Much to the chagrin of Phillies fans, South Jersey native Mike Trout in March signed the largest contract in the history of professional baseball, which will pay him approximately $430 million over the next 12 years to stay with the Los Angeles Angels. That contract surpassed the record-breaking free agent deal that Bryce Harper signed a month earlier with the Phillies worth $330 million over 13 years. Although on the surface all you see is dollar signs, a comprehensive look at these contracts illustrates that Major League Baseball’s labor system is deeply flawed and, ironically, these multimillion-dollar deals actually suppress player rights.
Since 1976, MLB team owners and the MLB Players Association have collectively bargained over the terms and conditions of the players’ employment. Despite the owners’ legal fight to deny the players’ right to choose their employer and to bargain over their salary, free agency has galvanized MLB by benefiting both the owners through increased gate receipts and merchandise sales and the players through increased salaries. However, recent trends in MLB suggest that the labor market that the parties collectively bargained for is no longer serving the vast majority of players.
Under the present labor system — which is effectively the same system that was ratified in 1976 — free agency is restraining player movement because players reach the open market after their talent peaks, and owners no longer are as willing to pay for the decline stage of a player’s career as they had been previously. Age, in essence, is the fundamental inefficiency of MLB’s labor market because players reach free agency too late in their careers.
As a result, the labor system no longer provides an incentive for owners to bid against each other for aging free agents on the open market, a fact that has increasingly come to light over the past decade due to management’s pervasive analytics movement and the decline of players’ use of performance-enhancing drugs (which are, among other things, an anti-aging tool). Notably, Harper’s free agent contract with the Phillies was an anomaly because he reached the open market at just 26 years old, which is three to four years younger than the average free agent.
The byproduct of this antiquated labor system has incentivized teams to sign players, such as Trout, to long-term contract extensions below their market value before they reach free agency.
While management and critics will inevitably point to the enormity of Trout and Harper’s contracts to highlight that the labor market is healthy, that assertion is demonstrably false.
From a revenue perspective, Mike Trout (left) and Bryce Harper will likely be underpaid in comparison to the revenue they are expected to generate for their clubs.getty images (2)
The Society for American Baseball Research (SABR) suggests that the most important revenue determinant for teams is having superstar players; it is not on-field success. As iconic superstars, Trout and Harper will be significant revenue generators for their teams over the next decade — teams that Forbes estimates generated more than $300 million in revenue each year for the last few seasons alone. The result is that the annual contracts for Trout ($36 million) and Harper ($25 million) are merely a fraction of the Angels’ and Phillies’ annual revenue. Thus, Trout and Harper, from a revenue perspective, will likely be underpaid in comparison to the money they are expected to generate for their respective teams.
Despite those record-breaking contracts, teams have demonstrated that they now have two ways to suppress labor costs: (1) Circumventing free agency for the vast majority of players; and (2) Signing players to contract extensions before their statistical primes and below their market value.
Throughout the 20th century, players have continually used the legal system to fight for greater employment rights. For example, during the 1986-88 offseasons, the MLBPA successfully won three annual collusion grievances after the owners and teams abstained from signing free agents and openly emphasized the need for management to achieve fiscal responsibility — the exact scenario that currently exists.
From a legal and business perspective, in order to avoid collusion grievances or a potential strike, MLB needs to acknowledge that the labor market is outdated by agreeing to grant players the right to become free agents before they reach their statistical prime. Earlier free agency would formalize the logical idea of every business: labor costs rising or declining according to value. This is vital in a sport where age matters.
Noah Goodman (NJGoodman@rayneslaw.com) is an attorney at Raynes Lawn Hehmeyer focusing his practice on personal injury, professional negligence, product liability, and collective bargaining issues in professional sports.
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