Millionaires v. Billionaires – Will the Pandemic Alter the Path?

June 16, 2020

From the dugout – and Jim Jacaruso – as he takes a look at the business side of baseball.

This is part one of a multi-part series on Major League Baseball and some of the issues it faces in the time of COVID-19, especially in light of its relationship with its fans. You can read part two here;part three here

Current Considerations, Financial Ramifications and How the Labor History Fits

The Major League Baseball (“MLB”) owners and the Major League Baseball Players Association (“MLBPA”) must be hearing the phrase in the title of this article in their sleep.  Although this work stoppage is the result of a global pandemic, the same perception of greed exists in the mind of the everyday baseball fan.  Who gets how big a piece of the pie has always created legal issues between MLB and MLBPA.  The phrase “Millionaires v. Billionaires” permeated the last baseball stoppage -- from August 12, 1994 through April 2, 1995 -- and is in the headlines once again.

At the Beginning

The 1994-1995 strike was the eighth work stoppage in baseball history, the fourth in-season work stoppage in a twenty-two year period, and caused the first cancellation of the World Series in ninety years.  The 1904 World Series was never played; John McGraw’s New York Giants of the senior National League refused to play the Boston Patriots of the upstart American League.   McGraw had already decided not to play in the World Series, as he did not want to give the new league any time on the national stage. That may have been the first money play in the modern baseball era since the Giants did not want to give the Highlanders a chance to prove their value and, possibly, diminish their own.  It was a short-lived and hollow victory for the Giants.  The Highlanders became the vaunted New York Yankees who would dominate the baseball world by, to date, winning 40 American League pennants and 27 World Series.

Although it was not an owners/players dispute, the two leagues negotiated an agreement outlining several terms including playing the World Series annually, scheduling and revenue sharing.   Baseball sensed a potential revolt as the fans, who embraced the first World Series in 1903, and the players, deprived of a large bonus pool, were equally enraged.  So the first work stoppage led to an amicable solution.

MLB and the “Collusion” Effect

How things have changed.  After a few minor labor disruptions, the owners took a more aggressive stance in the late 1980s.  Bud Selig and Jerry Reinsdorf, owners of the Milwaukee Brewers and Chicago White Sox, respectively, took the lead in ownership’s labor strategy.  The owners acted in unison during the 1985, 1986 and 1987 off-seasons to limit salaries and freedom of player movement.  The owners’ efforts were successful as only four of the 35 free agent players signed with new teams after the 1985 season (“Collusion I”).  After the 1986 off-season, only four free agents signed with new teams, 75% of the free agents signed one-year contracts, and baseball had its first decline in average player salary in the free agent era (“Collusion II”).  After the 1987 season, the owners acted in concert to share information about free agency amongst themselves to ensure they did not offer artificially large salaries (“Collusion III”).   

In their behavior, the owners had violated a single sentence that had been in the CBA since 1968: Players shall not act in concert with other Players and Clubs shall not act in concert with other clubs.

The owners had paid a heavy price. Arbitrator George Nicolau, recently deceased, ruled that MLB had colluded against the players and awarded $280 million to MLBPA to distribute to the players.

Marvin Miller, the executive director of MLBPA from 1966 to 1982, in his book A Whole Different Ball Game, compared these years of collusion to the infamous 1919 Black Sox scandal. “It was, undeniably, an agreement not to field the best team possible – tantamount to fixing not just the games, but entire pennant races, including all post-seasons series. If players had been found guilty of making agreements not to compete, the commissioner would have banned them for life and justifiably.”

Even Commissioner Fay Vincent, who was a former entertainment lawyer, admonished the owners for their actions, as stated in his book The Last Commissioner, A Baseball Valentine. “The biggest single reality you guys have to face up to is collusion.  You stole $280 million from the players, and the players are united to a man around that issue, because you got caught and many of you are still involved.”

The baseball owners ignored Commissioner Vincent. The owners forced a lockout in February 1990 that lasted for 32 days, pushing back opening day by a week.  The owners wanted to implement revenue sharing and a salary cap, both of which were non-starters for the players. 

Commissioner Vincent countered with a player-friendly proposal that included:

  1. Minimum salaries of $75,000, $125,000 and $200,000 for the players in their first three years;
  2. A 75% cap on salary increases through arbitration; and
  3. A joint committee to study and issue a report on revenue sharing in April 1991.

This maneuver infuriated the owners who saw the proposal as decidedly pro-labor.  Vincent later tried to negotiate an end to the lockout in exchange for an agreement from the players not to strike, an action that many believed would turn public opinion against the players.   However, there was internal strife between the younger players, who thought their present-day earning ability was being negotiated away by the veterans who were less concerned with arbitration and more concerned with reaping the benefits of free agency.  All was not lost, the players did post a small victory resulting in an increase in the minimum salary to $100,000.  However, collateral damage from the “collusion” cases boiled over and ultimately led to the 1994-95 strike.

The 1994 Strike

The two sides allowed the Collective Bargaining Agreement (“CBA”) to expire on December 31, 1993.  The stakes were high for the players who wanted a larger share of the revenue pie and more amenable free agent terms. The owners countered that small market teams could only survive with a sharing of broadcast revenue. Following the expiration of the CBA, the owners agreed upon a revenue-sharing plan and a salary cap tied to the shared revenue, and withheld a $7.8 million payment to the players’ pension and benefit plans.  The owners had set the stage for Donald Fehr, executive director of MLBPA, to take a harder stance on behalf of the players. 

In June 1994, the Senate Judiciary Committee failed to approve antitrust legislation, benefitting the players.  MLB set a lockout for September and MLBPA countered with an August 12 strike date. All subsequent negotiations leading up to the strike date were unsuccessful.  In September, MLB postponed the season and the World Series.  Baseball, a numbers game from inception, had fallout, most only remembered by die-hard fans:

  • The Montreal Expos’ best season ended with them atop the National East with a 74-40 won/loss record. The strike devastated their fan base and the lack of further public support forced a move to Washington, where as the Nationals they won the 2019 World Series.
  • Tony Gwynn was batting .394 when the season was suspended and lost an opportunity to become the first player to hit .400 since Ted Williams did it in 1941. Even if Gwynn was batting .400 at the time of the stoppage, baseball purists may not have recognized a .400 hitter in a shortened season.
  • Matt Williams lost an opportunity to beat Roger Maris’ 1961 single season home run record. Williams had 43 home runs with 47 games remaining.  Ken Griffey had 40 home runs and was one of the players who said, “We picked a bad season to have a good year.”
  • The Colorado Rockies through 57 home games had attendance of 3,281,511. At that pace, the Rockies may have established a new single season attendance record of 4.6 million fans; breaking their record from the previous year.  Of course, it was their last season at Mile High Stadium before moving to Coors Field.
  • Jeff Bagwell, who broke his hand on August 10, was the unanimous choice for the MVP award. An award he may not have won if the season played on.
  • Dave Winfield was traded during the strike to the Cleveland Indians for a player to be named later, but ultimately it became an outright sale of his contract.
  • The New York Yankees, with the best won/loss record in the American League, were leading the Eastern Division for the first time since 1981. The strike cost Don Mattingly his first chance at post-season play.

The negotiations broke down in early December 1994; the owners voted for a salary cap, but delayed its implementation as a sign of good faith to keep negotiations open.  However, the owners eventually unilaterally implemented the salary cap.

Then, the United States government joined the party.  In January 1995, there were numerous bills introduced in Congress to accelerate the start of the season. President Clinton ordered the players and owners to seek a resolution by February 6; a date which passed with no action.

With this impasse, the owners approved the use of replacement players for spring training, offering a reported $5,000 guarantee for spring training and another $5,000 for any player who made the Opening day roster.  There were two major issues with replacement players:

  • The Ontario New Democratic Party passed legislation prohibiting replacement workers. Thus, games in Ontario could not be played with replacement players (or umpires), forcing the  Toronto Blue Jays to move their games from Sky Dome (with an attendance capacity of over 50,000) to their Florida spring training facility (with a capacity of only 8,500).
  • The Baltimore Orioles, owned by prominent union lawyer Peter Angelos, refused to use replacement players and, in mid-March, cancelled the Orioles spring training games. Immediately following Angelos’ decision, the Maryland House of Delegates introduced and approved legislation barring replacement players from playing games at Camden Yards.

While this acrimony between MLB and MLBPA was ongoing, MLB implemented a 144-game schedule for replacement players in March.

On March 28, the players voted to return to work with the support of the National Labor Relations Board.  MLPBA sought an injunction against unfair labor practices in District Court.  Future Supreme Court Justice Judge Sonia Sotomayor granted the injunction, and paved the way for the resumption of the 1995 season.  MLB and MLBPA agreed to a three-week spring training and the 144 game schedule initially set for the replacement players.

As a result of the strike, baseball again suffered irreparable harm. Attendance dropped from its all-time average/game high of approximately 31,250 in 1994, cratering to 25,000 in 1995, recovering to 28,030 in 1998, during a season fueled by the assault on Roger Maris’ sacred single season home run record of 61 dingers. Attendance did not reach pre-strike levels until 2007.  (It is difficult to determine actual attendance since MLB uses ticket sales as their barometer.)

The Big Picture

There are serious labor issues to negotiate here that could have a lasting effect on the financial foundation of the sport. Scott Boras, a baseball agent known for his tenacity, has joined the fray on behalf of his players, but, more likely, to influence and convince MLBPA to not acquiesce to the owners’ proposal.  Boras is trying to step into the shoes of Marvin Miller and Donald Fehr, the most successful MLBPA executive directors. 

Many industry insiders and economists consider Boras to be “The Most Powerful Sports Agent in the World” since his specialty is the record-breaking contract that sets the bar and the umbrella for all other players. However, for all his skill and acumen, Boras is a polarizing figure, revered by his clients, respected by his peers (if there are any), but not so much by the owners.  As a precursor to a counter proposal by MLPBA outlining their compensation demands, Boras issued a memo via email to clients, released by the Associated Press, advising them to stand their ground and not give into owners pressuring them to accept lower pay for the 2020 season.

The email, as released: “If this was just about baseball, playing games would give the owners enough money to pay the players their full prorated salary and run the baseball organization. The owners current problem is a result of the money they borrowed when they purchased their franchises, renovated their stadiums or developed land around their ballparks.  This type of financing is allowed and encouraged by MLB because it has resulted in significant franchise valuations.

“Owners now want players to take significant pay cuts to help them pay their loans. They want a bailout. They are not offering players a share of stadiums, ballpark villages or the club itself, even though salary reductions would help the owners pay for their valuable franchise assets.  These billionaires want the money for free.  No bank would do that. Banks demand loans be repaid with interest.  Players should be entitled to the same respect.”

Boras also advised his clients “to share this concept with your teammates and fellow players.”  This advice did irritate union members and Trevor Bauer tweeted “Hearing a LOT of rumors about a certain player agent meddling in MLBPA’s affairs. If true – I have one thing to say… Scott Boras, rep your clients however you want to, but keep your damn personal agenda out of union business. “   So far, there has been one retort to Bauer’s comments regarding Boras on his twitter feed, but he may be getting heat from his teammates and league-mates privately.

Boras’ comments may be laying the groundwork for MLBPA’s position on the next CBA.  Certainly, MLB is using their proposal as a bargaining chip for the next CBA negotiations. The owners still want cost certainty and to implement a salary cap. The players want arbitration and free agency with shorter service time requirements, since most teams are consciously controlling players’ service time by bringing up MLB-ready players in late April to ensure another year of control and employing a taxi squad methodology on player movement to and from the minors.

About James A. Jacaruso Jr.

James A. Jacaruso Jr. is a Personal Wealth Advisors Group Director with more than 25 years of tax compliance and planning experience focusing on personal and fiduciary income taxation, gift taxation and wealth transfer planning.