Baseball’s Owners Are Winning the Game Behind the Game

(Bloomberg Businessweek) -- Visitors entering the 30th-floor lobby of Major League Baseball’s old headquarters on Park Avenue in New York a few years back would immediately encounter 30 mannequins, one for each of the league’s teams. The display was impressive, but some players who visited the offices couldn’t help but notice what each mannequin was missing: its head.

“Why should the Angels jersey not have a face when you have Mike Trout or Shohei Ohtani?” asks Andrew Miller, referring, respectively, to one of the greatest offensive players of all time and the Japanese star seen by many as the second coming of Babe Ruth. An MLB spokesperson says the installation was intended to show off the uniforms for the benefit of merchandisers and licensees. But for Miller, the display was symbolic of how the league sees its players. “There’s not a whole lot of respect coming from them toward us at times,” says Miller, a 36-year-old reliever and one of the eight players on the executive subcommittee of the Major League Baseball Players Association. “It’s almost like they dehumanize who the players are and what they bring. We just become chess pieces.”

Baseball’s commissioner, Rob Manfred, is a Harvard-trained labor lawyer who’s served as the league’s chief negotiator for several collective bargaining agreements starting in 2002. Despite his adversarial history, Manfred promised a new era of labor relations when he took the top job in 2015. “I am a player guy—all the time,” he told espn.com that year.

He isn’t. Some fans still believe a commissioner is an impartial figure, tirelessly working for the good of the sport. But Manfred’s central mandate is to continuously increase the revenue, profitability, and value of the league’s 30 franchises—while privately working on behalf of his 30 billionaire (or near enough) bosses, the teams’ owners. Like every professional sports commissioner, he’s an owner guy—all the time.

Despite Manfred’s statements of support for the players, they see him for what he is. “How did owners amass the wealth to be able to purchase their teams?” asks one recently retired player, who requested anonymity for fear of harming his job prospects in the sport. “By being ruthless, arguably exploitative, and you do that until someone stands up and forces you to pivot.”

The players’ union has long served as a check on this behavior. The MLBPA is considered not only the strongest union in sports but one of the strongest in the U.S. It successfully fought to institute free agency years (and in some cases decades) before the concept came to other major sports, and it’s staved off the hard salary caps that formally limit the earnings potential of athletes in most other American professional leagues.

These fights have created a significant level of bitterness. “Each side is convinced the other side is fundamentally evil,” says Fay Vincent, who was widely viewed as the last commissioner to try to maintain some neutrality, until he was ousted by the owners in 1992. “Not just wrong or stupid. Evil. Morally wrong and corrupt. That moral tone is what built the union into a great success.”

Those negative feelings, on the players’ side anyway, only increased in the five years after the first collective bargaining agreement of Manfred’s commissionership was signed. That deal quickly came to feel like a blowout loss for the union. Although league revenue continued to soar (pandemic-related losses aside), the median player salary declined 30%, from a record $1.65 million in 2015 to $1.15 million in 2021, according to the Associated Press.

Three factors have primarily contributed to salary suppression. One is that certain teams have little incentive to pay up, either because they’re tanking (deliberately losing to try to acquire high draft picks) or because they realize they can run a profitable business even while struggling on the field.

A second factor is the entrenchment among front offices of Wall Street-style valuation and efficiency techniques. Teams (some of them, anyway) still award huge contracts to outright superstars, but they increasingly fill out their rosters with young, cheap players at the expense of midlevel veterans. Most players must accept the league’s minimum salary for the first three years of their careers and don’t become free agents until after their sixth season. So while the league now has nine players on long-term, guaranteed contracts worth more than $300 million each—all of which rank among the richest deals for any athlete in the world—more than half of all ballplayers work at or close to the league minimum, which was $570,500 last year. As the 2018 season approached, there were so many unsigned free agents that the union held its own spring training camp for them.

The final factor is the Competitive Balance Tax, colloquially known as the luxury tax. The levy was first agreed to in 1996, as a mechanism to promote parity between clubs with disparate financial resources. It requires teams that exceed a negotiated payroll threshold to pay burdensome penalties, which escalate for repeat offenders. But the tax increasingly seems to many players a euphemism for something their union has always viewed as a red line: a salary cap. “The clubs use competitive balance as a synonym for, ‘We don’t want to pay you as much as you want,’ ” says Gene Orza, a longtime union official who retired in 2011. As recently as 2016, six teams exceeded the salary threshold. Last year only two did—the Los Angeles Dodgers and the San Diego Padres—while, notably, five others spent right up to it without crossing it.

“When we see large markets essentially spend at the same level they were 16 or 18 years ago, we have an issue with that,” Miller says. He’s talking specifically about one of his old teams, the Yankees, whose payroll ended up at $207 million in 2005 and $206 million last season, even as the franchise’s value increased from $950 million to $5.25 billion, according to estimates from Forbes. Miller and the other players “got out-traded,” Vincent says. “They didn’t realize what they’d agreed to.”

It’s no secret that baseball has lost its centrality to American culture. Football is now our national pastime, and baseball fans are getting ever older. When the Sports Business Journal conducted a poll in 2017, the average MLB fan was 57, compared with 50 for the NFL and 42 for the NBA. But as a moneymaking enterprise, the sport has never seemed healthier. Buoyed by massive TV contracts, league revenue (the combined receipts of all 30 clubs) doubled from 2006 to 2019, to more than $10 billion.

As the two sides sat down to negotiate a new five-year agreement, set to take effect for the 2022 season, they both knew the one thing that could significantly harm the industry’s prospects was the cancellation of games. Some 948 of them were lost during the players’ strike of 1994-95, as well as the World Series, and fans were so disgusted it took the league years to bounce back. Despite that, Manfred locked the players out in early December, creating the league’s first work stoppage in almost three decades, throwing the season into doubt and once again presenting players with a selection of difficult choices.

Each spring the union’s top officials visit each club’s players for a closed-door, hourlong meeting. For the past four years or so, the message they’ve delivered has been consistent: “Save your money, prepare for battle, it’s us against them,” the anonymous retired player describes it.

When it came time to bargain, some thought the union might fight for a major structural overhaul: significantly cutting the number of years before a player can become a free agent, perhaps, as many players have peaked well before they’ve reached the six-year requirement, or even doing away with the Competitive Balance Tax entirely. Instead the union proposed tweaks to the status quo that it felt might allow players to receive a fairer share, such as allowing older players to reach free agency after five seasons and raising the luxury tax threshold to $240 million starting in 2022. “Collective bargaining produces incremental change. It doesn’t produce a revolution,” Orza says.

As soon as the old agreement expired, Manfred went ahead with the lockout anyway. Starting on Dec. 2, teams were prohibited from signing, trading, or even contacting players. Given that it was the offseason, paychecks and games weren’t immediately at stake. Manfred said the move was designed to “jump-start the negotiations.” Yet the league waited 43 days to respond to the players’ final pre-lockout proposal.

Then came a cascade of pressure, threats, and deadlines. The league wiped players’ headshots from its website—on the advice of outside counsel, a spokesperson said. On Feb. 18, Manfred announced the postponement of the first week of spring training games. On March 1, with talks dragging on, he went further: The first two series of the regular season (six games for most teams) would be canceled. “I had hoped against hope that I would not have to have this particular press conference,” he said.

Manfred’s voice sounded pained, but at other times he seemed relaxed and in control. Hours earlier, an AP photographer had captured him in the stands of a spring training stadium in Jupiter, Fla., where the negotiating parties had convened for marathon sessions. He seemed to be working on his golf swing, holding a phantom club.

Historically, baseball fans have either sided with the owners in labor negotiations (“These greedy players earn millions to play a kid’s game!”) or have at least remained angrily agnostic (“Who cares if the millionaires or the billionaires win? Let’s just see some baseball!”). That changed this time. According to a Morning Consult poll from early March, 45% of fans blamed owners for the labor strife, compared with only 21% who blamed the players.

Manfred’s simulated 5-iron didn’t help, but perhaps the swing in public opinion reflected a broader recognition of the vast difference between millionaires and billionaires—and that many players aren’t millionaires to begin with, and never will be. Perhaps it was also because the players could use social media to plead their case. “We just want a fair deal/to play ball,” tweeted San Francisco Giants pitcher Alex Wood. “Manfred gotta go,” tweeted Chicago Cubs pitcher Marcus Stroman.

Even so, the commissioner ventured that the cancellation of games, with the prospect of more to come, would be enough to put the players into something close to checkmate. Despite their union’s solidarity, the players—especially the many minimum-salaried ones who have no guarantees as to their career’s longevity—had far less capacity to bear the cost of missing games than the club owners, no matter how much they’d managed to squirrel away.

On March 10—after 11 months of bitter negotiations, 99 days into the second-longest work stoppage in league history, and hours after Manfred had signaled his intention to eliminate a second week of games—the league presented its latest “best and final” offer. It still wasn’t good enough for Miller and the other seven veterans on the union’s executive subcommittee. All eight voted against the proposal, believing they could get more from Manfred, to create a more equitable system for the players who would come after them.

The rank and file disagreed, motivated by the threat of missed paychecks—perhaps a less immediately pressing matter for the subcommittee, each of whom has earned more than $31 million in his career. The broader union overwhelmingly desired to get back on the field; 26 of the 30 club reps voted yea to the deal. The owners unanimously ratified it. The canceled games were rescheduled. Opening Day is April 7.

“The way the process of collective bargaining is designed to work under the statute, it’s really driven by two things: time and economic leverage,” Manfred explained at his post-agreement news conference. He’d always had both on his side.

The agreement appears to include real, if incremental, gains for the players. Among them: The luxury tax threshold will rise by a record 9.5% this season, to $230 million in the first year and $244 million in the fifth; minimum salaries will increase to $700,000 and climb to $780,000 in the fifth year; and minimum-salaried players will also be able to draw from a new performance-based bonus pool that totals $50 million per season, with benchmarks set league-wide.

“We made significant changes as far as the younger players that are most taken advantage of,” Miller says, proud of that accomplishment despite his vote. “It’s a special raise for them. But the reality is we can’t really judge the deal until we see it in action.” After a winter spent fighting for the rights of colleagues, Miller announced his retirement from baseball on March 24.

It took only a few days for certain implications of the deal to reveal themselves. A few ultrawealthy owners will continue to spend big, despite the luxury tax. These include Steve Cohen, the controversial hedge fund manager who purchased the New York Mets for $2.48 billion in 2020 and who’s run his club’s payroll up to $252 million this year, the league’s second-highest.

But the agreement has done little to motivate other owners to field winning teams or to promote financial competitive balance. Once rosters were unfrozen, the Oakland A’s and the Cincinnati Reds—both small-market teams with winning records last year—began selling off many of their expensive players. According to the sports contracts resource Spotrac, the four highest-spending teams are set to carry average payrolls of $247 million this season, more than 6 ½ times the average of the four lowest-spending teams, at $37 million. Because of revenue sharing, which helps guarantee each team at least $100 million annually from TV deals, those low spenders may play embarrassing baseball, but they’ll likely turn a year-over-year profit anyway.

And none of this calculus factors in a central source of the owners’ wealth: the ever-escalating value of their franchises, to which the players contribute but receive no direct profit from, as they might in industries such as tech or film and TV. The average club is now worth $2.07 billion, according to Forbes’s recently released annual valuations—a 624% increase from 2001. “While the unions have been overwhelmingly successful, the owners have laughed and said, ‘Look, guys, you don’t own a single share of our major asset,’ ” says Vincent, the former commissioner. He envisions a day in which the owners might find a way to share more of the wealth with players—to genuinely go into business with them. But at 84, Vincent knows he won’t be around to see such a partnership. In all likelihood, neither will the 63-year-old Manfred. “One of the things I’m supposed to do is promote a good relationship with our players,” Manfred told reporters, seven years after he’d declared himself a “player guy.” “I’ve tried to do that. I think that I have not been successful in that.”

There have been some small gestures. In 2020, for instance, Major League Baseball moved its headquarters to Sixth Avenue. The headless mannequins didn’t make the journey, but last year the facade of the new building was draped with huge banners depicting the sport’s biggest stars: Trout and Ohtani, as well as Aaron Judge, Ronald Acuña Jr., Juan Soto, and others. A nice symbol, perhaps. But as the lockout showed, Manfred has mastered baseball’s game behind the game, and a warm relationship with the players isn’t part of it.

©2022 Bloomberg L.P.