- MLB avoided a lockout when the league and its players union agreed to a new CBA before midnight, but what’s changed under the new deal, and why does it matter?
MLB’s short national nightmare is over. According to multiple reports (with Fox Sports’ Ken Rosenthal the first to break the news) and confirmed by MLB, the league and the MLB Players Association have finished negotiating a new collective bargaining agreement, just a few hours before the midnight deadline of Dec. 1. Had MLB and the players’ union not come to terms on a new CBA, the sport could potentially have gone into a lockout—the first since the 1994 strike that wiped out most of that season and the World Series. Instead, the two sides have agreed to a five-year deal that will extend labor peace through the 2021 season, giving baseball a quarter century of calm. For a sport whose history has been marked by nasty and disruptive battles between ownership and players, that stretch is a remarkable accomplishment.
Full details of the new CBA have yet to be released, but according to multiple reports, the following clauses will be part of the new five-year pact:
• The luxury tax threshold—the payroll point at which teams must pay a percentage penalty for every dollar they go over—will rise from last season’s $186 million to $195 million for 2017, topping out at $210 million in ’21, according to Rosenthal. According to the New York Post’s Joel Sherman, the percentage penalty for repeat offenders will rise from 50% to 60 or 70%.
• There will be no international draft—a large point of contention between the owners and the union—but according to FanRag Sports’ Jon Heyman, teams will now have a cap of $5–6 million per season to spend on amateur international free agents.
• Free-agent compensation will remain, but teams will no longer have to surrender a first-round draft pick for signing a player who has been given a qualifying offer. Instead, teams that exceed the luxury tax threshold will have to give up a second-round and fifth-round pick; teams under it will forfeit a third-rounder, according to ESPN’s Jayson Stark. That rule change will not go into effect until the 2017–18 off-season.
• Rosters will remain at 25 players, and expanded September rosters will also stay; both were under debate, with the league reportedly wishing to add a 26th man but end the roster expansion that happens in the season’s final month.
All in all, the new CBA doesn’t mark too drastic a departure from baseball’s current landscape. The change in free-agent compensation represents a clear albeit modest win for the players’ union, which had been fighting to do away with it entirely, as the effect of the qualifying offer had been to hurt the salary prospects of mid-tier free agents. The players didn’t get exactly what they wanted: The qualifying offer remains, and the prospect of losing draft picks of any sort for a free agent will continue to scare some teams away from signing free agents. But taking first-round picks out of the equation is a notch in the belt of MLBPA executive director Tony Clark in his first CBA negotiations.
There is one big win for both mid-tier free agents and teams: According to Rosenthal, only players who sign contracts of $50 million and up will cost their new team a draft pick, and that pick will depend on the market size of the signing team. In addition, a player can no longer be given a qualifying offer more than once. That’s huge for a player like Dexter Fowler: He had his market in the 2015 off-season destroyed by a qualifying offer from the Cubs, was essentially forced to sign a below-market–one-year deal and must contend with the qualifying offer once again this winter (albeit coming off a terrific season for a world champion). A player of his caliber—one not worth $50 million or more—now won’t see his chances of a big multi-year deal go out the window because of the qualifying offer and will only have to suffer through its market-limiting effects once. That’s good for teams, too: After all, punishing a team for trying to get better by signing a free agent is as anti-competition as it gets.
The MLBPA’s victories didn’t come without a cost, however. For one, the luxury tax threshold has jumped a mere $9 million from last season and will barely increase from there. In a sport where annual revenues hit $9.5 billion in 2015—an increase of $500 million from ’14 and the 13th straight year of growth in that department—that $195 million figure for ‘17 stands out as rather low. Compare that to the NBA, where revenues hit $5.2 billion last season and the luxury tax went from $84.74 million in 2015–16 to a whopping $113.29 million for ‘16–17 after the ratification of that league’s new CBA.
Unlike the NBA, then, MLB will not see a sudden explosion of gargantuan multi-year deals for free agents, particularly the mid-tier players. That’s especially true when you consider that the league’s two richest teams—the Dodgers and Yankees—are still far above the luxury tax limits. Getting below that $195 million figure will reset the penalty rates that each team is paying—since each is a repeat violator of the luxury tax, Los Angeles and New York pay the maximum 50% tax—but that will take some time and work by both teams, likely keeping them from making any big splashes this off-season or next. The same can be said of any teams bumping up against the limit, including the Red Sox, Tigers, Giants and Nationals. The new higher penalties for going over the luxury tax will also hurt players’ chances at bigger contracts; Stark reports that the tax rate could go as high as 92% for teams that severely exceed the threshold. Punishing spending like that will only discourage teams from handing out big contracts in free agency, which is a big loss for the players.
The other notable concession comes at the hands of international prospects. Under the former CBA, teams were given a bonus pool from which they could spend on international players under 23 years old with fewer than three years of professional experience. Teams that exceeded their allotted bonus pool—which last year was in the range of $2–$5 million per team—were, depending on how much they had spent, penalized with taxes and by being barred from handing out individual bonuses larger than $300–$500,000 over one or two signing periods.
Those punishments did little to nothing to stop certain teams from blowing far past their allotments to add either as many top-rated amateurs from that year’s period as possible (as the Yankees did in 2014, when they inked nine of the top 25 prospects available for $14 million total in bonuses) or the best available player (as the Red Sox did in ‘15 when they signed Cuban infielder Yoan Moncada, then 19, to a $31.5 million bonus). That level of spending prompted the owners to call for an international draft in the name of fairness across the league, though in reality, any institution of a draft on amateur players is first and foremost about removing a player’s agency in order to depress his salary and gain cost certainty.
While the new CBA will reportedly introduce a hard cap on international spending, it’s unclear exactly what the details are with regards to penalties, though it’s likely that MLB will be far more stringent with the cap than it was with bonus pool rules. As such, it’s a heavy blow to those young players in the Dominican Republic, Cuba, Venezuela and elsewhere who will see their earning power arbitrarily and severely limited thanks to the machinations of the owners and a union they don’t belong to (and most of whom never will), and it's disheartening (although not surprising) that the MLBPA chose to sacrifice the financial future of teenagers from impoverished countries in exchange for some moderate concessions on the part of MLB owners.
There’s one other interesting detail reportedly in the new CBA. According to Rosenthal, the Oakland Athletics will be phased out of the league’s revenue-sharing program for the next four years. That may seem like a harsh punishment for a team that has one of the league’s lowest payrolls and received $34 million from the program last season. But Oakland is one of MLB’s 15 largest markets, which are normally disqualified from receiving revenue sharing; the A’s were grandfathered in due to their stadium, which is a dilapidated mess. As Susan Slusser of the San Francisco Chronicle reports, taking away revenue sharing from the A’s is likely a move on MLB’s part to force the franchise’s hand in getting a new stadium and also reflects the belief of both the league and the MLBPA that the team isn’t spending enough of what it receives from revenue sharing on its roster.
New rules aside, the most important takeaway is that MLB’s labor peace will stretch on another five years to reach 27 straight since the 1994 season—an impressive accomplishment for a league that saw five strikes and three lockouts from ’72 to ’94. While there had been some alarming reports that the league and union were so at odds that the possibility of a dreaded lockout was brought up, ultimately, neither MLB nor the Players Association decided to kill the golden goose (recall the $9.5 billion in revenue the league collected in 2015—a figure that’s sure to have increased last season). The owners have seemingly learned their lessons from 1994, when their intransigent stance on a salary cap submarined the season and badly hurt the league.
How the new CBA plays out and its effect on the game—as well as who won and lost the negotiations—will be the subject of much future debate. But the biggest takeaway is that baseball avoided what would have been a disastrous and unnecessary work stoppage. No matter how you slice it, that’s a good thing.