Because I Can

Baseball got a labor contract. Let's all cheer that they're guaranteed not to strike until at least 2011. Now, let's look at the specifics of this contract and comment on it:

Summary of MLBPA-Major League Baseball Labor Agreement
Term
1. Five-year labor contract.
2. Termination date - December 11, 2011.

I believe I just said that, but now you have the official press release version.

Revenue Sharing
1. Net transfer of revenue sharing plan will be the same as the current plan ($326 million in 2006). Net transfer amounts will continue to grow with revenue and changes in disparity.
2. Marginal tax rates for all recipients are reduced significantly through the use of a new central fund redistribution mechanism. Rates reduced to 31% from 40% (high revenue Clubs) and 48% (low revenue Clubs) under old agreement.
3. All Clubs face the same marginal rate for first time.
4. Commissioner's Discretionary Fund will continue at $10 million per year, with cap of $3 million per Club per year.
5. Provision requiring revenue sharing recipients to spend receipts to improve on-field performance retained with modifications.

There's the revenue sharing issue, which is baseball's way of trying to encourage teams to be more equitable in sharing resources.

Policy number (5) is the biggest sticking point with the high revenue clubs, the idea that a team could get $30 million in revenue sharing and have a $15 million payroll. I have to wonder what the penalties for breaking this rule are.

Competitive Balance Tax
1. Competitive Balance Tax structure from 2002 agreement is continued.
2. Rates will continue at 22 ½ % for Clubs over the threshold the first time, 30% for Clubs over the threshold the second time and 40% for Clubs over threshold the third time. 3. Clubs that paid 40% in 2006 will face 40% rate in 2007.
4. Thresholds reset to $148 million in 2007, $155 million in 2008, $162 million in 2009, $170 million in 2010 and $178 million in 2011.

This is part of how they get revenue to share. The payroll threshold, which has really only applied to the Yankees and Red Sox, rises, for the luxury tax. This is where the super-bloated payroll starts to hurt, as that $200 million payroll really costs the Yankees $80 million. Nothing exciting here.

We are also told the "Debt Service Rule" from 2002 has been retained, so here's what that says:

Debt
A team may not have more debt than 10 times EBIDTA (earnings before interest, depreciation, taxes and amortization), except that a team that has moved into a newly constructed ballpark within the past 10 years may not have more debt than 15 times EBIDTA. There will be a three-year grace period, during which the commissioner has the right to retain the debt service rule, fully implemented. If he so elects, the commissioner must revoke the 60-40 assets-to-debt ratio rule. If he doesn't want to revoke the 60-40 rule, the debt-service rule becomes fully implemented.

This says that ballclubs have to pay off those gigantic loans used to build stadiums, and they can't ruin a franchise by burying it in debt. Now let's get to the interesting stuff.

Amateur Draft
1. Clubs that fail to sign first or second round draft pick will receive the same pick in the subsequent draft as compensation. Club that fails to sign a third round pick will receive a sandwich pick between rounds three and four in the subsequent draft as compensation.
2. Period of time before a Player must be protected from the Rule 5 Draft is changed from three or four years from first minor league season to four or five years from year of signing.
3. Signing deadline of August 15 for draft picks other than college seniors.

This entire section is huge, and deserves to be addressed point by point.
1) Failure to sign a first or second round draft get the same pick next year as a compensation. This provides not only equity, but improves the club's position, particularly if the next year is poised to be a much better draft year.
2) This makes a difference because the younger players not yet developed have more time to do so, especially for teams that have them for the purpose of depth when they have an injury-prone major league roster.
3) This is the biggest part of the draft rules. A player has to sign by August 15 instead of by next June. I don't know if he becomes eligible to be signed at large after this or not, and in that case his wage would rise because the future price would rise because the monopsony would be lifted faster. I also don't know what this will mean if securing a visa for Canadian draft picks gets harder.

Draft Choice Compensation
1. Type C free agents eliminated in 2006
2. Also in 2006, compensation for type B players becomes indirect (sandwich pick) as opposed to direct compensation from signing Club.
3. Effective 2007, Type A players limited to top 20 percent of each position (down from 30 percent) and Type B players become 21 percent - 40 percent at each position (rather than 31 percent - 50 percent).
4. Salary arbitration offer and acceptance dates move to December 1 and December 7

Now that teams have to spend revenue sharing money on payroll, this is set up so that their draft won't have to suffer. This is also good for the players, because the cost of losing them increases, so teams have greater incentive to retain them for the next year. For those of you not keeping score, type A free agents are the ones that get you a first round draft pick, and type B give you a second round pick.

Benefit Plan
1. Players Benefit Plan continued with maximum allowable benefit under IRS rules.
2. $154.5 million average annual contribution.
3. Improved benefits for some retired players.

Minimum Salary
1. Major League: $380,000 in 2007, $390,000 in 2008 and $400,000 in 2009, COLA in 2011.
2. Minor League: $60,000 in 2007, $62,500 in 2008, $65,000 in 2009.
3. New minimum for first time roster players of 50% of minor league minimum.
4. Maximum cut rule applicable to split contracts reduced to 60% from 80%.

Under salary, that just means you can make $30k on a cup of coffee. Otherwise, nothing that interesting here. These guys make money.

Free Agency
1. Eliminate December 7, December 19, January 8 and May 1 deadlines for free agents.
2. Tender Date - December 12
3. Eliminate right to demand a trade for all new multi-year contracts.

Other
1. Home-field advantage in World Series to League that wins the All-Star Game.
2. Drug program continues.
3. Settlement of 40 plus grievances and disputes.
4. No contraction during term of agreement.

The free agency moves are particularly interesting because of the types of deadlines removed. The January 8 and May 1 deadlines in particular are huge, as they signify that now a club doesn't risk losing the rights to negotiate with their player just because they don't re-sign him by early January.

The agreement is bold as far as allowing clubs to maintain and improve rosters, but the consequences for the draft remain to be seen.

Labels: MLB