Collusion or Not, a Labor Battle is Brewing

The word “collusion” occurs only once in the current Collective Bargaining Agreement between Major League Baseball and the MLB Players Association, and that is in a parenthetical remark in the confidentiality clause near the end. The act of collusion is addressed, however briefly, in Article XX–Reserve System, section E(1):

The utilization or non-utilization of rights under Article XIX(A)(2) and Article XX is an individual matter to be determined solely by each Player and each Club for his or its own benefit. Players shall not act in concert with other Players and Clubs shall not act in concert with other Clubs.

That’s our collusion clause, as “act in concert” is a legal synonym for collusion. This clause outlaws collusion between clubs when it comes to free agency. (Interestingly, it also outlaws collusion between players; one wonders whether the LeBron James/Dwyane Wade/Chris Bosh experience might have gone a little differently in MLB than it did in the NBA. But I digress.)

Now, there is no doubt that collusion has happened in the past — it was proven and basically admitted regarding the 1985-87 time period. It has also been alleged a few more times, most recently in 2008 when the MLBPA threatened to file a grievance if Barry Bonds didn’t get a job. Ultimately, the union backed off, presumably because they realized that there were enough legitimate reasons why teams might not want to sign a surly 43-year-old with the black cloud of performance-enhancing drugs hanging over him that collusion would be impossible to prove.

Recently, though, there have been whispers of collusion. Last winter’s free agency was slow to develop and very few players got anywhere near the contracts they were hoping for. Coming into this current offseason, hopes were high that things would return to normal and last year would be relegated to a footnote. For the past three years, this class of free agents has been touted as historically good, highlighted by 26-year-olds Bryce Harper and Manny Machado.

So far, however, this offseason has looked similar to last, leading to headlines like “The slow market for Harper and Machado is another sign that baseball’s current system is broken.” More specifically, that linked article by Ken Rosenthal includes this easily (and oft-) tweeted line: “If Harper and Machado cannot get the deals they want, who can?”

Tom Gibbons wrote recently here at Baseball Essential that the system is starting to show cracks, and that seems undeniably true. Collusion is definitely a possibility, but there are factors at work here that often seem to be ignored, or at least casually dismissed.

The Big Thing: This free agency class isn’t what it was supposed to be

Back in 2015, around the time that David Price, Zack Greinke, and Jason Heyward all signed enormous contracts, MLB.com’s Anthony Castrovince wrote an article with the headline “Amazed by big paydays? You ain’t seen nothing yet.” In this article, Castrovince outlined a historic free agency class looming three years in the future, with 21 huge stars highlighted, and suggested that teams already had 2018 on their radar in long-term free agency planning.

Castrovince wisely hedged his bets, writing:

Again, things will change. For one, multiple players on the above list will be in their post-prime years. Injuries will occur. Relievers, especially, will regress. Some guys will be locked up by contract extensions with their current clubs.

Still, enough top talent will sneak through that you can’t help but wonder — even if we acknowledge that three years is an eternity in professional sports — if clubs might already have 2018 in the back of their minds as they consider other long-term entanglements in the present tense.

Sadly, he didn’t hedge quite enough. Of the 21 names on his list, we’re really down to just Harper and Machado, and even the two of them have lost a bit of their shine.

Harper was coming off a historically great season in 2015 at age 23, so it was easy to imagine him at 26 being an Alex Rodriguez type of free agent. But his three seasons since then have ranged from good to disappointing, never spending more than a few weeks at a time in the “historically great” realm.

Machado, on the other hand, has been more consistent, never reaching Harper’s peak but also never quite descending into his valleys. But Machado carries some baggage, going back to his early days when, as a 21-year-old in 2014, he reacted to an inside pitch by “accidentally” losing hold of the bat on his next swing. No harm was done — the bat sailed into foul territory near Oakland A’s third baseman Josh Donaldson instead of into the head of pitcher Fernando Abad — but it was a stark reminder that Machado had some maturity issues. There have been questionable slides over the years and a bench-clearing incident or two, just enough to remind us that the young player who threw his bat might still be a bit impetuous.

All of that came to a bit of a head this past October, when the spotlight of the postseason in Los Angeles shined on a guy who seemingly refused to hustle and who bafflingly decided that Game 4 of the NLCS was the time to teach a dangerous lesson on first-base footwork to Jesus Aguilar of the Milwaukee Brewers, dragging his foot to deliberately collide with Aguilar’s calf because he didn’t like where Aguilar was positioned. The latter incident reignited the “dirty player” talk, and the hustle issues — and his public comments on them — turned Machado into a player who many fans claim to not want on their team, which is something most teams will at least consider.

(I am on record as saying that I think Machado’s comments were overblown and basically boiled down to his misuse of the phrase “not my cup of tea,” but regardless of whether Machado wants to hustle, the fact remains that he often doesn’t. I’m also on record as saying that, most of the time, Machado’s play on the field more than makes up for his lack of hustle.)

So anyway, both Harper and Machado have lost some of their luster (and we didn’t even address the fact that 2018 was a notable step backwards for both players defensively). What about the other 19 players from Castrovince’s 2015 article? Well, three of them (Price, Heyward, and Clayton Kershaw) had available opt-outs but didn’t really end up on the free agent market — Heyward and Price both chose not to opt out, and Kershaw quickly negotiated an extra year with the Los Angeles Dodgers. So that leaves 16. Here’s a quick list, with a pithy explanation for why each is not the huge free agent it seemed like he would be:

A.J. Pollock — Injuries; never repeated excellence of 2015
Adam Jones — Power, speed, and defense have all declined precipitously
Andrew McCutchen — Same as Jones, if not to the same degree
Andrew Miller — Injuries and a 4.24 ERA in 2018
Craig Kimbrel — Higher-than-usual ERAs two of past three years; postseason struggles; changing closer market
Dallas Keuchel — Not really similar to Pollock, but this explanation could be identical
Dee Gordon — Signed an extension; drop in stolen bases and on-base percentage would have slowed his market
Garrett Richards — Multiple injuries limited him to 28 starts over the past three years
Jose Fernandez — Deceased
Jose Iglesias — Never blossomed into a star; settled into groove as slick-fielding, light-hitting shortstop
Jose Quintana — Not sure why he was on the list; not a free agent until at least next year
Josh Donaldson — See Pollock and Keuchel
Matt Harvey — See Pollock, Keuchel, and Donaldson; perhaps I should have made a section for these
Michael Brantley — See Pol— ah, forget it
Shelby Miller — You get it by now
Trevor Rosenthal — Okay, the horse is dead and beaten

So for most of them, some combination of age and injury has turned them from Superstar Free Agents into something much less. A couple others never hit free agency. One just never got very good. And one died tragically.

While some of these things should not have surprised us — for example, we could have calculated that Jones, Miller, Donaldson, and others would be approaching their mid-30s by now — it is surprising that the entire market fell apart. You hedge your bets the way Castrovince did because you know that six or eight of the 21 won’t live up to the hype; it’s hard to imagine the whole market tanking the way it did.

But that’s where we are, and that is part of what’s driving the current slow market.

The Other Big Thing: Teams have gotten smarter

When the Texas Rangers signed Rodriguez to his 10-year contract after the 2000 season, it made sense. A-Rod was just 25 years old and had already racked up 38.1 WAR. And over the next ten years, he won three Most Valuable Player Awards, put up 71.4 WAR, and hit .299/.394/.577 (150 OPS+) with 424 home runs. Without a doubt, A-Rod was worth every penny of that $252 million contract. But that doesn’t mean it was a good signing for the Rangers. The Rangers averaged 90 losses and finished in last place in the AL West in all three seasons that Rodriguez played for them before they traded him to the New York Yankees after the 2003 season. A-Rod did his part, but the team was unable (or unwilling, who knows?) to field a decent supporting cast.

After the 2007 season, A-Rod opted out of his contract and signed a new 10-year contract with the Yankees. This time, he was 32 years old, and while he was still the best player in baseball at the time he signed it, this contract took him well into his 40s. That second 10-year contract — this one worth $275 million — produced just 23.3 WAR and 178 home runs, along with a lengthy PED suspension, the tarnishing of his reputation, and an early retirement.

So when teams are looking at Harper and Machado, they are rightly intrigued by the potential for the next five or six years. But Rodriguez had his last great season at age 32; Albert Pujols hasn’t had a great season since he was 30; Donaldson’s body fell apart in his early 30s. The history of baseball is littered with players who were on top of the world in their 20s and basically done by the time they reached 34.

If you’re a team looking at Harper, you see a guy with otherworldly talent hitting free agency a couple years earlier than most players do because he debuted at age 19. You also see a guy who has never put up back-to-back great seasons. You see a guy whose defense was so bad in 2018 that, even though it might not be indicative of anything, it at least makes you wonder how he will age. You see a guy who has missed parts of three seasons with various injuries. And when you look at all of that, you might wonder — justifiably — if you want to be paying that player $40 million when he’s 35 years old.

The factors are different with Machado, but the conclusion might be the same. He wants to be a shortstop, but his defense there for the Baltimore Orioles in 2018 was really bad. (To be fair, his defense at short was as good for the Dodgers as it had been bad for the Orioles.) He is already the second-slowest shortstop in baseball; if he’s this slow at age 26, how will he look in his 30s? His peak has never approached that of A-Rod or Pujols, so isn’t it logical to question the wisdom of betting tens of millions of dollars that he will remain great longer than they did?

Free agency has always basically reimbursed declining players for the great seasons they had when they didn’t make much money. During the PED era, there was perhaps a misleading perception built up about how long players could stay healthy. Bonds had his best seasons from age 36-39. Roger Clemens had a second Hall of Fame-caliber career after turning 34, with four Cy Youngs and 58 WAR. There have always been outliers who could remain effective into their late 30s or early 40s — Ted Williams and Nolan Ryan come to mind — and there has been the illusion of longevity because of players who played for five or eight or ten more years after they stopped being great — Hall of Famers like Carl Yastrzemski, Derek Jeter, Ken Griffey Jr., and Tony Perez. But with salaries the way they are now, teams seem to be realizing that paying for a player’s peak while receiving his decline is not a winning formula. And when a player has an injury history — as almost all free agents do these days — that concern only increases.

The Elephant in the Room: the salary cap, er, um, I mean competitive balance tax

The “luxury tax” — officially called the “competitive balance tax” and perhaps acting as a de facto salary cap — can deflate salaries in two ways: 1) It can impose meaningful sanctions on teams that spend too much; and 2) It can give ownership an excuse to spend less by pretending the sanctions would be meaningful.

Now, this is where collusion becomes a possibility. I don’t believe that the teams are coordinating their efforts the way they were in the mid-1980s. But if there have been directives coming down, either explicitly or implicitly, either from the commissioner’s office or from a large group of owners, that teams exceeding the luxury tax will face repercussions not spelled out in the CBA … well, that’s a big problem. There’s not really any evidence that anything like that has happened, but the penalties spelled out in the CBA don’t really line up with the way teams seem reluctant to exceed the threshold, which at least raises some eyebrows.

Because teams’ financial numbers are generally not made public, we are often left to guess just how profitable a team is. But there is enough public information to usually make pretty informed guesses. For example, the Dodgers have led the league in attendance each of the last several years while raising prices each year. They also have an extremely lucrative television deal, plus concessions and merchandise. Taking all of that into account, Forbes estimates the Dodgers’ 2018 revenue at a whopping $522 million. The Yankees are even higher, at $619 million. In fact, every single team in MLB had higher revenue in 2018 than the $197 million luxury tax number — the A’s were the lowest, at $210 million.

Now, that doesn’t mean the A’s could afford to go over the luxury tax. Revenue numbers are before taxes, salaries, costs of staffing the stadium, the cost of renting sump pumps to get sewage out of the dugouts, etc. But nearly half the league showed a revenue of over $300 million, and the San Francisco Giants, Boston Red Sox, and Chicago Cubs joined the Dodgers and Yankees in the over-400 club.

So when it comes to the big-market teams, the money is nearly irrelevant. Because the tax is tiered based on how many consecutive years you have exceeded the limit, I can see how it makes sense to periodically “reset” the penalties the way the Dodgers and Yankees both did in 2018. But beyond that, the financial implications really only become significant in the most extreme cases.

As an example of an extreme case: The Washington Nationals’ luxury tax number for 2018 was about $205 million, $8 million over the limit. Because it was their second straight year over the limit, they were subject to a 30 percent tax on the overage. Thirty percent of $8 million is $2.4 million. So while the “30 percent” number sounds scary, the actual penalty the Nats paid was about 1.2 percent of their overall payroll.

BUT … the Nationals have already committed about $198.3 million in salary for 2019. Player benefits are also factored into the luxury tax, and they usually come to about $15 million per year. Let’s say that puts the Nats at $213 million. We also know (or think we know) that they have offered Harper “much more” than 10/$300. Let’s say that Harper accepts their offer, and it’s $37 million per year. That puts them at $250 million for 2019. The luxury tax number for 2019 is $207 million, so they are over by $43 million.

In addition to increasing based on the number of consecutive years a team has been over the luxury tax threshold, penalties also increased based on the amount they go over. The base rate goes from 20 percent if it’s their first time over, to 30 percent the second time, to 50 percent each subsequent time. Then there are surcharges based on the overage amount — 12 percent on any overage more than $20 million, and 45 percent on an overage more than $40 million.

So, back to our example of the Nationals, if their 2019 luxury tax number came in at $250 million, they would pay the following penalties:

Base: $43 million overage times 50 percent: $21.5 million
First surcharge: $20 million times 12 percent: $2.4 million
Second surcharge: $3 million times 45 percent: $1.35 million
Total penalty: $25.25 million

It’s still not as scary as the “95 percent category” makes it sound, but it’s real money. And when you consider that their tax would only amount to $3 million without Harper ($213 million is $6 million over the limit, times 50 percent), that means that Harper’s $37 million would actually cost them about $59.25 million. That definitely changes the math.

The Nationals and Red Sox were the only teams to exceed the threshold in 2018, so everyone else would be working with a “clean slate” when it comes to penalties. That is a 30 percent savings right off the bat. Let’s say that without Harper, the Dodgers were going to be around $200 million and paying no luxury tax. If they were to sign Harper for that same $37 million average annual value, that would put them at $237 million, or $30 million over the limit. In that situation, they would pay:

Base: $30 million times 20 percent: $6 million
First surcharge: $10 million times 12 percent: $1.2 million
Total penalty: $7.2 million

All of that is an increase over what they would pay without Harper, so that means their $37 million actually costs them $44.2 million — about $15 million less than the Nationals!

(And none of this touches on the draft pick penalties attached to the luxury tax: If you exceed the second surcharge threshold, your top pick in the draft drops by ten spots. It’s not huge, but it’s a real penalty.)

Bottom line: For some teams (like the Nationals and Red Sox), signing high-dollar free agents would have a significant cost above and beyond the actual cost of the contract. For several teams that are at or near the limit, the financial implications would be real but not crippling. And for most teams, the cost would just be the cost.

It’s somewhat baffling to me that Tony Clark still has his job after the players’ union got taken to the cleaners in the last CBA negotiations, but it’s also pretty clear that the luxury tax boogeyman is more of an excuse for owners not to spend than an actual disincentive.

Conclusion

At least part of the reason this current free agency period seems so strange is because we’ve spent three years building it up in our minds. But when you look at who is actually available and all their warts and blemishes, it’s really not that surprising that the market has been slow to develop. Throw in the fact that the two free agents who actually are worth writing home about are looking for ultra-long contracts, combined with teams’ understandable hesitance to give those lengthy deals, and it’s even less surprising that those two marquee names are still unsigned.

I believe that if Harper and Machado were both willing to sign short-term, high-dollar contracts, they would already be signed, luxury tax and all. If Harper would accept five years and $200 million, he could have it tomorrow. I run the risk of being accused of favoring the billionaire owners over the millionaire players by saying this, but the players probably need to accept some responsibility for what is happening right now — both the union and their unfriendly CBA, and the individual players looking for long-term contracts.

It’s probably not collusion. It might not even be unfair to the players currently in free agency, at least not directly. But in the current system, where teams have no requirement to pay players in their primes and no incentive to pay them in their declines, this is what we have. And that’s where it becomes unfair to guys like Harper and Machado, who played their first several years for relative peanuts and now, right as they’re about to cash in, the game might have changed under their feet. It’s hard for the public to show too much sympathy for two guys who have made a combined $82 million in their careers so far, but the money that doesn’t go to the players goes to someone who makes a lot more than that. In a perfect world, maybe these savings would be passed along to the consumer in the form of cheaper tickets and parking and hot dogs, but that’s a story for a different day.

Baseball has had relative labor peace for over 20 years now. After work stoppages and threats of work stoppages every few years for the first couple decades of free agency, a whole generation of baseball fans has never known that sort of strife. But it is clear that the union needs to push for changes in the next CBA. If teams are no longer interested in paying old players, the union must make sure players are getting paid when they are young and productive. That could come in a simple form like a massive increase to the minimum salary, or it could require a wholesale shakeup to the existing reserve system. It seems that the most effective way to help players get paid when they are young would be to make them free agents when they are young. Could we see a system soon where players are eligible for arbitration after their first season and eligible for free agency after their third? Such a change would not come easy, and that’s why we might be on our way to our first big labor war since the end of the 1994-95 strike. If the players believe the owners are colluding, that war could come sooner than later. But even int he absence of collusion, we could be in for a big battle after the 2021 season.

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