SBJ/November 28-December 4, 2011/Labor and Agents

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  • MLB’s new bonus rules under scrutiny

    The first-year player draft has become a crucial part of building an MLB roster in recent years, but confusion now reigns over what baseball’s new labor deal, announced last week, will do to the system.

    Teams and agents alike were both unclear as to the full extent of restrictions coming to draft-pick spending, though one thing is immediately clear: The landscape is changing dramatically.

    In addition to a host of other sweeping changes, the new labor deal, which must still be approved by owners and the union, creates a new signing bonus pool designed to curb spending on draft picks. Each team will be assigned a cap, based on where it picks in the draft order and the number of picks it has, that will be applied to the first 10 rounds of the draft each year. For next year, the bonus pool for the team picking first, the Houston Astros, will be $11.5 million, and for the Philadelphia Phillies, likely to pick last, it will be $4.5 million.

    MLB’s Selig (left) and MLBPA’s Weiner credited a spirit of mutual respect for getting a labor deal completed.
    Photo by: GETTY IMAGES
    Going over those thresholds subjects a club to a series of stiff penalties, peaking at a $1 fine for every dollar over the limit and the loss of two future first-round picks. Teams will no longer be able to sign draftees to major league contracts immediately, but instead will be required to sign them as minor leaguers, which will put a further drag on bonuses.

    The new measures are seen as a compromise given that MLB Commissioner Bud Selig, for years an outspoken opponent of rising bonuses paid by teams to draft picks, lobbied repeatedly in favor of “hard slotting” on picks, or requiring preset compensation levels based on draft order, and MLB Players Association Executive Director Michael Weiner was equally adamant that the individual bargaining rights of draftees not be forfeited.

    “This was an area where [MLB] bargained hard for their objectives and we bargained hard right back,” Weiner said. “But this is something where we were able to stay true to our core principles.”


    DEAL POINTS

    Highlights of the new MLB-MLBPA labor agreement, covering the 2012-16 seasons:

    Blood testing of players for human growth hormone, beginning during spring training of 2012.

    An increase in the minimum player salary from $414,000 in 2011 to $480,000, and ultimately $500,000 by 2014, with cost-of-living adjustments for 2015 and 2016.

    Signing restrictions on international free agents.

    A disqualification of the 15 clubs in the largest markets from receiving revenue sharing by 2016.

    Retention of the competitive balance tax threshold at $178 million for 2012-13. It will rise to $189 million for 2014-16.

    Mandatory use of a new Rawlings batting helmet by 2013 designed to withstand 100-mph pitches.

    Modifications to debt service rules, including a provision that debt belong to an owner personally or a related party is now covered by the rule if that debt is serviced at least in part by club funds or assets.

    Restrictions on smokeless tobacco use, including a ban during televised interviews and club appearances, and another ban on carrying tins in uniforms during games.

    Instant replay expanded to include fair/foul plays and trapped balls.

    Realignment to two 15-team leagues. The Houston Astros will move to the American League West beginning in 2013.

    Addition of a second wild card team in each league. The playoff format for next season will be determined by March 1.

    Mandatory participation in the All-Star Game for player selections unless injured or otherwise excused by MLB.

    Source: MLB/MLBPA
    Given the rising costs and significant risk involved in signing free agents from other clubs, the draft has taken on greater importance in baseball in recent years, more closely approximating the attention given to the NFL and NBA drafts. Media interest has followed, and since 2009, the MLB draft has been televised in prime time on the MLB Network.

    But questions remain around the game about how the new labor deal and the draft rules will affect baseball’s competitive balance. Some small-market clubs said the restrictions will inhibit their ability to build rosters through the draft, and tilt advantages back to large-market clubs more willing to pay such taxes, as was the case in the 1990s when luxury taxes on payrolls came into being.

    The curtailment in draft-pick bonus spending could be severe. The Pittsburgh Pirates in 2011 alone spent more than $17 million in bonuses, topping MLB for the second straight year. That’s nearly 50 percent more than the $11.5 million that the Astros will be allowed in 2012. Teams in total spent $236.1 million in bonuses and other guarantees in this year’s draft.

    “If you’re lower on the pecking order with regard to revenue, there are only so many ways you can obtain talent, such as the draft and internationally, and pretty much of all them have been restricted now,” said an executive with a small-market club who was not authorized to speak publicly on the deal and therefore spoke on the condition of anonymity. “I worry that over time, it’s going to go back to where payroll dictates more where you finish in the standings.”

    Lower-revenue teams playing in small markets, however, will have an opportunity through a lottery to garner additional picks outside the first round.

    During MLB meetings in Milwaukee earlier this month, grumbling among baseball operations personnel was palpable toward the coming draft changes. The agent community was similarly concerned, with one agent, speaking on the condition of anonymity, saying that “signability is going to be even more of a factor.”

    Noted agent Scott Boras, who annually represents a stable of premier first-round selections, said baseball may lose top young athletic talent to other sports.

    “I think athletes are going to give up baseball because the other sports offer so much more on the entry level,” Boras said. “Major League Baseball has dramatically limited the ability to recruit the greatest athletes to baseball.”

    Selig objected to that view.

    “I don’t believe we’re going to lose people,” Selig said. “This sport has seen an upgrade at every level [of play].”
    MLB and the union were able to strike their third consecutive collective-bargaining agreement without a work stoppage, ensuring an unprecedented 21 straight years of labor peace. Negotiating as in 2006 without any sort of public rancor, the quietly struck pact contrasts sharply against labor battles in the NFL and NBA that have dominated the sports industry in 2011.

    Both sides openly credited a spirit of mutual respect that carried negotiations, a respect Weiner said the players earned over prior decades.

    Involvement in the negotiations was extensive from each camp. In addition to the formal involvement of Chicago White Sox owner Jerry Reinsdorf and Los Angeles Angels owner Arte Moreno, the other 28 teams were frequently canvassed. The union, meanwhile, was aided by more than 250 players taking part in some part of the bargaining.

    “This negotiation really showed the respect each side has for the collective-bargaining process and the legitimacy of the other’s objectives,” Weiner said.

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