Baseball Negotiations Update: Players expand the pie, owners counter

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Yesterday, the Major League Baseball Players Association submitted a comprehensive return-to-play counterproposal governing the 2020 season to MLB owners during a contentious, online meeting. Players were responding to a proposal made less than a week ago by the owners. That offer was a proposed adjustment to a March agreement between the owners and players governing 2020. The March deal had established a simple pro-rated formula to determine player salaries.

Each side immediately leaked strong rejection of the other’s most recent offer. Are the two sides at an impasse that will doom the resumption of the nation’s pastime? Let’s look at the details.

What’s in the MLBPA Offer and How Does it Compare to MLB’s 5/26 Offer

Regular Season The March agreement gave the Commissioner (owners) the power to determine when the season starts and the schedule. The owners May 26 offer proposed an 82-game season starting in early July and ending in September. The MLBPA proposed a 114-game regular season that would start June 30 and end October 31 and include more double-headers.

Expanded Postseason The owners had proposed the postseason be expanded from 10 to 14 teams as a way to generate more money from the broadcast rights. The union proposal supports an expanded postseason structure for both the 2020 and 2021 seasons.

Salary Deferral The union proposal allowed for $100 million of player salaries to be deferred if the 2020 postseason is cancelled or shortened. The deferral would come from players making more than $10 million before pro-ration and paid in two payments, with interest, November 2021 and November 2022. Players making less than $10 million wouldn’t defer any salary.

Salary Advance Players would receive a $100 million salary advance during training camp. This is in addition to the $170 million payment players received per the March agreement in the event the 2020 season was cancelled. These monies are considered part of, not in addition to, the players salaries.

Health Opt-Out The owners’ initial health and safety proposal included an unpaid opt-out provision. Under the union proposal, a player considered “high risk” for COVID-19 can opt out of the season and still receive his prorated salary and service time. This provision extends to players who have spouses, children or other live-in family members with pre-existing health conditions. Players who are not high risk may still opt out, but they would receive no salary, just service time.

Revenue Enhancers Players would participate in broadcast enhancers, such as in-game microphone use and programming away from the ballpark. They would also support an offseason Home Run Derby and All-Star Game.

No Pay Cut The owners’ May 26 proposal included a round of substantial salary cuts, weighted heavily against players earning the highest salaries. Under the union proposal, players continue to insist the owners abide by the March agreement to pay a pro-rated amount based on the number of games. Even with the proposed deferrals, players would eventually receive all their March agreement salary.

OK With Roster Changes The players seem to have accepted MLB’s proposal of increasing active rosters from 26 to 30 and creation of a 20-player taxi squad. The DH would be used in the NL as well as the AL.

Analysis: What’s Going On?

Negotiations between baseball owners and the players union are governed by federal collective bargaining law. Both sides are required by the National Labor Relations Act to engage in good faith bargaining over wages, hours and working conditions. In the case of the March agreement, a pro-rated wages formula was agreed to. Hours are to be set by the Commissioner (owners) through the schedule. And working conditions are health and safety considerations that were put off to a later time.

As long as the players are careful to not reopen the subject of wages, it’s considered a closed issue and governed by the March agreement. They are not obligated to bargain on that topic. Notice that none of the proposals in yesterday’s MLBPA offer opened up the pro-rated salary formula. The instant the players make a wage-related counterproposal, they lose the March agreement as a baseline and would be obligated to negotiate in good faith.

A key question is what is the financial effect of playing more games? Owners say they lose money each game played without fans. But they haven’t opened their books to prove that and there is reason to be skeptical of that claim. Independent analysts have calculated that isn’t the case [Craig Edwards, FanGraphs] and  that owners would make money per game above and beyond player salaries. But owners may also be motivated to keep the regular season shorter to minimize the risk that a second wave of the coronavirus might cancel the highly profitable postseason. Avoiding ratings competition with the NFL in November might be another factor pushing for the shorter season.

Regarding the opt-out clause, MLB is governed by the federal Family and Medical Leave Act. The owners proposal allowing players to opt out was simply following what federal law already allowed for the players — unpaid leave when there is inability to work. The players proposal goes beyond that by guaranteeing pay and service time and including consideration of people beyond the worker himself. This doesn’t seem like a big sticking point since the vast majority of players presumably want to play (the MLBPA has likely surveyed its members and knows exactly how many they are negotiating for here). Beyond that, opt-out doesn’t cost owners much because replacement players would be paid league minimum or low salaries.

What is not receiving much attention and should be is the players offer to play in an extra round of the 2021 postseason and an extra All-Star Game and Home Run Derby. Those are highly profitable events for the sport, bringing hundreds of millions in broadcast rights. Assuming a time could be found to play them, Edwards estimates these concessions could generate a half-billion dollars or more.

What the players have done here is called “integrative bargaining” or expanding the pie. Instead of only fighting over a fixed amount of money, they added value by suggesting more postseason games and profitable fan events. The owners’ interest after all is making money and Home Run Derbies and All-Star Games make them money. The union’s recent offer added several win-win components to a win-lose framework.

Where Are Things Headed?

First, the bad news. There isn’t much time to work this out. The MLBPA proposal came five days after MLB’s initial offer. If the season is to start around the first of July and three weeks is the minimum time needed for training camp, when you add a few travel and testing days, the two sides have about a week to reach an agreement. There’s seemingly much ground to be bridged.

Can it be done?

The answer is yes, and the union’s offer moved a large step in that direction.

Here’s the salary context. The “wage bill” (total salary due to be earned by the players) before the coronavirus hit was $4 billion. The March agreement lowered that to $2 billion using pro-rated salaries and an 82-game season. The owner’s May 26 proposal cut salaries further to $1.2 billion paid for the 82-game schedule. The union’s offer, on the other hand, moves the wage bill up to $2.8 billion because the number of games is increased from 82 to 114. That creates a gap between yesterday’s MLBPA offer and the owner’s new proposal at $1.6 billion. Sounds like things are headed in the wrong direction.

But remember, the gap between the March agreement and the owner’s latest proposal is only $800 million.

That puts the contours of a deal in view: An 82-game regular season with pro-rated salaries, an extra postseason round in 2020 and 2021, an All-Star Game and Home Run Derby would close that $800 million gap by half or two-thirds. Salary deferral could close the gap further, at least in the near term. Players could agree to deferred payments in the regular season in addition to boosting what the high-salaried players will do if the postseason is cancelled.

Then it would come down to the owners. They haven’t budged on their refusal to turn over financial information. The looming CBA negotiations next year make that even less likely. Would the owners be willing to eat a little bit of loss this year — less than $10 million per team — to avoid opening up their books?

Many owners might be able to make that up with added non-baseball revenue. Organizations that have acquired a share of their regional sports networks could see added profit due to higher ratings from sports-starved fans, depending on what advertisers could pay in the current economic environment.

Bottom Line

It might appear negotiations between the owners and players are stalled because neither side engaged in a meaningful way over the question of player salaries. But the sides are getting closer by expanding negotiations to new areas that can be combined later and traded. The March agreement has the effect of locking in wages and the number of games at least until a comprehensive agreement is made. Instead of watching those issues, pay closer attention to the other items that create value for various sides.

This is a typical second-phase of negotiations where both sides have set down markers and are looking for new issues that can make both sides better off.

Further, the MLBPA’s proposal does seem built to win over fans. Through it, players expressed a willingness and eagerness to play more baseball, including more postseason games and fan-favorite fun events. But those last concessions are also important revenue streams for owners and bridge the salary gap in a major league way.

Keep in mind, this can all vanish in the blink of an eye with a resurgence of the coronavirus. But if that outcome can be staved off, it looks like money won’t turn out to be a reason to prevent us from watching baseball.

Update: The Owners Respond

As we were about to publish this article, news broke that owners will counter the players offer with a 50-game schedule and use the pro-rating formula from the March agreement.

This is a positive step forward in reaching a final agreement. Such a proposal would mean the owners had accepted prorating as the formula for salaries and abandoned the cuts they proposed a week ago.  Yes, the March agreement gives owners the right to make the season 50 games, but it’s unlikely to end up there. The players could take the added value items (Home Run Derby, All-Star Game and expanded 2021 postseason) off the table. The legitimacy of such an extremely abbreviated season would be questioned by fans. Beyond that, do the owners really want to be the ones preventing so much baseball?

Note: The players have offered 114 games, the owners may counter with 50. The midpoint between those two numbers is 82. If you believe that’s a coincidence, I have a bridge spanning the Ohio River to sell you.

Finally, the speed at which the owners countered the players offer is encouraging. Negotiations often move rapidly when a deal is near.