selections, but those looser recommendations are routinely flouted. Strasburg and Harper are national names in part because they signed for record bonuses for a pitcher and position player, respectively. And currently, players routinely move up and down the draft charts not because of talent, but rather “signability,” creating more headaches for small-market teams already struggling to compete for major league talent.

    Much like the sport’s prior battles over a salary cap, the union likely will have significant issues over a hard-slotting system, with the conceptual concern being the presence of an artificial impediment to a player’s earning power. But there may be room for negotiation on this issue, particularly if it’s bundled with other related issues such as service-time thresholds for arbitration and free agent eligibility.

    There also has been significant talk in recent years to expand the MLB draft, currently limited to players from the U.S., Canada and Puerto Rico, to all international players, particularly as signing fees to land top Asian players have soared to record heights.

    But creating an international draft is easier said than done. The logistics of scouting and processing the huge influx of newly draft-eligible foreign players would be challenging. And there is the difficult concept of the U.S.-based MLB controlling the right to work of a player from another country, particularly a less friendly one politically.

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  • Expanded playoffs seen as potential boon

    As baseball’s competitive balance has improved considerably over the past decade, shown in part by nine different teams winning the last 10 World Series, so has industry revenue, reaching a league record $7 billion in 2010, and overall fan interest. Therein lie key motivations for expanding MLB’s playoff format to include an extra set of wild-card teams.

    “The wild card has worked out far better than I ever dreamed,” MLB Commissioner Bud Selig said last fall of an expanded postseason. “Eight [playoff teams] is a very fair number. So is 10.”

    Currently, three division winners and a wild-card team each from the American and National leagues advance to the playoffs. But there is growing conceptual consensus that enlarging the playoffs could prove a further boon for the sport. But many troubling questions still lie in the details, particularly with regard to logistics and scheduling.

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    The league is looking for a way to add an extra set of wild-card teams to the playoffs.
    MLB this year abandoned its traditional Sunday night start to the regular season in order to begin and end the 2011 campaign sooner, and avoid playing World Series games in November for the third consecutive year. The league last year also condensed the league championship series schedules in order to remove off days thought to be unneeded.

    So the key question is how best to bring in more teams and games into October without creating many of the same problems. Among the potential scenarios: having two wild-card teams in each league play each other in an initial knockout round, with the winner facing the division champion with the best overall record.

    A larger playoff structure has been one of the foremost topics under review over the past year by Selig’s 14-person Special Committee for On-Field Matters, a handpicked group composed of league executives, managers and general managers. In another sign of improved relations between MLB and the union, the league has regularly updated MLBPA executives on the activities of that management committee, said MLBPA Executive Director Michael Weiner.

    “There’s definitely a lot of interest in the playoff subject among the players, and there have been a wide variety of views,” said Weiner, who also has shown some support for extending the current five-game division series to seven games. “But it’s about much more than just the playoffs. We’re going to be looking at the entire calendar from the very beginning of spring training to the end of the playoffs and everything in between.”

    Players have the upper hand?
    Which party holds more power within each of the following sports leagues?

    Players
    union

    Owners
    Not sure/
    no response

    MLB
    63%
    28%
    9%
    NBA 26%
    64%
    10%
    NFL
    14%
    77%
    9%
    NHL
    13%
    79%
    8%
    Source: Turnkey Sports Poll, March 2011. The survey, conducted by Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal, covers more than 1,100 senior-level sports industry executives spanning professional and college sports.

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  • Gray areas of revenue sharing face scrutiny

    MLB Commissioner Bud Selig often likes to trumpet baseball’s revenue sharing and its importance in improving the game’s on-field competitive landscape. In a general sense, that much is true, and the $405 million being shifted from high-revenue clubs to low-revenue teams in 2010 was up from zero prior to 1996. But the total still represents less than 6 percent of the $7 billion of total industry revenue generated in 2010, and even that fractional percentage remains a sore subject among some clubs.

    The language in the current collective-bargaining agreement calls for revenue-sharing recipients to use the money to “improve [their] performance on the field,” and more generally, the plan is designed to “promote the growth of the game and the industry on an individual club and on an aggregate basis.”

    That’s a large gray area, and wide interpretations have emerged over the past four years in which various clubs have suggested that those funds could be used for not only major league payroll, but areas such as minor league operations, overseas player academies, ballpark development and debt retirement. A continued divergence of opinion on how improving performance on the field should be defined has created not only a management-labor debate, but one within the owners as well.

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    Last year the league and MLBPA struck an accord with the Florida Marlins in which the club agreed to boost its payroll.
    Selig has steadfastly insisted that club use of revenue-sharing money is regularly screened and reviewed. But early last year, the league and the MLBPA quietly struck an accord involving the Florida Marlins in which the club agreed to boost major league payroll while its new Miami ballpark was being built, addressing union concerns of misuse by the Marlins of revenue-sharing funds.

    “You can’t disentangle revenue sharing from collective bargaining, and fortunately we haven’t done that. It goes directly to how players are compensated and how the industry functions,” said Michael Weiner, MLBPA executive director. “So, this issue, and the use of the funds, will be on the table. The funds are supposed to help make teams more competitive. The question here, much like many other issues, is how can we do it better?”

    Beyond the management-labor dynamic, there is of course the owner-versus-owner one. Some high-revenue clubs, particularly the Boston Red Sox and New York Yankees, have echoed many of the union’s traditional concerns about where revenue-sharing monies are going, particularly as a leak of financial records for several low-revenue MLB clubs last summer on Deadspin.com showed hefty operating profits.

    Red Sox owner John Henry disclosed recently that he was fined $500,000 last year by Selig for making critical remarks about the current revenue-sharing system. The offending Henry comment in question: “Over a billion dollars has been paid [historically] to seven chronically uncompetitive teams, five of whom had baseball’s highest operating profits. Who, except those teams, can think this is a good idea?”

    Yankees co-chair Hank Steinbrenner recently went even further, likening the current system to “socialism, communism, whatever you want to call it, it’s never the answer.”

    But as baseball’s competitive and fiscal balance has improved and disparities lessened, the revenue-sharing system actually showed a slight decline in 2010, falling from $430 million in net transfers in 2009 to the $405 million last year.

    “The system works in both directions. It’s important to remember that,” said Rob Manfred, MLB executive vice president for labor relations and human resources. “This topic will be an issue. Some clubs are definitely interested in reforms, so the important thing for us at the league is to balance all the various interests.”

    Transfer station
    MLB had no revenue-sharing policy until 1996. It has continued to grow in the years since then, before dipping back slightly in 2010. Here’s a look at net transfers over the past four years:
    YEAR
    AMOUNT
    2010
    $405M
    2009
    $430M
    2008
    $409M
    2007
    $353M
    Source: Major League Baseball


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  • Financial woes of Mets, Dodgers and Rangers bring call for review of owner debt rules

    As the financial sagas of the New York Mets, Los Angeles Dodgers and Texas Rangers have shown, baseball has a high-profile issue with owner debt. The Mets last fall required a $25 million emergency loan, and the embarrassing issues with these three clubs have begun to tag MLB Commissioner Bud Selig with the same sort of negative image as steroids did a few years ago.

    To that end, industry chatter for years has suggested MLB’s enforcement of its debt rules has been lax and inconsistent. The current CBA says that clubs may not carry debt greater than their average annual earnings before interest, taxes, depreciation and amortization, multiplied by 10 (or 15 in the case of a team with a new or renovated stadium). A club with average EBITDA of $20 million playing in a new ballpark, for example, conceivably would then be allowed to carry $300 million in debt. The current formula also carries a small exemption for each club.

    Rob Manfred, MLB executive vice president for labor relations and human resources, insists that the league is continuing to monitor all team debt, and that the issues with the Dodgers, Mets and Rangers were created by external forces as opposed to anything endemic to baseball.

    “These are unique situations that I don’t necessarily believe are directly relevant to bargaining,” Manfred said. “The Mets are more an issue with [Bernie] Madoff and the Sterling Equities holding company [controlled by Mets owner Fred Wilpon and his partners]. The Dodgers situation is the result of a personal matter, and the club continues to generate outstanding cash flow.”

    As a result of such situations, there is an increasing likelihood the labor talks will revisit the debt issue to expand the scope of what falls under permissible liabilities and include some of the owners’ other financial holdings not directly part of team ledgers. The union will understandably want to see if enlarged debt rules would create a drag on player spending. But they, too, know that financially healthy clubs are in the best interest of everybody.

    “They’re trying to tighten up the controls and certainly try to avoid another Rangers type of situation,” said Rob Tilliss, founder of sports advisory firm Inner Circle Sports. The Rangers were sold in a bankruptcy auction. “Baseball has not been as focused on this issue historically as the NFL, and they’re now really trying to hone in on it.”

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  • What to watch in 2011?

    The economy is in better shape than last year, and even more so relative to 2009. Competitive balance in baseball stands at historically high levels. And optimism within the game is strong compared to many other sports, particularly football and basketball. But MLB is still approaching significant crossroads on a number of key issues.

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    The media had plenty of questions for Mets owner Fred Wilpon at spring training.
    SHEA, BUDDY, CAN YOU SPARE A DIME?

    The New York Mets, entering their third season in Citi Field and playing in the nation’s largest media market, should be one of the sport’s financial bedrocks. Instead, the club’s ugly entanglement in the Bernie Madoff financial scandal has surrounded it in debt, legal headaches and uncertainty, with the situation growing so grim as to necessitate an emergency loan from MLB late last year. Owner Fred Wilpon and his partners are seeking to sell a minority stake in the club, but even if that process is successful, it’s unclear whether that will redirect the Mets back toward solid profitability. Ticket sales, club officials say, are actually up slightly compared to a year ago, but the turnstile count, the team’s win-loss record, and its courtroom standing in a Madoff clawback lawsuit will all be closely watched.

    BLACK AND DODGER BLUE

    A year ago, industry executives and Los Angeles Dodgers fans alike were bracing for tough times as Dodgers owner Frank McCourt and now ex-wife Jamie escalated their divorce proceedings. But the reality has even been worse, as divorce filings revealed that the club took on more than $400 million in debt and the McCourts lived a high-cost personal lifestyle in part on the backs of that Dodgers debt. The former couple’s legal battle for the club continues, and the ultimate status of the Dodgers ownership stands unresolved. Several recent attempts by Frank McCourt to shore up club finances, including a $200 million loan from television partner Fox, have been denied.

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    TURNSTILE TURNAROUND


    Strong signs are afoot that MLB’s three-year attendance slide, a drop heavily precipitated by the economic recession, will end in 2011 with league and many team executives planning for increases. But the always-critical attendance numbers are now taking on even greater importance. Far beyond a mere year-to-year review, MLB Commissioner Bud Selig is now overseeing a bigger process to cross the once-unfathomable 80 million threshold at some point, and more generally, create deeper fan roots through the in-stadium experience. The commissioner over the winter formed a new task force to look at baseball’s ticketing landscape and push best-practices sharing into new directions.

    THE WAITING IS THE HARDEST PART

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    The A’s are hoping for some sign of progress in efforts to move to a new home.
    MLB Commissioner Bud Selig has a long-earned reputation of being deliberate, and that cautiousness has paid big dividends in many prior instances. But the ongoing deliberation on the future of the Oakland A’s, in part through a hand-picked committee studying stadium operations for the beleaguered club, has become something of a running joke in the industry. Now entering its third year of study on the issue, the committee has yet to conclude its work, and the basic dynamic remains the same as it’s ever been: A’s owner Lew Wolff wants to move the team to San Jose, a shift that is opposed by the San Francisco Giants, holders of the territorial rights over the Silicon Valley hub. But impatience is rising in many corners. And with each passing year without resolution, the risk grows that the 75-year-old Wolff, a former fraternity brother of Selig’s, will suffer the same fate of late Minnesota Twins owner Carl Pohlad, who died without seeing the new ballpark he fought for years to get.

    RAISING ARIZONA IRE

    The 2011 All-Star Game will be played at Phoenix’s Chase Field, representing an important benchmark for a host Diamondbacks club that has undergone a turbulent ride both competitively and financially in recent years. But the game will also be played against a backdrop of debate over immigration policy. Arizona last year passed sweeping legislation on immigration, and elements of that law are now ensnared in legal challenges. Arizona more recently has rebuffed other potential anti-immigration measures as officials have begun to understand the big drop-off in business and tourism that its aggressive political stance created. But MLB last year faced and rebuffed many calls to move the Midsummer Classic out of the state, as the game became a prominent lightning rod on the immigration debate. Still, more protests around All-Star events are a near-certainty this summer. In the meantime, the business of the All-Star Game itself is in need of some revival, as ticket demand in Anaheim last year was noticeably softer.

    HISTORY FOR SELIG?

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    As most around the industry know, MLB Commissioner Bud Selig’s current, three-year contract expires Dec. 31, 2012, and Selig has spoken often of a desire to retire then, teach history at the University of Wisconsin, and write a memoir. But Selig twice before has announced retirement plans only to sign an extension, prompting many close allies, including his wife, Sue, to disbelieve the current round of talk. Either way, what happens with regard to the second-longest and by far most influential baseball commissionership ever bears close watching. Selig has yet to designate a potential successor, and tapping an internal candidate could upset the balance of his newly reconstituted executive team.

    NO MINOR ISSUE

    O'Conner
    MLB Commissioner Bud Selig isn’t the only senior baseball executive evaluating major career decisions. Minor League Baseball President Pat O’Conner is in the final year of his initial four-year term, and needs to inform MiLB’s board of directors by May 31 whether he intends to seek a second term. But at present, O’Conner is undecided. Over his first three years, O’Conner has overseen a large set of sweeping industry changes, including the creation of the online holding company Baseball Internet Rights Co., a new six-year extension through 2020 to the master Professional Baseball Agreement with MLB, realignment of two Class A leagues, heightened involvement in charitable endeavors, and establishment of new attendance records. But for all the modernization, minor league baseball remains something of a provincial affair in which market disparities can be difficult to manage. “There are things I still want to sort through and I need to do a little personal inventory,” O’Conner said. “This is a great job, but it’s also a very demanding job, and I won’t do it halfway.”

    — Compiled by Eric Fisher



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