Following is the text of a letter sent by MLBPA chief Don Fehr to agents and players after the union's executive board voted Friday to set a strike date:
Yesterday, the Executive Board voted unanimously that a strike will begin on Friday, 30 August, if no basic agreement has been reached with the owners. Your Player Representatives took this action after careful consideration of the bargaining that has taken place so far, and being fully satisfied that they had no responsible alternative. The purpose of this memorandum is to set out for you what led the Board to this conclusion.
The owners' stated objective has been to improve competitive balance. At our very first session, they professed no desire to reduce payments to players, but said that they wanted a "compression" of salaries, the net result would be the same expenditure, only distributed differently. It is now clear that they want substantially more than that.
Initially, the owners identified three areas in which they wanted players to make major concessions: a worldwide amateur draft, increased revenue sharing, and a luxury tax on player payrolls. Later, the Clubs added another concession to their list, unannounced testing of all players for steroids and other substances. In response, in an effort to reach compromises that would result in a new Basic Agreement, players have made meaningful concessions to the clubs in each of these four areas:
* the players have agreed to unannounced testing of all Major Leaguers for illegal steroids;
* the players have agreed to a "world-wide" amateur draft, subjecting to selection thousands of international players who previously could have signed as free agents;
* the players have agreed to major increases in revenue sharing and have done so by a mechanism preferred by the owners;
* the players have agreed to the concept of a direct tax on payrolls
Despite this, and though still claiming their concern is competitive imbalance, the owners cling to proposals that are intended to, and if put into effect, would operate much like a salary cap. In December 2001, the Clubs proposed a 50 percent tax on payrolls above $98 million. Seven teams had 2001 payrolls above this threshold (with Texas the closest at $98.7 million), and another three teams had payrolls within $10 million of it. We told the owners that payroll taxes affecting that many clubs at such high rates would greatly reduce player salaries across the board.
By the eve of our board meeting this past week, the only Club "movement" off this proposal was to raise the threshold for the tax by $2 million (with a phase-in mechanism for the 50 percent rate). Seven teams have 2002 payrolls above this threshold (with Atlanta the closest at $110.4 million), and another 5 teams have 2002 payrolls within $10 million of it. In relation to current payrolls, then, the clubs' 2002 tax proposal was no movement at all, and would hit even deeper than their previous one. Of note, the owners acknowledged that their proposal did not even address how the threshold would move from year to year, but said they would do so at a later date.
Even though our revenue sharing proposals meet any serious concerns about revenue and payroll disparity, we nonetheless, and in the interests of agreement, have proposed a direct tax on player payroll. Our proposal, however, is structured to address what the owners say is their objective: greater competitive balance. The proposal does not address what is the unstated objective of the owners: across the board payroll reduction. In our proposal, the tax rate a team faces depends on how frequently it passes a payroll threshold — first "offenders" face a 15 percent rate, second-timers a 25 percent rate, and third-timers a 30 percent rate. Clubs that repeatedly maintain payrolls above the threshold – those arguably a threat to competitive balance – face a stiffer rate than clubs who periodically increase their payroll.
Our current proposal calls for three years of taxes, with a 2003 threshold of $130 million. This is $41.2 million below the 2002 payroll of the Yankees ($171.2 million) and below the 2002 payroll of the Texas Rangers ($131.4 million), a team no one credibly can contend threatens competitive balance. Our 2004 threshold is $140 million and our 2005 threshold is $150 million, both numbers still tens of millions below the Yankees' 2002 payroll.
The owners countered with a "repeat offender" tax proposal. Once again, they moved only by $2 million their 2003 threshold, to $102 million – a figure still exceeded by seven teams (the Yankees, Texas, LA ($118.8M), Boston ($114.8M), the Mets ($112.9M), Arizona ($112.1M) and Atlanta ($110.4M). Five other teams remain within $10 million of that threshold – Seattle ($98.0M), St. Louis ($96.3M) S.F. ($94.5M), the Cubs ($93.2M) and Cleveland ($93.2M). The owners' proposed tax covers four years, not three, and at enormous rates: (37.5 percent for "first offenders," then 42.5 percent, 47.5 percent and 50 percent.)
In the last agreement, of course, the highest tax rate was only 35 percent, well below the punitive rates the owners now propose, and in the last agreement only five clubs would be affected by the tax. Moreover, during the last agreement, the tax was never in effect when revenue sharing was at 100 percent, so that no Club faced double burdens of fully implemented revenue sharing payments, and the payment of the luxury tax at the same time. The owners proposals now would significantly increase revenue sharing, and at the same time impose a punitive tax that would hit a large number of clubs. As stated above the players have proposed major additions to revenue sharing and done so in a structure that addresses directly the Clubs' stated concerns.
However, what is perhaps most remarkable about the Clubs' proposal — because it clearly suggests the Clubs were not in a serious bargainging mode — was their promised threshold movement: $102 million for 2003, $102 million for 2003, $102 million for 2004, $102 million for 2005, and $102 million for 2006, with growth in 2005 and 2006 limited to cost-of-living increases if an agreed upon payroll compression was witnessed in the year prior. The result is that, assuming a reasonable inflation rate given current economic conditions, the maximum threshold the Clubs propose would be about $110 million, and not until 2006! $110 million is below the 2002 payrolls of 7 teams.
This kind of proposal is not principally aimed at competitive balance; its obvious purpose is simply and obviously to significantly reduce player salaries. It applies high and clearly punitive tax rates to 7 to 12 clubs Clubs right away (only one of whose payroll arguably threatens competition), at a threshold that essentially holds flat for four seasons.
The number of affected Clubs almost certainly would increase over time.
Simply put, the culbs' proposed tax is designed to and would apply enormous pressure to reduce payrolls; its purpose is to lower salaries.
We should spend a moment on revenue sharing. Based on 2001 revenue figures, the players' proposal would yield a $253.3 million transfer, $66.2 million more than the current Basic Agreement plan transfered for that year, a 40 percent increase. In addition, even though we prefer a "split pool" approach, our proposal accepts the owners' preferred mechanism, a "straight pool" on local revenue, with additional sharing from the Major League Central Fund. This structure transferring substantial additional dollars ($66.2 M) to low revenue Clubs, with the brunt of the additional burden (almost $53M) being borne by the top 6 revenue producers. Under the players proposal, when fully implemented, using 2001 numbers, the Yankees would pay $45.2 million in revenue sharing and $6.2 million in luxury tax: a combined burden $23.2 million higher than the Basic Agreement currently imposes.
Seattle's burden rises by $8.1 million to $27 M; the Mets' rises by $7.4M to $23.7M; Boston's rises by $7.3M to $23.5M; Cleveland's rises by $7.2 million to $20.2 million; and Atlanta's rises by $5.9M to $17.2 M.
In sum, the players' have addressed what the Clubs have said are their concerns in bargaining, but not what their revenue sharing and tax proposals reveal is their objective: a wholesale attack on the salary structure. We have addressed the owners' stated concerns about revenue and payroll disparity, but we are not willing to help the owners undermine the operation of the player compensation market.
That is the heart of the dispute and that is why the board took the action that it did.
Please call if you have any questions.
Donald M. Fehr
(Editor's note: Following is a section of the letter that one source says was sent only to agents:)
First, Bob Dupuy, who took over as the owners' chief negotiator after Paul Beeston was removed, has publicly said that the clubs seek a luxury tax that would not be collected. Such a tax, by definition, would have to amount to a salary cap, since no club would have a payroll above the luxury tax threshold. Similarly, Peter Angelos, the Orioles' owner, made it clear in his public comments last Friday that he wants to severely penalize an owner for spending more than the tax threshold, and Tom Hicks, the Rangers' owner, was quoted over the weekend as saying, in effect, that no owner should exceed the luxury tax threshold and that the Rangers certainly would not do so. (Bear in mind that the Rangers' 2002 payroll is currently estimated, for luxury tax purposes, at $131 million, and the luxury tax threshold to which he was referring was only $102 million, about $29 million less.)
Second, the revenue sharing to which the players have already agreed will put more than 66 million additional into revenue sharing every year (for a total of $235 million) with most of that additional burden, about $53 million, being borne by the top six revenue producers. It goes without saying that such additional revenue sharing will, in and of itself, limit the ablilty of those clubs to pay players.
Under the players proposal, when fully implemented, using 2001 numbers, the Yankees would pay $45.2 million in revenue sharing and $6.2 million in luxury tax: a combined burden of $23.2 million higher that the basic agreement currently imposes. Seattle's burden rises by $8.1 M to $27 M; the Mets rises by $7.4M to $23.7; Boston's rises by $7.3M to $23.5; Cleveland's rises by $7.2 M to $20.2 M; and Atlanta's rises by $5.9 M to $17.2 M.
But this is not good enough for the owners. Their current revenue sharing proposal would transfer $282 million, which, when coupled with their tax proposal, raises the Yankees bill to $86.9M; Seattle's to $32.3; the Mets' to $35.8; and Boston's to $34.2 M. It is not difficult to see who the owners combined revenue sharing and luxury tax proposals would be tantamount to a salary cap.
