• Home
• Schedule
• Roster
• Statistics
• Stars News Feeds & Links
• NHL News Feeds & Links
• Story Archive
• Message Boards
• Chat Rooms

CBA: The MLB model

Sunday, December 28, 2003

The theory goes that the NHL would like to implement some kind of salary cap similar to that of either the NFL or NBA. But currently the NHL has a lot in common with Major League Baseball, which has no salary cap and has a problem with a wide disparity in the financial value of teams.

A Blue Ribbon Panel appointed by Commissioner Bud Selig summed up the state of baseball in the year 2000 this way:

"Despite impressive industry-wide revenue growth over the past five years, MLB has an outdated economic structure that has created an unacceptable level of revenue disparity and competitive imbalance over the same period. The growing gap between the "have" and the "have not" clubs—which is to say the minority that have a realistic chance of succeeding in postseason play and the majority of clubs that have poor prospects of reaching the postseason—is a serious and imminent threat to the popularity, health, stability and growth of the game.

"Players appear to share this view. In a survey of MLB players published in the May 2, 2000 edition of Baseball Weekly, lack of competitive balance was cited as the biggest problem facing the game today. A vast majority of players surveyed responded that it was "very important" that small market teams have the same chance of reaching the World Series as large market teams."

Those were the issues baseball heading into the last round of labor negotiations. MLB hammered out its last Collective Bargaining Agreement in the summer of 2002. A deal was reached at the last minute and helped avoid the game's ninth work stoppage. There have been five previous strikes by players and three lockouts by owners.

Baseball faced some of the same issues that National Hockey League is looking to tackle with its next CBA.

Here's a look at how baseball tried to fix the problems.

Escalating salaries

There's a famous quote from former baseball player Andy Van Slyke that goes like this: "There will be peace in the Middle East before there's a salary cap in baseball."

And there is another one from agent Tom Reich: "The salary cap ... will be accepted about the time the 13 original states restore the monarchy."

Like the NHLPA, the Major League Baseball Players' Association has been resisting a salary cap for years. Resisting it adamantly and successfully. The salary cap issue was the key issue that prompted the 1994 strike that wiped out the World Series and lasted for a total of 232 days.

Even though there was some talk about the owners trying to get a salary cap instituted in the most recent CBA, it never became an issue. And baseball still has no salary cap.

Baseball owners argued that a cap would help restore some competitive balance to baseball, but the union sees it as a tool to take money away from the players and transfer it to the owners.

The players got some support from the Congressional Research Service, which said if a cap had been in place in 1994 the players would have lost $198 million in salaries.

The players got another boost when a Blue Ribbon Commission that studied baseball's economics said the game had some big problems, but did not recommend a salary cap to help fix them. They offered greater revenue sharing and a luxury tax on high payroll teams as the solution to baseball's woes.

Revenue sharing

The players have no objection to revenue sharing. Their only concern is how much gets shared. The less the better in the eyes of the players.

Commentator George Will, who was a member of the Blue Ribbon Panel, summed it up this way in a Washington Post column in 2002: "The players' union's primary objective is to protect the revenues of a very few very rich owners -- principally, the Yankees'. The owners' primary objective is a more egalitarian distribution of wealth. The union believes that unconstrained spending by the richest three teams pulls up all payrolls."

The players' union doesn't put it exactly that way.

"You would have to find a way that moves some money around in a fashion that does not destroy the willingness to invest to grow the game to make it better," Donald Fehr, MLBPA's Executive Director once said. "If you tell a club, 'If you're successful we're going to take all your money away,' nobody's going to want to be successful. It's the same reason we worry about income-tax rates. You've got to worry about those kinds of things."

The players also argue that revenue sharing in baseball is problematic because so much revenue is locally generated. They say a plan like the NFL's, which shares a vast majority of revenues, wouldn't work in baseball.

"In football, two-thirds of the revenue is generated by national sources. One third is generated mostly from gate receipts, and you're only trying to sell out eight games," said Fehr. "In baseball, you're trying to sell out 81 games, most of them are not on Sunday afternoons, a good part of them are during the school year and you're trying to broadcast locally up to 162 games. By definition, it means what you do locally matters much more than it does in football; and by definition, you will see significantly wider spreads. There's nothing you can do about it."

But the Blue Ribbon Panel saw the issue differently.

"Although most of baseball's revenues are these local revenues, none of the revenues really result exclusively from the sale of a local product. It takes two clubs to have a game and 30 clubs to have today's divisional races. All clubs are selling—indeed, all are elements of—a single product, MLB.

"Therefore, to reform baseball's structure to produce reasonable competitive balance, substantially more of the industry's revenues should be treated as just that—the industry's revenues—and should be distributed in ways that cause all clubs to operate within a much narrower band of unequal economic resources. The band should be broad enough to allow baseball entrepreneurship to be rewarded, but narrow enough that intractable differences between local markets do not produce a baseball underclass of chronically uncompetitive clubs."

During the last month of the 2002 negotiations the two sides offered these proposals. The owners wanted between $250 million and $300 million of the league's $4 billion dollars in revenue shifted from richer teams to the poorer ones.

The players' proposal would allow the owners to redistribute $188 million and give the commissioner discretion to distribute another $30 million from baseball's central fund.

In the end the two sides agreed on this plan for revenue sharing: $258 million each year phased in over four years. A $175 billion base to be distributed to each club on a straight-pool basis with the remainder split by the Commissioner out of the central fund and discretionary fund.

Overall, 34 percent of locally generated money would be shared, which was up from the previous rate of 20 percent. Also, one-third of all revenue sharing funds must be spent on baseball operations.

Luxury Tax

The luxury tax was a big stumbling block between the owners and players. Actually, it is officially called the Competitive Balance Tax. Some say it should be called the Yankee tax because it was directed at George Steinbrenner's big spending New York Yankees.

The goal was to discourage rich teams from going overboard on salaries and that would help curb excessive growth in player salaries.

The players' union opposed the luxury tax idea because they see it as a form of salary cap. It penalizes the big spending teams that help drive up player salaries.

The 1996 MLB labor agreement did contain a luxury tax. It put a 35 percent tax on the amount a team went over a set ceiling on team payroll. But there was a problem. The tax threshold was adjusted to what teams were spending, rather than some set limit. So it really did nothing to curb escalating salaries. The Blue Ribbon Panel explained it this way.

"It is generally agreed that the luxury tax fell short of its intended goal because the tax threshold (which was calculated as the mid-point between the fifth and six highest payroll clubs) was allowed to adjust upward in response to club behavior. The flaw in the "floating threshold" was obvious: the more the high payroll clubs spent on players, the higher the tax threshold and the less restraint on payroll escalation."

During the 2002 talks the two sides bickered over the tax threshold and the amount of the tax. The players, obviously, wanted a lower tax and a higher threshold for the tax to be implemented.

For the first year of the agreement the players pitched a threshold of $125 million and a tax of 15 percent. The owners were looking for a threshold of $107 million and a tax of 35 percent.

In the end, the two sides agreed on this: A threshold of $117 million and a tax of 17.5 percent for first time violators. After that the threshold would be $120.5 million in 2004, $128 million in 2005 and $136.5 million in 2006. Teams that pass the threshold more than once could be taxed up to 40 percent.

Conclusions

It's a little early to tell just how baseball's new system is working. It's been in place for only one season. As expected, the Yankees were the only team to pay the luxury tax. They exceed the $117 million threshold by $67 million and have to send MLB a check for $11.82 million.

As for competitive balance, there were some signs of progress. There was still a huge discrepancy in payroll between the Yankees at $184 million and Tampa Bay at $19.6 million, but there was more bunching of teams in the middle of the pack.

The league said revenue sharing appeared to be working.

"Clubs that have received revenue sharing have put it back in baseball operations," Selig told the Milwaukee Journal Sentinel towards the end of last season. "There isn't a scintilla of doubt because we've been keeping track of it. It's easy to trace.

"I am very confident that this deal is improving competitive balance. And the standings are a manifestation of that, when you look at all of the divisional races and the wild-card races. The playing field is finally starting to level out."

As for the union, it is taking a wait and see approach.

"We got an agreement. That's a good thing, if it turns out in the long haul to be an appropriate agreement," Fehr told the Journal Sentinel. "In terms of judging the overall agreement, it's way, way premature to do so. It would only be the rankest form of speculation. When we look at it, we monitor a lot of things. You can identify a lot of factors but it takes time to determine what the causes are."

Andrew's Dallas Stars Page is powered by HostingSports.com