ESPN.com - Work Stoppage 101: The issues

ESPN.com: Sports Business

Thursday, June 6, 2002
Updated: August 12, 3:54 PM ET
Work Stoppage 101: The issues

By Darren Rovell
ESPN.com

The threat of a late-season player strike continues to gain momentum, forcing baseball fans to contemplate the unfathomable thought of scratching a big "X" through the month of September on their pocket schedules.

Both the owners and the Players Association admit they are not close to agreeing to a new Collective Bargaining Agreement, which will replace the old one that was extended through the 2002 season.

"I would like to tell you that I could predict what will happen, how it will happen and when it will happen, but that would be a pretty foolish exercise," union head Donald Fehr told ESPN.com. Although Fehr denies that the Players Association has set a strike date, it's apparent he would have to call for a strike before the end of the season to have any leverage with the owners, who could eventually attempt to impose their own rules should negotations reach an impasse.

Another Work Stoppage?
Is baseball heading towards its ninth work stoppage? Details of the previous eight, including the main issue of contention:
Year	Stoppage	Days	Games lost	Issue
1972	Strike	14	86	Pensions
1973	Lockout	12	0*	Salary arbitration
1976	Lockout	17	0*	Free agency
1980	Strike	8	0*	Free-agent compensation
1981	Strike	50	712	Free-agent compensation
1985	Strike	2	0	Salary arbitration
1990	Lockout	32	0*	Arbitration, salary cap
94-95	Strike	232	938	Salary cap, revenue sharing
* occured during spring training

The owners have promised there would be no lockout until after the 2002 World Series. "We could have locked out the players during spring training," said Tom Ostertag, general counsel for Major League Baseball. "We could have locked them out on Opening Day, but we pledged to play the whole season."

As if the history of differences weren't enough -- this would be the ninth work stoppage since 1972 -- threats of contraction stalled the negotiating process, as baseball and the union focused attention on a hearing on the antitrust exemption in front of the House Judiciary Committee, court battles in Minnesota and an arbitration hearing over the legalities of contraction. Since Fehr says he would negotiate differently with 28 teams as opposed to 30 teams, the waiting game will likely continue until at least mid-July, when arbitrator Shyam Das is scheduled to rule on whether or not the league can unilaterally contract teams without the approval of the union.

Baseball officials say they want to make progress in the negotations -- and soon. "I think there will be teams that cannot sustain a work stoppage and will not come back," said Bob DuPuy, president and CEO of Major League Baseball.

Combine contraction with the complexities of new "hot button" issues like the 60/40 rule, the commissioner's discretionary fund and drug testing and it's easy to see why the two sides are so far apart. Baseball, concerned about public opinion, has been sending top executives Rob Manfred and Sandy Alderson to major-league cities across the country to explain baseball's stance on the issues.

However, the negotations are much more complex than the owners and union figuring out how to share the wealth of a $3.5 billion industry.

"What we have is a mosaic and all the pieces have to come together," Fehr said. "We have to predict how the behavior of the clubs will change and how the behavior of the players will change and that means that you can never discuss one part in isolation."

Here are the key negotiating points and where the owners and players stand on each:

1. Revenue sharing
Owners: The owners want increased revenue sharing among teams because they believe it will make the game more competitive. The Expos, who made $9.8 million in local revenue last year, can't spend like the Yankees, who made $217.8 million in local revenue last year. The owners want to increase local revenue (which primarily includes local broadcast deals, gate receipts and concession/merchandise revenue) sharing from 20 percent to 50 percent -- in a straight pool format, that would equally divide all shared revenue among the 30 teams. This plan would redistribute $253 million. The existing revenue-sharing plan redistributed $166 million in 2001, mostly from high-revenue teams to low-revenue teams.

The owners say they will require a payroll floor of $45 million, so that owners like the Twins' Carl Pohlad can't pocket the extra money. However, that $45 million includes all salaries on the 40-man roster and also includes any payments to terminated players. Under this formula, only a handful of teams are slightly under the $45 million requirement. While the union argues that teams have the right to keep most of the money they make, baseball officials contend that revenue is not completely local because it takes two teams to play each game.

Players: The union contends that taking money away from the high-revenue teams hurts clubs that are willing to spend more for players. Since there is a direct relationship between local revenue and payroll, spreading revenues more evenly will result in the lowering of player salaries for the top free agents. "What you do locally is just about the only thing that does matter in baseball," Fehr said. The union has proposed to raise revenue sharing to 22.5 percent, but seeks a formula where the truly suffering teams would receive most of the shared revenue.

2. "Competitive balance" tax
Owners: Although lower payroll teams sometimes make the playoffs, they rarely win. Over the last seven years, 225 playoff games have been played and only five have been won by teams in the bottom half of league payroll. Under the proposed plan, teams will be taxed 50 cents for each payroll dollar they spend over $98 million. If the Yankees' payroll is $150 million, owner George Steinbrenner will be taxed $26 million, which would then be added to the commissioner's discretionary fund (see No. 4, below).

The owners believe this will deter payroll spending more than the 34-35 percent luxury tax that was part of the Collective Bargaining Agreement from 1997-1999. "We want some drag at the top," DuPuy said. "Something that will help bring the payrolls closer." Along with the tax, management also proposes a worldwide amateur draft so that teams with high payrolls don't have advantages in the bidding wars for talent.

Players: The players believe that taxing teams that spend the most is not fair. "Nobody disputes that (the competitive balance tax) is a salary constraint," Fehr said. "Here we are in 21st century America, in a free market system, penalizing some organization for hiring somebody." If the Yankees wanted to sign a free-agent pitcher at $15 million a year, it would really cost the team $22.5 million under the "competitive balance tax" rules. Not only would that likely cause the Yankees -- and other teams with payrolls already over $98 million -- to hesitate signing free agents, but it will also theoretically allow teams below the threshold to perhaps pay the player less because there is less competition in the marketplace. The union has always contended that no one forces the owners to spend, yet salaries continue to rise.

3. 60/40 debt rule
Owners: In 1975, then-owner Bud Selig helped write a rule that a team can't have debt higher than 40 percent of its asset value (twice the amount of the team's gross revenue). Eight years later -- when the rule was first attempted to be enforced -- the union filed a grievance saying it was a constraint of the free market system. In a decision rendered in January of 1985, arbitrator Richard Bloch ruled that the 60/40 rule did not impede free agent bargaining. MLB didn't enforce the rule for more than a decade, but Selig sent a note to teams on March 7, saying the rule would now be enforced, and that debt would include stadium debt, loans and long-term player contracts. Repercussions for violating the rule could include fines, taking away national television money or placing the franchise in trusteeship. The owners do not believe this has to be in the Collective Bargaining Agreement, contending it can be unilaterally imposed based on the arbitrator's decision 17� years ago.

Players: Union representatives do think the 60/40 rule is a matter of bargaining. Since the definition of team debt now includes long-term contracts, Fehr believes that the 1985 ruling doesn't necessarily apply and in its present form serves as a de facto salary cap since it could limit future signings. "They don't enforce it for so many years and now they say they are going to enforce it and change the definition of what it means?" Fehr said. "We believe it has to be negotiated."

4. Commissioner's discretionary fund
Owners: As part of the increased revenue sharing proposal, management has proposed to allocate a pool of money that Selig can spend as he wants -- such as helping out with stadium building or providing loans to struggling teams.

Players: If there is a proposal that appears to have no chance of union approval, it's this one. The history of mistrust means the union won't allow Selig free rein with shared money. Giving Selig money to give out or hold back at will is a tougher sell considering that Selig's daughter is still running the Brewers and it could get ugly if he denies aid to those teams that compete with the Brewers.

5. Drug policy
Owners: Bargaining for a drug policy -- especially performance-enhancing drugs -- is very important for the owners. Even before the recent news surrounding the admission of steroid use by 1996 MVP Ken Caminiti, baseball officials, like their counterparts in the NBA and the NFL, wanted to protect their investment in players as well as send the right message to young fans. "Management has tried to do something since the '80s and the union has resisted," DuPuy said. "So far they have told us that they have no interest in seeing the players tested for drugs."

Players: The Players Association feels there are privacy issues involved with random testing and believes it isn't necessarily baseball's responsibility to test for recreational drugs. Fehr would not talk specifically about his objections, but did say that Major League Baseball and the Players Association each have an appointed doctor that tests players confidentially. "We do have drug testing," Fehr said. "People just don't know about it." But DuPuy said that testing only occurs when players, such as Darryl Strawberry, are caught with drugs of abuse.

6. Arbitration
Owners: Arbitration currently allows the team and player to each exchange salary figures. If the sides don't agree on a contract, an arbitator chooses one of the two salaries. Under the new proposal, the owners want a five-day window after the salary figures are exchanged (in early January) that would allow them to cut the player and thus make him an unrestricted free agent.

Players: The union doesn't think the owners should have the right to release the player. Doing so in mid-January, for example, could flood the market with free agents and upset the negotiations with other free agents.

7. "Central information bank"
Owners: Baseball wants to be able to call up the Players Association and check on all offers by all teams to free agents. "We want to be able to verify that the numbers on the offers that agents are giving our clubs are real," DuPuy said.

Players: The Players Association believes that such a bank would restrict the free market if each team knows exactly what others are bidding. In effect, it's legalized collusion, they argue. Of course, collusion doesn't technically take place unless teams make a behind-the-back agreement on a specific player.

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn.com.