CHAPTER NINE

Labor Matters: Unions

INTRODUCTION

Similar to many other industries in which unions represent the collective interests of employees, management and labor in many sports leagues use a collective bargaining agreement (CBA) to set forth the rules regarding how they will conduct business and resolve disputes between one another. Athletes in the NBA, NFL, NHL (and the minor league AHL and ECHL), MLB (and its affiliated minor leagues), MLS, and WNBA are unionized. The CBA creates a system of laws and guidelines that govern the relationship between management and the union. This agreement is hammered out in the collective bargaining process, a negotiation that in sports, as in other industries, is bounded by the economic weapons of a management lockout or union strike, both of which are legally protected by the National Labor Relations Act.

The CBA is particularly important in professional sports leagues for three reasons. First, the cumulative wages earned by all of the members of the union typically represent what is far and away the largest expense for the members of the league. Athletes in the NBA, NHL, NFL, and MLB receive between 50–60% of the revenues generated by the league. This dwarfs the percentage of revenues that unions in other industries receive. In sports, the CBA is the basis for determining the parameters of a number of issues that are fundamental to a league’s success. The league’s duration (length of season), talent distribution mechanisms (entry draft), salary containment mechanisms (salary cap, luxury tax, and maximum individual player salary limit), salary inflators (free agency, salary arbitration, and minimum player salary limit), employee termination procedures (waivers), workplace integrity and discipline (player suspensions and drug testing policy and procedures), dispute resolution systems (grievance arbitration systems), and even the manner in which the employers redistribute their own wealth (revenue sharing, in some leagues) are all among the topics included in a CBA.

Having an agreement that makes fiscal sense for management is of utmost importance; in the modern era, this means that a salary cost-containment mechanism is included in most CBAs. It should be noted that the legal framework is important here as well. It is now established precedent that the mandatory subjects of bargaining included in a bona fide agreement between union and management will receive legal protection from the application of the antitrust laws through what is known as the nonstatutory labor exemption. (Such mandatory subjects include those concerning wages, hours, and terms and conditions of employment.) For example, sports leagues are monopolies that dictate to employees where they will work and the maximum wages they can earn if they are to work in the league. These are employment conditions that businesses in other industries would find extremely desirable, and they are legal in sports leagues because the parties have collectively bargained to hold a draft and set maximum player salaries and salary caps.

Second, all of the unions in professional sports are composed of employees whose average career is less than 5 years long. Errors in collective bargaining that cannot be corrected until the next agreement can impact an athlete’s earning capacity for his entire career. With player salaries relatively low during the early stage of the athlete’s career, it is imperative for the players’ association to gain free agency rights for its members as early as possible so that the athletes can maximize their earnings during their short careers. Most athletes only get to sign one free-agent contract; this “bite of the apple” can provide the athlete with financial security for the remainder of his or her life if the money earned is handled correctly. The stakes are high for the union.

Nonetheless, the media and public often look unfavorably upon the players’ associations during labor strife, a dilemma that results from having high-profile unions populated by a number of multimillionaires. The players’ associations in professional sports leagues are among the most powerful in the world, and their memberships have a degree of wealth that is unlike that of any other union. Despite the fact that they are negotiating with a management side that has considerably more wealth, public opinion is usually against the unions.

Third, the “major” leagues in professional sports represent the top level of competition in that sport because of the quality of the athletes that play in the league. Unlike in many other industries, the superior talent of the unionized workforce in these leagues is easily recognizable to even the most casual fans. Without the athletes, there are no games and no league product to speak of—even if management engages in its legally protected right to hire replacement workers during a work stoppage, as occurred in the NFL during the 1987 player strike and MLB in the 1994–1995 strike. The entire industry essentially shuts down during a work stoppage. Players lose a year of salary in their already short careers and management loses a year of revenues and risks damaging its business for several years thereafter as fans slowly return to the sport. The NHL shut down for the entire 2004–2005 season during its lockout. This places an enormous amount of pressure on both union and management; although they rarely agree on most issues that arise, they must decide whether it is worth shutting down an entire industry over their disagreements.

Given this pressure, work stoppages should occur only when one of the parties is seeking a “sea change”; that is, a fundamental change to an important collective bargaining issue (usually related to player salaries) that impacts the league’s underlying business model in a dramatic fashion. The most recent work stoppages in each of the major North American professional leagues—the NHL lockout in 2004–2005, the NBA lockout in 1998–1999, the MLB player strike in 1994–1995, and the NFL strike in 1987—were all driven by management’s ultimate desire to gain a salary cost-containment mechanism (a salary cap in the NHL, MLB, and NFL and a luxury tax and maximum player salary in the NBA). The settlements in these disputes were typically a trade-off, where management gained the right to contain player salaries across the entire league in exchange for allowing the athletes to increase their salaries as individuals by liberalizing the free agent system, giving them increased access to the lucrative free agent marketplace. Management was engaged in concession bargaining in all of these agreements, as they sought to curtail the gains made by the athletes in prior agreements.

This was a dramatic shift from earlier collective bargaining eras across the leagues. Collective bargaining in professional sports leagues occurred much later than in other industries, with the first CBA reached in 1968 between MLB and the MLBPA. (See Table 1 for a time line of labor relations in professional sports.) In the first generation of collective bargaining agreements, the unions sought a “sea change” in their efforts to gain pension plans and grievance arbitration rights, both of which were common in other unionized workplaces. The next generations of agreements focused on the unions seeking salary increases via free agency, with management desiring to maintain the historic status quo in which they had perpetual control over the players’ rights, and thus their salaries. Against the backdrop of these eras was a fairly substantial amount of strategic litigation that established the legal framework that would guide the bargaining process. The growth of player salaries that resulted from these gains led to the present era, where management generally has sought concessions and the players have sought to maintain the status quo.

A unique aspect of both the sports and entertainment industries is that the unions allow the individual employees to negotiate their salaries on their own. In contrast to, for example, the United Steelworkers and other unions that establish salaries for all members along with the other collectively negotiated terms and conditions of employment, the salary negotiation in professional sports is typically in the hands of the individual athlete. The CBA establishes a minimum salary floor for negotiations in most sports leagues, and in the case of the NBA and NHL the collective bargaining agreement sets a ceiling as well. Thus, CBAs in professional sports merely set general salary parameters instead of the actual salaries. The next chapter fully explores this compensation issue.

Each of the major North American professional leagues is currently near the end of a long-term CBA that was reached, excepting the NHL, without a work stoppage in the mid-2000s. This stems from a number of factors, not the least of which is the fact that their respective industries were generating record amounts of revenues and that the individual teams generally were generating operating profits and/or appreciating in value, while the athletes, on average, were making substantial amounts of money. An industry where both parties to the CBA are making money is not in need of a “sea change” that leads to work stoppages. The recession that began in 2008 may change that dynamic in future rounds of CBAs, with the owners perhaps seeking to further contain their expenses to compensate for the revenue shortfall that they faced in the latter part of the decade. Current CBAs expire after the 2010 NFL season, the 2011 MLB season, the 2011–2012 NHL season, and the 2010–2011 NBA season. In addition, these will be the first collective bargaining negotiations for the heads of the MLBPA (Michael Weiner), the NFLPA (DeMaurice Smith), and the NHLPA. It will be interesting to see how this affects the collective bargaining dynamic as they lead the unions in negotiations with their respective league counterparts.

The MLBPA is considered by many to be one of the strongest unions in existence in any industry. The articles by Andrew Hanson and Andrew Zimbalist provide a good overview of the MLBPA and set forth the framework for collective bargaining in MLB. The article by Ryan Dryer continues the discussion by taking a broader view of collective bargaining across all of the major sports leagues. The chapter concludes with a selection by Paul Staudohar that focuses on the NHL lockout of 2004–2005 and its resolution. The NHL is the only sports league to-date to have an entire season cancelled by a work stoppage, a dubious distinction.

MICROPERSPECTIVE: THE BASEBALL STORY

THE TREND TOWARD PRINCIPLED NEGOTIATION IN MAJOR LEAGUE BASEBALL COLLECTIVE BARGAINING

Andrew P. Hanson

Americans love baseball. It is a classic form of entertainment highlighted by graceful and powerful athletic prowess. It is also a daily dose of drama. Every morning, fans can open up the sports page, digest the box scores, and learn whether their team triumphed or failed the night before. The drama is not guaranteed, however. It depends on competition.

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To protect the allure of the game, the parties in charge of making the rules need to establish a framework that is designed to foster an attractive brand of athletic competition. The parties who share that task are the Labor Relations Departments—the negotiators for the owners—and the Major League Baseball Players Association (the Union), which represents the players. These parties seek to foster that attractive brand of athletic competition by engaging in a collective bargaining process every few years to establish the rules for the upcoming seasons.

The rules that are created in the terms of a collective bargaining agreement (CBA) are like the laws of the baseball industry. They govern a certain number of seasons and dictate, inter alia, how many games are played, the minimum salaries for the players, and what rights a player has to use free agency to increase his salary or play for a different team.

Historically, the collective bargaining process in baseball has been fraught with tension and strife.¹ Between 1972 and 1994, every time the owners and the players attempted to negotiate a new contract there was either a union strike or a management lockout.² Tension between the two sides reached an all time high in 1994 when the players went on strike and the World Series was canceled for the first time since 1904.³ In 2002, however, the parties reached an agreement the same day of a scheduled strike, thereby avoiding another work stoppage.⁴

The 2002 agreement appears to have been a turning point in baseball’s labor war. In October 2006, the owners and the players agreed to the terms of the newest CBA two months prior to the expiration of the previous agreement.⁵ This type of cooperative outcome had never occurred in baseball. This project is an effort to determine what factors led to this cooperative outcome, and what will need to be done in the future to ensure there is a critical mass of financially stable teams and that baseball’s core element of competition continues to be present.

Why were the parties able to negotiate a new collective bargaining agreement in 2006 with such relative ease? It was the result of complex legal, financial, and psychological factors, as well as the parties’ negotiating strategies and styles that had led to the 1997 CBA and the 2002 CBA. These variables were inextricably linked, and they combined to determine the substantive outcomes of those two collective bargaining processes. The substantive terms of the 1997 CBA and the 2002 CBA and the bargaining histories that led to those agreements influenced the collective bargaining outcome in 2006. Most importantly, those variables forced the parties to adopt new negotiating strategies and styles prior to their agreement in 2006. This new system of negotiating closely resembles an approach to negotiating espoused by Roger Fisher and William Ury called “principled negotiation.”⁶

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II.   BARGAINING HISTORY OF THE 1997 CBA

After the 1990 CBA expired on December 31, 1993, the MLB owners set out to restructure the game’s financial system.³¹ What followed was a lengthy, bitter struggle between the owners and the union to establish the terms of the next collective bargaining agreement.

The process began when Bud Selig, the owner of the Milwaukee Brewers and the acting MLB Commissioner, brought the owners together to determine a group strategy. The owners decided that they would be willing to share revenues if the players would agree to a salary cap. The owners made their first proposal of a salary cap on June 14, 1994. The primary problem with this proposal was that the players preferred the “free market system of individually bargained salaries” currently in place.³² Another problem was that the 1990 CBA had expired more than six months prior to this initial offer.³³ By delaying the start of negotiations with the union, the owners had “squandered potentially valuable months of discussion and subverted any hope of establishing more open and trusting lines of communication.”³⁴ Unfortunately, time ran out on the parties to come to an agreement. The players went on strike on August 12, 1994. On September 14, 1994, Selig announced the cancellation of the rest of the season and the World Series.

How had the parties’ conduct created a situation that resulted in the cancellation of the World Series? First, the relationship between the parties was severely strained. The owners had recently colluded to prevent the players from signing contracts that were commensurate with market value. According to former MLB Commissioner Fay Vincent, this collusion had “so thoroughly polluted the whole relationship between the union and the owners that the impact [was] still being felt.”³⁵ The parties were thus, according to the principled negotiation approach, unable to separate the people from the problem prior to the strike.

Second, the negotiating styles that the parties had employed were the antithesis of principled negotiation. Instead of focusing on interests, the parties chose to concentrate on their positions. According to Lauren Rich, one of the lead negotiators for the union at the time, the prevailing dynamic was power negotiating, meaning that “whoever gave up first lost.”³⁶ The owners were firmly entrenched in their position that the game needed a salary cap in order to “blunt free agent salaries.”³⁷ The players’ position was that a free market for salaries should prevail.³⁸ The parties stuck to these conflicting positions throughout the summer of 1994, and neither side budged. By the time the players were prepared to go on strike, the parties were still advocating completely different frameworks for determining player salaries.³⁹ This prevented the parties from even engaging in the inferior negotiation method of positional bargaining, where they would make concessions in order to reach a compromise.⁴⁰

Third, by failing to separate the people from the problem and by failing to focus on interests rather than positions, the parties never had an opportunity to start inventing options for mutual gain or insisting on using objective criteria. It was not until after the strike that the parties ever convened with a sincere purpose of engaging in a creative dialogue to advance both parties’ interests.⁴¹ The third and fourth components of principled negotiation were thus completely ignored by the parties prior to the strike.⁴²

Following the strike, the parties negotiated into December of 1994 with the help of a mediator appointed by President Bill Clinton.⁴³ Despite the union’s offer to agree to a luxury tax on high team payrolls, the owners declared an impasse in bargaining and unilaterally implemented their salary cap proposal.⁴⁴ The union responded by filing an unfair labor practice charge with the National Labor Relations Board (NLRB).⁴⁵ In February of 1995, the parties returned to the bargaining table and resumed discussions about a luxury tax.⁴⁶ The stalemate continued as the owners made additional unilateral changes and refused to participate in an arbitration proceeding.⁴⁷ The union filed another unfair labor practice charge with the NLRB.⁴⁸ After the NLRB found merit in the union’s claims, the union sought an injunction in federal court to force the owners to return to the status quo.⁴⁹ The injunction was granted against the owners, and the parties were forced to return to the bargaining table.⁵⁰

The parties realized that after using their economic weapons they had still not gained any advantage in negotiations and neither side had caved.⁵¹ They had done an “incredible job alienating fans,” though, and the game had taken a major hit on attendance.⁵² League-wide shared revenue that each team received had also plummeted from $19 million per team in 1993 to less than $8 million per team in 1994, due in large part to the new national television contract.⁵³ Average player salaries had also fallen by almost 10% in 1995, the year following the strike.⁵⁴ Collectively, these factors created an impetus for both parties to reach a new deal that would be mutually beneficial.

Now for the first time, when the parties met at the bargaining table, they started focusing on underlying interests, and “there was real communication on the issues.”⁵⁵ Even with this shift toward principled negotiating, it took more than a year for the parties to come to terms on a new collective bargaining agreement. On October 24, 1996, the two sides reached a tentative agreement, and the owners formally approved the deal on November 26, 1996.⁵⁶ The agreement, however, did not reflect the culmination of an efficient negotiation process. Instead, after butting heads for almost three years since the expiration of the 1990 CBA, “labor and management reached an accommodation only when pragmatism combined with exhaustion.”⁵⁷

There were three revolutionary components of the 1997 CBA: (1) a luxury tax system, (2) a framework for substantial revenue sharing, and (3) the Industry Growth Fund. For the luxury tax, the parties agreed that up to five teams with a payroll exceeding a certain threshold would pay a 35% tax in 1997 and 1998 and a 34% tax in 1999.⁵⁸ This provided the owners with some relief from the existing system by creating a disincentive for the richer teams to increase their payrolls. The players agreed to the tax because it was not an absolute cap on salaries;⁵⁹ the union predicted it would not have a substantial negative impact on average salaries.⁶⁰ Further, the owners had agreed not to assess a tax in 2000 and gave the union the option to extend the contract into 2001 without a luxury tax.⁶¹

The revenue sharing plan and the Industry Growth Fund were designed to spur the game’s international growth and to create a greater base of revenue for the owners and players to share in the future.⁶² These components of the 1997 CBA also revealed a burgeoning level of cooperation between the parties. The stated purpose of the payroll tax, a 2.5% tax on player salaries in 1996 and 1997 to be paid by the players, was “to further the growth and development of the Game and the industry on an individual Club and on an aggregate basis with the view toward advancing the interests of both the Clubs and the Players.”⁶³ The payroll tax was thus the players’ pledge to make a sacrifice for the long-term health of the sport. The owners made a similar pledge with their contributions to the revenue sharing plan.⁶⁴ The parties then made the combined pledge, via the Industry Growth Fund, “(1) to enhance fan interest in the game; (2) to increase baseball’s popularity; and (3) to ensure industry growth into the 21st Century.”⁶⁵ As it turned out, the game did experience rapid financial growth during the life of the contract, but the parties’ historic antagonistic tendencies continued to thwart cooperation in the ensuing rounds of collective bargaining and continued to interfere with the task of creating a wise agreement efficiently and amicably.

III.   BARGAINING HISTORY OF THE 2002 CBA

During the life of the 1997 CBA, baseball’s financial landscape underwent a dramatic transformation. Between 1996 and 2001, after deducting player payroll, the owners’ yearly revenues increased from $836 million to $1.576 billion.⁶⁶ The average franchise value had risen from $111 million in 1994 to $286 million in 2001.⁶⁷ The owners had approved a new television deal with Fox worth $2.5 billion over 6 years—a 50% increase in revenue from the previous television deal⁶⁸—and a deal with ESPN for another $851 million.⁶⁹ The players’ average salaries had also nearly doubled, rising from $1.177 million in 1996 to $2.264 million in 2001.⁷⁰

Despite all this increase in revenue for both the owners and the players, the game had some serious problems. First, there was now a vast revenue disparity between large and small market teams.⁷¹ In 1989, the difference in revenue between the richest and poorest team was approximately $30 million.⁷² By 2001, that figure had grown to a staggering $208 million.⁷³ Not surprisingly, as revenue disparity grew, so did payroll disparity. In 1995, the difference between the highest and lowest payroll for the 25-man roster was $45.1 million.⁷⁴ By 2001, that figure had more than doubled to $103.8 million.⁷⁵ Payroll disparity affected competitive balance.⁷⁶ According to Andrew Zimbalist, a prominent sports economist, “high payrolls greatly increase the probability of strong team performance, while low payrolls greatly lower this probability.”⁷⁷ Indeed, from 1985 to 1994, the relationship between payroll and winning percentage in major league baseball was never significant at the 1% level; but from 1995 to 2001, the relationship was significant at the 1% level every single year.⁷⁸ In other words, the economics of baseball were now playing an extremely important role in determining which teams were successful on the field.

Given the overall economic state of the game, the owners voted on November 6, 2001, to eliminate 2 of the 30 major league teams.⁷⁹ The timing of this unprecedented decision could not have been more controversial. Two days earlier, baseball had just treated its fans to a scintillating World Series, culminating in the Arizona Diamondbacks’ game seven victory over the New York Yankees.⁸⁰ The 1997 CBA was set to expire at midnight the next day, and the parties were not yet engaging in any negotiations, let alone negotiations to contract a franchise.⁸¹ When the owners voted to contract before negotiating the issue with the union, according to former Commissioner Fay Vincent, it was “like bombing someone and then asking him to come to the table and talk about a peace.”⁸² Andrew Zimbalist referred to the move as a “grenade,” because contracting two teams “would mean the reduction of union membership by eighty players; and lowering demand for players by eighty relative to supply would put downward pressure on salaries.”⁸³ Donald Fehr, the executive director of the union, called the announcement to contract “the worst manner in which to begin the process of negotiating a new collective bargaining agreement. We had hoped that we were in a new era, one which would see a much better relationship between players and owners. Today’s announcement is a severe blow to such hopes.”⁸⁴

As the parties prepared to negotiate the next collective bargaining agreement, they had once again returned to the important hurdle of attempting to separate the people from the problem.⁸⁵ They were off to a rocky start. Selig and the owners had not involved the union in the contraction discussions, and in late November 2001, Selig made the powerful yet risky statement: “Will we contract? We will contract.”⁸⁶ By staking out the owners’ position with this type of public commitment, Selig had converted negotiations “into a ‘take-it-or-leave-it’ game … [that could] produce either an agreement or a stalemate.”⁸⁷

Before the parties initiated a new round of negotiations, Selig made a dramatic public presentation that revealed why the owners were so pessimistic about the financial state of the game.⁸⁸ On December 6, 2001, the Commissioner told the United States House Judiciary Committee that MLB would lose approximately $519 million in 2001.⁸⁹ Andrew Zimbalist referred to this figure as “misleading,” based on accounting issues such as amortization, depreciation, and interest expense.⁹⁰ Zimbalist also observed some “discrepancies between the revenue figures reported by Selig and those reported by the teams.”⁹¹ He suggested that individual teams had strong incentives to reduce their reported revenue, such as baseball’s revenue sharing system, the attempt to garner public support, and the attempt to lower player salaries by convincing the union that the teams were losing money.⁹²

Now with a controversial cloud hanging over the teams’ true financial positions, the parties began formal negotiations in January of 2002.⁹³ The owners crafted their first proposal from the recommendations of a blue-ribbon panel that Selig had created in 1999.⁹⁴ The blue-ribbon panel studied baseball’s economic system for fifteen months and made recommendations for improvements in a July 2000 report.⁹⁵ Selig had failed to include the union in the project,⁹⁶ however, and chose to rely only on four experts and twelve owners.⁹⁷ The panel suggested that baseball set the luxury tax threshold at $84 million with a 50% tax rate, increase revenue sharing to between 40 and 50% of net local revenue, and withhold revenue sharing from teams unless they spent around $40 million or more on team payroll.⁹⁸ The panel also predicted that if the parties agreed on those terms, baseball would not need to contract.⁹⁹

By beginning negotiations with this proposal, the owners had set the stage for another classic battle with the union over conflicting positions. In mid-January however, Selig made the first of a series of cooperative gestures aimed at improving the parties’ relationships—he invited Donald Fehr to speak to the owners. In the thirty-five-year history of the union, “no union official had ever been invited to speak to the owners.”¹⁰⁰ Not surprisingly, Fehr admitted, “I don’t know many of the owners very well and they don’t know me very well. Better knowledge of one another is probably to be preferred.”¹⁰¹ Selig deserves credit for finally taking this obvious step toward improving the parties’ working relationship, an essential component of principled negotiation.¹⁰² Similarly, Fehr deserves credit for opening the lines of communication by offering the owners “to dance as long as we’re partners” and asking them to “look at things from my point of view as well as your own.”¹⁰³

By mid-March 2002, the parties were in the midst of examining their respective points of views and interests. The owners had indicated that they considered three elements essential in a new collective bargaining agreement: an increase in revenue sharing, a luxury tax, and a worldwide draft.¹⁰⁴ The players also knew that Selig wanted to deal with baseball’s competitive balance problem¹⁰⁵ by significantly increasing the revenue sharing and luxury tax money transfers.¹⁰⁶ The union was willing to agree to a slight increase in revenue sharing, but it was still opposed to another luxury tax provision, and it preferred to address competitive balance issues by redistributing players instead of money.¹⁰⁷

Two months later, negotiations had begun to stagnate, and the union started to discuss setting a strike date.¹⁰⁸ As the All-Star Game approached, Selig removed the threat of a $1 million fine on owners who spoke publicly about the labor negotiations, and the parties began jockeying for public appeal and accusing each other of using stalling techniques.¹⁰⁹ Selig himself continued to discuss the negative aspects of baseball’s financial landscape, and some union enthusiasts considered this “doom-and-gloom talk” as deliberately aimed at increasing the owners’ bargaining leverage.¹¹⁰

By the end of July the parties had made strides in communicating their underlying interests,¹¹¹ and the owners’ negotiators claimed to be working on a proposal that “accomplishes the philosophical goals of both sides.”¹¹² In early August, the parties built momentum by coming to terms on minor issues such as minimum salaries and the player benefit plan.¹¹³ On August 16, however, with the parties struggling to agree on a luxury tax provision,¹¹⁴ the union set August 30 as a strike date.¹¹⁵ The players set the strike date because they feared that if the season ended without an agreement, “the owners would declare an impasse and put a new economic system in place after the World Series.”¹¹⁶

In the final week of negotiations leading up to the strike deadline, the parties met regularly, sometimes as many as five bargaining sessions a day, and exchanged dozens of ideas on revenue sharing and the luxury tax threshold, rate and duration.¹¹⁷ Selig and Fehr, the two men with ultimate authority for their constituencies, were now at the forefront. Selig had begun to accept responsibility for baseball’s precarious position and admitted that “we’ve come to a moment in history where we” have to solve the problems.¹¹⁸ On Friday morning, August 30, 2002, the parties met at the commissioner’s office. Selig and Fehr joined the negotiations, and they finally reached a deal a few hours short of the scheduled strike. Selig was “euphoric,” because the “two parties [had] come together, [made] a very meaningful deal and [done] it without one game of work stoppage.”¹¹⁹

Selig was perhaps the most influential figure in ensuring that the games went on as scheduled. During the collective bargaining process leading up to the 2002 CBA, Selig had not always acted publicly in a way to build cohesion among the owners and the union. Behind the scenes, however, the positive impact that Bud Selig’s personality and negotiating style had had on the collective bargaining process was remarkable. Before 2002, Selig had always been adept at “identifying the owners’ common problems and interests” and “creating a common denominator for ownership cohesion.”¹²⁰ According to Jerry Reinsdorf, owner of the Chicago White Sox, when Selig became acting commissioner in 1992, he was the only owner “who [could] get votes out of the other owners … because he’s such a nice guy, and he works at staying in touch with the rest of us.”¹²¹ Selig wanted to work through issues by “consensus rather than confrontation.”¹²² As he put it, this “is the approach I would like to take to each and every problem confronting the game today.”¹²³

By employing a consensus building approach during his communications with the owners and the owners’ negotiations with the union, Selig had departed from the approaches used by his predecessor commissioners. Bowie Kuhn, who served as the commissioner of Major League Baseball from February 4, 1969, to September 30, 1984, did not foster “constructive and cooperative relations” between the owners and the players.¹²⁴ Instead, according to then union head and Kuhn’s chief adversary, Marvin Miller, Kuhn’s “attempts at leadership created divisions,” and he exhibited a “lack of concern for the rights of players … and even of the stray, unpopular owner.”¹²⁵ Due in part to Kuhn’s poor leadership, the first players’ strike occurred in 1972.¹²⁶ The advent of free agency also occurred during Kuhn’s tenure as commissioner when, according to Miller, Kuhn was “so hostile to the players that he motivated them for the struggle.”¹²⁷

Following Kuhn, Peter Ueberroth served as commissioner from October 1, 1984, to March 31, 1989.¹²⁸ Ueberroth increased the tension between the owners and players by announcing that the parties had reached an agreement to end the 1985 strike before the agreement had been approved by the owners.¹²⁹ More importantly, however, Ueberroth was the “ringleader of ownership collusion during 1986–1988 that ultimately cost the owners $280 million in damages and a deepening distrust in their relations with the players.”¹³⁰

Another commissioner who struggled to improve the relationships among and between the bargaining parties was Fay Vincent, who served from September 13, 1989, to September 7, 1992.¹³¹ After the owners voted to lock the players out of spring training in 1990, Vincent stepped into negotiations and persuaded the Player Relations Committee, which was bargaining on behalf of the owners, to reach a deal with the union.¹³² Some of the owners resented Vincent’s impact on the bargaining process.¹³³ They thought Vincent had weakened their position with his direct involvement and with the hiring of Steve Greenberg, a critical member of the negotiating process who had a “conciliatory attitude” toward the union.¹³⁴ Despite Vincent’s efforts to improve baseball’s labor relations, he was “not able to build consensus among owners.”¹³⁵ The owners were so dissatisfied with Vincent’s leadership that they passed a no-confidence vote against him that led to his resignation.¹³⁶

Unlike Kuhn, Ueberroth, and Vincent, Bart Giamatti did exhibit a personality and negotiating style similar to Selig when he served as commissioner from April 1, 1989, to September 1, 1989. According to Leonard Koppett, Giamatti had “persuasive powers, people skills, the ability to establish positive relationships, and certainly the intelligence to deal with the real difficulties…. He might have become the best of all the commissioners.”¹³⁷ Giamatti only served for five months, however, due to a fatal heart attack. Thus, baseball lost the opportunity to benefit from Giamatti’s leadership.

Selig, however, has provided baseball with the opportunity to benefit from a positive leader. Since 1970, when Selig appeared on the baseball scene as owner of the Milwaukee Brewers, he has cultivated relationships among the owners.¹³⁸ When he took over as the permanent commissioner on August 1, 1998, he told the owners that reducing acrimony in their ranks was “the most important thing I have ahead of me. My father was a great peacemaker, and obviously I’ve inherited that.”¹³⁹ To earn the owners’ trust, Selig often spent a great deal of his day on the phone speaking with owners, listening to their needs.¹⁴⁰ Then he would work like “a master politician,” according to Larry Lucchino, trying to enhance the game and improve the economic status of the owners.¹⁴¹ By August 2002, when the future of the game was hanging in the balance, Selig had earned the trust of the owners, “because he was one of them, knew their needs and served as the consensus commissioner.”¹⁴² As a result, Selig was instrumental in engineering agreement on the 2002 CBA.¹⁴³

As with the 1997 CBA, the two biggest sources of contention during the negotiation of the 2002 CBA were the luxury tax and revenue sharing. In the last few weeks prior to the union’s strike deadline, the parties inched toward agreement by making slight adjustments to their positions on the luxury tax thresholds, the applicable tax rates, and the total amount of revenue sharing. This type of “haggling,”¹⁴⁴ which runs afoul of principled negotiation, allowed the parties to narrow the gaps between their positions enough to come to terms.

There were some signs, however, that the parties focused on their respective underlying interests to make bargaining headway. First, on August 5, 2002, Fehr conditioned a discussion regarding a luxury tax on the owners’ agreement to table the issue of contraction until 2007.¹⁴⁵ This move opened up discussions on the luxury tax, allowed the union to save 80 jobs in the short-term, and allowed the owners to retain the right to contract in the future if economically necessary.¹⁴⁶ Then, while negotiating the luxury tax, the parties hit a snag with respect to its application in the fourth year of the contract.¹⁴⁷ They overcame this problem when the union agreed to accept a luxury tax in the fourth year as long as it did not apply to first time offenders.¹⁴⁸ Finally, the union had wanted a phase-in where full revenue sharing would not occur until the fourth year of the contract.¹⁴⁹ The owners wanted no phase-in, but the parties were able to agree on a partial phase-in with full revenue sharing occurring in the last two years of the deal.¹⁵⁰

Although these trade-offs with respect to the parties’ underlying interests helped produce agreement on the 2002 CBA, the terms of the deal did not guarantee that the owners would realize their goals of “retarding the escalation of salaries, reducing payroll disparity and restoring competitive balance.”¹⁵¹ With the benefit of hindsight, the agreement did yield “some important gains that supported baseball’s economic health, [but] it was also highly flawed.”¹⁵² According to Zimbalist, the 2002 CBA was flawed because it “had no minimum payroll at all; nor did it have any other effective incentives for revenue-receiving teams to spend the transfers on their players.”¹⁵³ In fact, the structure of the contract created a disincentive for low-revenue teams to invest in players, because the “revenue-sharing system imposed what amounted to a marginal tax rate of roughly 39 percent on the top half of teams and 47 percent on the bottom half.”¹⁵⁴

Right from the outset, the contract’s deficiencies were manifested. First, in 2003, five of the seven lowest-payroll teams collectively lowered their payrolls by $62.6 million, despite receiving $63.1 million in revenue sharing.¹⁵⁵ Second, the standard deviation of payroll disparity increased by 11.8% in 2003, 17.8% in 2004, and 5.1% in 2005.¹⁵⁶ Finally, the average player salary on opening day increased by at least 5% in every year except one.¹⁵⁷ Perhaps if the parties had left themselves more time to brainstorm, focus on using objective criteria, and analyze the potential impacts of their decisions, they would have been able to find more joint gains.

IV.   BARGAINING HISTORY OF THE 2007 CBA

Although the impact of the 2002 CBA had not been ideal, as the parties prepared to negotiate a new collective bargaining agreement in 2006, the overall economic climate of the game provided them with a strong incentive to forge another deal without a work stoppage.¹⁵⁸ Attendance was at an all-time high,¹⁵⁹ industry revenue had risen to $4.7 billion in 2005,¹⁶⁰ and average player salaries were approaching $3 million per season.¹⁶¹ The parties appeared poised to take the next step in their labor relationship: to come to terms ahead of schedule without a work stoppage or even the threat of a work stoppage.

The foundation for cooperation had been established back in 2002. When it came time to announce that the parties had reached agreement on the 2002 CBA, Selig and Fehr held a joint press conference, standing side by side and taking turns speaking at the microphone.¹⁶² This symbolic gesture, a key component of principled negotiation,¹⁶³ signaled that the parties were finally ready to separate the people from the problem and to attack their mutual problems, not each other.¹⁶⁴

The parties demonstrated this new approach when they worked together to address the issue of steroid use in baseball. In January of 2005, the union agreed to reopen the 2002 CBA in order to revise the drug testing policy.¹⁶⁵ Then in May 2005, Selig wrote a letter to Fehr asking him to “demonstrate once again to America that our relationship has improved to the point that we can quickly and effectively deal with matters affecting the interest of our sport.”¹⁶⁶ In November 2005, the Union agreed to adjust the steroid testing policy for a second time, and Selig avoided the opportunity to boast about convincing the union to reopen the negotiations again.¹⁶⁷ Selig stated that there had not been “a question of putting [the union] in a corner. It was an integrity issue facing our sport.”¹⁶⁸ This was a helpful public spin for the relationship, and it kept attention on the parties’ shared interests.

The parties also had the key cooperative experience of organizing the World Baseball Classic (WBC).¹⁶⁹ In December 2005, agent Tommy Tanzer noted that the parties were “selling the international baseball thing so hard. They’re enthusiastic about it. I just don’t believe there will be a work stoppage. I don’t see it this time.”¹⁷⁰ While the WBC gave the owners a new forum for global marketing of Major League Baseball’s brightest stars, those stars were also able to participate in a new forum of intense competition. Indeed, MLB superstar Ichiro Suzuki explained, “I didn’t really care if I would get injured in this game. That’s how much I really wanted to win this one.”¹⁷¹

Shortly after the WBC was played, by early April 2006, the parties were in an ideal position regarding the forthcoming negotiations. The 2002 CBA was set to expire in eight months, and the parties had already conducted background talks on the next CBA.¹⁷² They had thus given themselves a head start, unlike in 1994 and 2002 when they waited until after the expiration of the previous contract to begin negotiating. Their relationship was also as amicable as ever, and Fehr indicated that he would “like to believe the atmosphere of lower levels of public dispute is going to be maintained.”¹⁷³ Selig continued to do his part to keep negotiations civil by increasing the possible owners’ fine from $1 million to $2 million if they spoke to the union or the news media about the labor talks.¹⁷

According to Michael Weiner, a lead negotiator for the union, one factor that helped the parties make progress toward a new deal in 2006 was that the owners were willing to negotiate within the same framework as the 2002 CBA.¹⁷⁵ Given this, the parties knew that they would not be able to effectuate a major change in the economic structure of the game without resorting to the threat of a work stoppage.¹⁷⁶ However, in order to avoid the pitfalls of another protracted labor dispute, both sides wanted to get a deal done before the World Series.¹⁷⁷ The owners also had the incentive to work something out, because if they failed, 2007 would be played without a luxury tax.¹⁷⁸ The parties met consistently throughout the season, and by October they were approaching an agreement by meeting daily and by refraining from discussing the bargaining sessions publicly.¹⁷⁹ On October 24, 2006, the parties announced that they had reached a new agreement that would run through the 2011 season.¹⁸⁰ …

V.   THE FUTURE OF COLLECTIVE BARGAINING IN BASEBALL

With attendance and revenues at all-time highs …, the future looks bright for baseball. There is even evidence that the owners’ attempt to reduce payroll disparity is coming to fruition.¹⁸² In 2006, the standard deviation of payrolls fell by 5.7%, the first year-over-year tightening in team payrolls since 1994.¹⁸³ Furthermore, during the life of the 2002 CBA, only three teams spent enough on salaries to be forced to pay a luxury tax.¹⁸⁴

The ultimate question, however, is what impact collective bargaining has had and will have on competitive balance—the “prerequisite for a successful team sports league in the long run.”¹⁸⁵ After the parties agreed to the 2002 CBA, David Leonhardt of the New York Times predicted that for most fans, “the only true test of the new agreement will be whether it does a better job than the previous one of providing competitive balance and [allowing] teams to hold onto their star players.”¹⁸⁶ The debate hinges on how one defines competitive balance. Selig’s blue-ribbon panel opined that “proper competitive balance will not exist until every well-run club has a regularly recurring hope of reaching postseason play.”¹⁸⁷ In late September of 2006, there were fourteen teams within five games of a playoff berth, prompting Selig to conclude that “we do have competitive balance.”¹⁸⁸

Others, however, disagree. Billy Beane, the General Manager of the Oakland Athletics, thinks “we’re still a long way off from saying there’s parity”¹⁸⁹ even though his low-revenue team recently made the playoffs. Instead, Beane believes the wild card¹⁹⁰ “gives people the impression of parity.”¹⁹¹ Since the wild card was added in 1995, there have been 96 playoff berths, but 7 of the 30 teams have failed to capture even one of them.¹⁹² The lack of incentives to increase payroll appears to be the most significant factor. According to Zimbalist, the “present system rewards failure and encourages teams to take a free ride…. With higher marginal tax rates on the bottom teams and with the commissioner not enforcing the CBA provision requiring revenue transfers to be spent on improving team quality, the current scheme does not promote competitive balance.”¹⁹³

….

The owners and the players have started to develop a “different kind of bargaining history.”²⁰⁴ That bargaining history places a premium on reaching agreement without a work stoppage, and it also resembles principled negotiation more than ever. The parties have become more adept at focusing on their shared interests rather than their individual positions, and they are doing so in a much more cooperative working environment. If the parties continue to strengthen their resolve for mutual growth and satisfaction, America’s pastime will thrive like never before as an unparalleled brand of athletic competition.

Notes

1.  See Players’ Union Sets Aug. 30 Strike Date, Sl.com, Aug. 18, 2002, http://sportsillustrated.cnn.com/baseball/news/2002/08/16/strike_date_ap/.

2.  Id.

3.  Roger I. Abrams, Legal Bases: Baseball and the Law 185–86 (1998).

4.  Murray Chass, Last-Minute Deal in Baseball Talks Prevents a Strike, N.Y. Times, Aug. 31, 2002, at A1, available at 2002 WL 4088944.

5.  Id.

6.  Roger Fisher & William Ury, Getting to Yes: Negotiating Agreement Without Giving In 11 (Bruce Patton ed., Penguin Books 1991) (1981).

….

31.  Abrams, supra note 3, at 180.

32.  Id. at 183.

33.  Andrew Zimbalist, May the Best Team Win: Baseball Economics and Public Policy 88 (2003).

34.  Id.

35.  Id. at 85.

36.  Telephone Interview with Lauren Rich, NLRB, in Atlanta, Ga. (Apr. 30, 2007).

37.  Id.

38.  Id.

39.  Id.

40.  Fisher & Ury, supra note 6, at 3.

41.  Interview with Lauren Rich, supra note 36.

42.  See Fisher & Ury, supra note 6, at 66, 82-83.

43.  Abrams, supra note 3, at 187.

44.  A luxury tax allows teams to set their own payrolls, subject to a tax on combined player salaries that exceed a certain threshold. A salary cap does not allow teams to set their payrolls above a certain threshold. The owners prefer the salary cap because it forces them to limit their spending, which theoretically results in lower costs and a more level playing field among the clubs.

45.  Abrams, supra note 3, at 187.

46.  Id.

47.  Id.

48.  Id.

49.  Id. at 190.

50.  Id. at 194.

51.  See generally id. at 195-98.

52.  Interview with Lauren Rich, supra note 36.

53.  Zimbalist, supra note 34, at 46.

54.  Average MLB Player Salary Chart, http://sportsline.com/mlb/salaries/avgsalaries (last visited Sept. 22, 2007).

55.  Interview with Lauren Rich, supra note 36.

56.  For an in-depth discussion of the negotiation timeline from 1994 to 1996, see Abrams, supra note 31, at 175-200.

57.  Id. at 201.

58.  MLB Basic Agreement 1997–2000 art. XXIII.

59.  Interview with Lauren Rich, supra note 36.

60.  Id.

61.  Id.

62.  Id.

63.  MLB Basic Agreement 1997–2000 art. XXIV.

64.  The intricacies of the revenue sharing plan are beyond the scope of this Article. The stated intent of the plan, however, was to “effect a net transfer of Net Local Revenue among Participating Clubs of $70 million at 100% implementation.” Id. art. XXV(B)(1)(a) (2001).

65.  Id. art. XXVI.

66.  Zimbalist, supra note 34, at 71.

67.  Michael J. Haupert, The Economic History of Major League Baseball, http://eh.net/encyclopedia/article/haupert.mlb (last visited Jan. 21, 2008).

68.  Murray Chass, ROUNDUP; Piniella Stays in Seattle, N.Y. Times, Nov. 1, 2000, at D7, available at 2000 WLNR 3295459.

69.  Zimbalist, supra note 34, at 1.

70.  Average MLB Player Salary Chart, supra note 54.

71.  Zimbalist, supra note 34, at 46.

72.  Id.

73.  Id.

74.  Id. at 47.

75.  Id.

76.  Id. at 45.

77.  Id.

78.  Id. at 43.

79.  Murray Chass, Back to Business: Baseball Votes to Drop 2 Teams, N.Y. Times, Nov. 7, 2001, at A1, available at 2001 WLNR 3399574.

80.  2001 Major League Baseball Playoffs, http://sportsillustrated.cnn.com/baseball/mlb/ml/recaps/2001/11/04/diamondbacks_yankees (last visited Jan. 21, 2008).

81.  Chass, supra note 79.

82.  Outside the Lines: Contraction—Is Less More?, http://www.espn.go.com/page2/tvlistings/show85transcript.html (last visited Sept. 22, 2007).

83.  Zimbalist, supra note 34, at 95.

84.  Chass, supra note 79.

85.  Fisher & Ury, supra note 6, at 17.

86.  Murray Chass, Selig Offers His Forecast for the Game, N.Y. Times, Nov. 28, 2001, at S1, available at 2001 WLNR 3417621.

87.  Roger I. Abrams, The Money Pitch: Baseball Free Agency and Salary Arbitration 59 (2000).

88.  Zimbalist, supra note 34, at 57.

89.  Id. at 57. For a complete look at the accounting figures that Selig presented to Congress, see a table illustrating the 2001 team-by-team revenues and expenses forecast for MLB franchises, available at http://www.usatoday.com/sports/baseball/stories/2001-12-05-focus-expenses.htm (last visited Sept. 22, 2007).

90.  Zimbalist, supra note 34, at 57.

91.  Id. at 60.

92.  Id. at 62.

93.  Id. at 1. There had been three months of secret talks between the parties in the spring of 2001 that insiders believe could have produced a deal before the All-Star Game, but Selig abruptly called a halt to those talks in late June. Chass, supra note 86.

94.  For a discussion on the differences between the panel’s recommendations and the owners’ first proposal, see Zimbalist, supra note 34, at 93-95.

95.  Id. at 93.

96.  By doing so, Selig failed to abide by one of the tenets of principled negotiation; namely, he failed to give each party “a stake in the outcome by making sure they participate in the process.” Fisher & Ury, supra note 6, at 27.

97.  Zimbalist, supra note 34, at 93.

98.  Id. at 94.

99.  Id.

100.   Murray Chass, Players Union Chief Talks to Owners, N.Y. Times, Jan. 18, 2002, at D2, available at 2002 WLNR 4084764.

101.  Id.

102.  Fisher & Ury, supra note 6, at 37.

103.  Chass, supra note 100.

104.  Murray Chass, Players Offer Their View of a Contract They’d Like, N.Y. Times, Mar. 15, 2002, at D2, available at 2002 WLNR 4045869.

105.  In January 2000, the owners unanimously passed a resolution directing Selig to do “whatever he could to restore competitive balance to baseball.” Murray Chass, Owners Can Talk Publicly on Issues, N.Y. Times, July 4, 2002, at D3, available at 2002 WLNR 4034934.

106.  Chass, supra note 104.

107.  Id.

108.  Murray Chass, A Strike Date Is Discussed as Talks Lag in Baseball, N.Y. Times, May 15, 2002, at D1, available at 2002 WLNR 4079065.

109.  Chass, supra note 105.

110.  Murray Chass, Both Sides Say Talk About Baseball’s Problems Is One, N.Y. Times, July 13, 2002, at D1, available at 2002 WLNR 4062465.

111.  For a detailed discussion of the parties’ competing interests, see Murray Chass, Union Puts Off Strike Date To Pursue Talks, N.Y. Times, Aug. 13, 2002, at D1, available at 2002 WLNR 4070063.

112.  Murray Chass, Little Progress Made on Revenue Sharing, N.Y. Times, July 27, 2002, at D4, available at 2002 WLNR 4093309.

113.  Murray Chass, Union Prepared To Set Strike Date on Monday, N.Y. Times, Aug. 9, 2002, at D3, available at 2002 WLNR 4031542.

114.  The union opposed a luxury tax because it felt that it would decrease league-wide spending on salaries. The owners supported the tax as a method of reducing payroll disparity without reducing total industry payroll. Murray Chass, Baseball Sees Progress in Talks, but the Union Isn’t So Sure, N.Y. Times, July 26, 2002, at D1, available at 2002 WLNR 4072832.

115.  Murray Chass, Union, Still Talking, Sets a Strike Date of Aug. 30, N.Y. Times, Aug. 17, 2002, at A1, available at 2002 WLNR 4092464.

116.  Chass, supra note 4.

117.  Murray Chass, Talks Are Feverish with Strike Due Tomorrow, N.Y. Times, Aug. 29, 2002, at D1, available at 2002 WLNR 4060526.

118.  Murray Chass, Baseball Commissioner and Consensus Builder, N.Y. Times, Aug. 28, 2002, at D1, available at 2002 WLNR 4020755.

119.  Chass, supra note 4.

120.  Andrew Zimbalist, In the Best Interests of Baseball?: The Revolutionary Reign of Bud Selig 127 (2006).

121.  Id. at 135.

122.  Id.

123.  Id.

124.  Id. at 83.

125.  Id. at 82.

126.  Id. (Former MLB Union Head, Marvin Miller, was discussing Kuhn’s lack of leadership as commissioner).

127.  Id.

128.  Id. at 93.

129.  Id.

130.  Id. at 94.

131.  Id. at 102.

132.  Id. at 104.

133.  Id.

134.  Id.

135.  Id. at 109.

136.  Id.

137.  Id. at 100.

138.  Id. at 125.

139.  Id. at 159.

140.  See id. at 125-26.

141.  Chass, supra note 118.

142.  Id.

143.  See id.

144.  Fisher & Ury, supra note 6, at 3.

145.  Murray Chass, Luxury Tax on Clubs: Less Than Meets Eye, N.Y. Times, Sept. 8, 2002, at 87, available at 2002 WLNR 4024221.

146.  Id.

147.  Id.

148.  Id.

149.  Chass, supra note 4.

150.  Id.

151.  Chass, supra note 145.

152.  Zimbalist, supra note 120, at 164.

153.  Id. at 105.

154.  Id. at 164.

155.  Id. at 166.

156.  Chris Isidore, Baseball’s Flatter Playing Field, http://money.cnn.com/2006/10/06/commentary/sportsbiz_baseball/index.htm (last visited Sept. 22, 2007).

157.  Average MLB Player Salary Chart, supra note 54.

158.  Telephone Interview with Michael Weiner, General Counsel, MLB Players Ass’n (May 11, 2007).

159.  Allan H. “Bud” Selig, Ninth Commissioner of Baseball, http://mlb.mlb.com/mlb/history/mlb_history_people.jsp?story=com_bio_9 (last visited Sept. 22, 2007).

160.  Murray Chass, Labor Talks: Don’t Worry, There Must Be Something To Fight Over, N.Y. Times, Apr. 2, 2006, at S10, available at 2006 WLNR 5514660.

161.  Average MLB Player Salary Chart, supra note 54.

162.  David Leonhardt, Season Is Salvaged, but Baseball Still Has Rich Facing the Poor, N.Y. Times, Sept. 1, 2002, at 11, available at 2002 WLNR 4018027.

163.  Fisher & Ury, supra note 6, at 32.

164.  Id. at 11.

165.  Murray Chass, Congress Nudges Union in Selig’s New Lineup, N.Y. Times, Nov. 16, 2005, at D2, available at 2005 WLNR 18488971.

166.  Jack Curry et al., Selig Seeks Harder Line on Drugs in Baseball, N.Y. Times, May 1, 2005, at S1, available at 2005 WLNR 6802195.

167.  Chass, supra note 165.

168.  Id.

169.  The WBC was an 18-day tournament from March 3, 2006, to March 20, 2006. Sixteen teams competed, and they were comprised of the world’s best players representing their home countries. World Baseball Classic FAQ, http://ww2.worldbaseballclassic.com/2006/about/index.jsp?sid=wbc (last visited Sept. 22, 2007).

170.  Murray Chass, Agents Strikingly Optimistic About Labor Situation, N.Y. Times, Dec. 13, 2005, at D2, available at 2005 WLNR 19972339.

171.  Murray Chass, The Critics Missed the Cheers Heard Around the World, N.Y. Times, Mar. 22, 2006, at D5, available at 2006 WLNR 4710964.

172.  Chass, supra note 160.

173.  Id.

174.  Murray Chass, At Wrigley Field, It Was the Worst of Times, N.Y. Times, May 21, 2006, at S5, available at 2006 WLNR 8714287.

175.  Interview with Michael Weiner, supra note 158.

176.  Id.

177.  Id.

178.  Zimbalist, supra note 34, at 112-13.

179.  Murray Chass, Labor Contract May Be Ready Soon, N.Y. Times, Oct. 20, 2006, at D5, available at 2006 WLNR 18221365.

180.  Murray Chass, Players Union to Yankees: No New Taxes, N.Y. Times, Oct. 25, 2006, at D1, available at 2006 WLNR 18483270.

….

182.  Isidore, supra note 156.

183.  Id.

184.  Murray Chass, It’s Too Early for the Yankees To Celebrate Their Tax Bill, N.Y. Times, Dec. 23, 2006, at D1, available at 2006 WLNR 22415111.

185.  Zimbalist, supra note 34, at 151.

186.  Leonhardt, supra note 162.

187.  Zimbalist, supra note 34, at 35.

188.  Murray Chass, Parity on the Field (Maybe), Dollar Disparity (Definitely), N.Y. Times, Sept. 24, 2005, at 82, available at 2006 WLNR 16557924.

189.  Id.

190.  The wild card system allows one extra team in both the American and the National Leagues to reach the playoffs every year.

191.  Chass, supra note 188.

192.  Division Series Summary, http://mlb.mlb.com/mlb/history/postseason/mlb_ds.jsp (last visited Sept. 22, 2007).

193.  Zimbalist, supra note 120, at 216.

….

204.  Interview with Michael Weiner, supra note 158.

LABOR RELATIONS IN MAJOR LEAGUE BASEBALL

Andrew Zimbalist

Mention baseball labor relations to the typical fan and, as sure as Barry Bonds will be walked with a runner on second and two outs, the reaction will be disgust. Some say it is unseemly, if not immoral, for millionaires to fight billionaires in a world riddled with hunger and homelessness. Others personalize the matter and assert that Bud Selig and Don Fehr are both unspeakably despicable, then they state that they will not go to another game until baseball has new leadership.

Of course, if one bothered to ask Don Fehr or Bud Selig what Major League Baseball’s (MLB’s) labor struggles were all about, one would get sincere proclamations of principle and economic exigency. The players are not really fighting for an extra $100,000 in salary, Fehr might say; they are fighting for principle—the principle of free markets. Players should be paid what they are worth, and there is no fairer test of that than the free market. If the market says Alex Rodriguez is worth $1 million, then so be it. If it says he is worth $25.2 million, then that is okay, too. This principle has served the players well since 1977 and there is little reason for them to abandon it.

The owners, in contrast, have not really articulated a theoretical basis for the case against free markets in team sporting leagues. They simply claim that too many teams are losing too much money and that competitive balance is undermined by free markets. The former argument contains elements of truth but is overstated; the latter is never adequately explained.

It is fundamentally a battle over the degree of freedom in the labor market that has plagued MLB since the mid-1970s. Indeed, each work stoppage since 1976 has been the result of owner efforts to further constrain the operation of free agency and salary arbitration.

… [O]n only three occasions (1972, 1981, and 1994–95) were regular season games lost, and the lockout of 1973 affected only the early-arrival spring training. This, of course, is not to deny that baseball’s labor relations have been contentious. They have been. The point, rather, is that sometimes fans (and the commissioner) start to feel sorry for themselves and think they have suffered more than the actual numbers suggest.

This article explores some of the roots and processes of this contentiousness….

LABOR RELATIONS PROCESS

Two themes repeat themselves in MLB’s collective bargaining history: owners’ distrust of owners and players’ distrust of owners.

Owners’ Distrust of Owners

It has been said that bargaining with baseball’s owners is like negotiating with a three-headed monster. In this charming metaphor, the monster’s heads represent the high-revenue, the middle-revenue, and the low-revenue teams. Because each group of teams faces a radically different economic reality, each often has radically different ideas about what remedies are needed.

Since 1990, the monster’s heads have grown larger and farther apart. In 1989, the revenue spread from the top to the bottom team was approximately $30 million. In 2002—resulting from the explosion of local media contracts and the uneven emergence of new stadiums among other factors—this disparity grew to more than $200 million (Major League Baseball Staff, 2001).

Compounding these reported revenue differentials is the presence of related party transactions (RPTs). RPTs permit a team owner who also owns a related business, such as a local sports channel, to transfer revenue away from the baseball team to the related business or to add costs to the team that originate in the related business. By now, this phenomenon is well known, so I shall cite only one illustration.

According to figures that Bud Selig presented to Congress in December 2001, the Chicago White Sox’ income from local TV, radio, and cable was $30.1 million in 2001, and that of the Chicago Cubs was $23.6 million (Major League Baseball Staff, 2001). A curiosity, to say the least. Everyone knows that the Cubs are the more popular team in the Windy City, and TV ratings bear this out: In 2001 the Cubs average ratings were 6.8 on over-the-air broadcasting and 3.8 on cable; the White Sox were 3.6 and 1.9, respectively (McAvoy, 2002). And this does not take account of the fact that the Cubs games are shown on superstation WGN, which reaches more than 55 million homes nationally.

So, what is going on? The Cubs are owned by the Tribune Corporation, which also happens to own WGN. The Tribune Corporation transfers revenue away from the Cubs and correspondingly lowers the costs of WGN. According to Broadcasting and Cable, the industry’s authoritative source, the Cubs local media earnings were $59 million (McAvoy, 2002). If the Cubs reported this figure instead of $23.6 million, then their reported $1.8 million loss would become a $33.6 million profit in 2001!¹ Although the extent of RPTs for the Cubs is unusually large, significant RPTs affect a dozen or more clubs.²

Perceptions of baseball’s economic reality also differ because franchises have different roles in owners’ investment strategies. Often, the team itself is not managed as a profit center but, rather, as a vehicle for promoting the owner’s other investments.

Owners can take their investment returns in a number of ways. For instance, George Steinbrenner used his Yankees to create the Yankee Entertainment and Sports (YES) regional sports network in the nation’s largest media market. In late 2001, YES had a market value upward of $850 million.³ Rupert Murdoch recently admitted that his purchase of the Dodgers had already paid off, because it enabled him to prevent Disney from creating a regional sports network in Southern California (Shaikin, 2001). Tom Hicks hopes to use his ownership of the Rangers to develop some 270 acres of commercial and residential real estate around the ballpark in Arlington and to grow his Southwest Sports Group, among other things. Dick Jacobs exploited his ownership of the Indians to promote the value of his downtown Cleveland real estate. To differing degrees, owners exploit their community prominence to establish profitable relationships with politicians and other business executives. Still others derive a handsome consumption return from team ownership.

On top of the growing differences in material circumstance among the owners, owners also diverge in their ideologies and personalities. These differences often produce cliques, and the cliques, in turn, engender rivalries if not animosities. Although fragmentation among the owners was obscured in 2002 by Bud Selig’s gag order backed by threat of a $1 million fine, occasional signs of division in the ranks saw the light of day. For instance, one anonymous medium-market club owner told the Illinois Daily Herald in late July 2002:

Alternatively, listen to Selig himself, who, in a moment of public candor, told the Associated Press after the owners voted 29 to 1 to ratify the new labor deal, “I’m not going to suggest to you today that there are not clubs with very different views, but at some point you have to come together” (Sports Business Daily, 2002d, p. 13).

At least three problems evolve from this disunity. First, the owners cannot agree on a common vision for the game, let alone a cohesive plan for its future. Their inability to agree on basic demands inevitably leads to long delays before collective bargaining is initiated. Shortly after the owners reopened the 1990 collective bargaining agreement in December 1992, the owners’ chief negotiator, Richard Ravitch, told Don Fehr that he wanted to start negotiating right away. Actual bargaining did not begin until March 1994—16 months later.

Selig’s unilateral Blue Ribbon Panel produced its report on the state of baseball’s economics and its collective bargaining recommendations in July 2000 (Levin, Mitchell, Volcker, &Will, 2000). Then, nearly a year passed before Selig, in the spring of 2001, authorized then MLB COO Paul Beeston to commence discussions with the Players Association (MLBPA). According to Steve Fehr (personal communication, February 20, 2003), a union negotiator, the two sides had 23 meetings between February 28, 2001, and June 20, 2001. When the June 20 meeting adjourned, the MLBPA thought they had an agreement. Beeston had responded favorably to the players’ last proposal and said he would get back to them in short order. But the players never heard back. Selig had abruptly terminated the discussions without explanation. The owners did not put their substantive demands on the bargaining table until December 2001—a month after the expiration of the old agreement and 18 months after the Blue Ribbon Panel’s report was issued.

A likely explanation for these delays is the disunity among owners. They cannot agree what demands to put on the table, so bargaining is pushed back. Then, when they start preliminary bargaining, a previously dormant ownership clique gets wind of the talks, objects, and the talks are terminated. The end result is that bargaining goes down to the wire and either does not get resolved in time (as in 1994) or is resolved in haste (as in 2002) with a flawed structure resting on compromise.

Second, when the owners finally come to the bargaining table, it is usually based on the lowest common denominator among them: They would like salaries to be lower. Accordingly, rather than producing a coherent, balanced plan for the game’s future, the owners’ tendency has been to come to the bargaining table with a demand for unilateral sacrifice by the players that restricts free agency rights in one way or another. This sets an adversarial tone to the bargaining process and reinforces the deep-seated distrust that the players have felt toward the owners.

Third, the MLBPA confronts formal ownership demands, but, in practice, it is bargaining with different groups that must be reconciled. It is put in the strange position of triangulating an agreement. This, too, is conducive to inefficient outcomes. For instance, a few owners may find themselves aligning more closely with the players on the issues of revenue sharing and luxury taxes. We know this to be the case at least with George Steinbrenner. As we shall see, this phenomenon leads the majority of owners to seek to penalize owners who break ranks, even if it means deviating from a rational design of collective bargaining institutions.

Players’ Distrust of Owners

Distrust between players and owners produces its own set of distortions. In his 2002 book, former commissioner Fay Vincent singles out ownership collusion during 1985 to 1987 as a turning point in baseball’s labor relations:

Collective bargaining in any industry is often characterized by posturing and bluffing. This process in baseball, however, takes on an exaggerated form. Consider, for instance, the maneuvering of Bud Selig during the 2001–02 round of bargaining. In addition to his plan for contraction (which Selig’s own Blue Ribbon Panel explicitly stated would not be necessary if its other ideas were implemented), Selig wanted: (a) the owners’ 60/40 rule (see below) ratified in the collective bargaining agreement, (b) the establishment of a fund of $100 million that the commissioner could use at his discretion, (c) the right for owners to release players whose salary arbitration figures were deemed to be too high, and (d) a new pension plan contribution system (Zimbalist, 2003, chap. 5). Let us consider the meaning and weight of these bargaining demands.

Selig’s demand for contraction was announced on November 6, 2001, 2 days after the end of the old labor agreement and the most scintillating World Series in recent memory. What a way to initiate negotiations on a new agreement! He might as well have launched a grenade at the 12 East 49th street offices of the Players Association. Cutting two teams would mean eliminating 80 union members and reducing the demand for players by 80 as the supply of players stayed the same.

Then Selig announced in late March 2002 that he was going to dust off the long dormant 60/40 rule and begin its implementation during the 2002 season. This rule, first introduced by the owners in December 1982, required teams to maintain a ratio between assets and liabilities of at least 60 to 40. At the time, the players filed a grievance that this rule would affect salaries and, hence, was a mandatory subject for collective bargaining. In his ruling of January 1985, arbitrator Richard Bloch upheld the owners’ right to implement the rule unilaterally by arguing that it was a matter of fiscal responsibility and management prerogative.

When Selig announced that the owners would have to comply with the 60/40 rule by June 2002, he stipulated new implementation guidelines. According to press reports and a legal complaint filed by former Mets co-owner Nelson Doubleday, among these guidelines were the franchise valuation rule that a team’s value equaled only two times its (trailing) annual revenue and the liability instruction that long-term player contracts would count as debt.⁴ Selig threatened noncompliers with fines, loss of payments from the central fund, or being put into trusteeship. On the surface, the implementation of 60/40 smacked of financial prudence, but the reality was otherwise.

Under the liability accounting instruction, long-term player contracts count as debt. This makes no economic sense.⁵ As of June 2002 when the rule was to kick in, the Boston Red Sox, for instance, had a remaining obligation to Manny Ramirez of roughly $120 million. For the rest of the squad, the Sox had approximately another $70 million in long-term obligations. So the team’s total long-term contract obligations alone were roughly $190 million; that is, they were already $60 million-plus over their debt limit without counting the $40 million of preexisting debt the new owners inherited or the $200 million they had borrowed from Fleet Bank to buy the team. Thus, the Sox would have had to do some massive payroll cutting to avoid violating the 60/40 rule.

Nor are the Red Sox an aberration. According to Selig, at the end of 2001, MLB teams had more than $3 billion in debt, or more than $100 million per team. Using Selig’s unreasonably low 2 × revenue multiple to value teams and his figure of $112.1 million average team revenues in 2001 (also low because of RPTs), the average franchise would be worth $224.2 million. With an average debt of $100 million-plus (and this is before long-term player contracts), the average team was already in violation of the rule with a 55.4/44.6 asset/debt ratio.

Whatever Bloch may have believed back in 1985, it is clear that the 60/40 rule would function as a backdoor salary cap in 2002. Selig was supposedly implementing the rule in 2002 under the authority of Bloch’s ruling. Apparently recognizing its vulnerability, he put it on the bargaining table for labor ratification. The effects of the rule, however, were too draconian to be acceptable to the Players Association.

Why, then, did Selig put it on the table? Is he so out of touch with what is in the realm of possibility? Not likely. More likely, he put it on the table as a bargaining chip to loosen the players’ position on other issues. This is part of the bargaining game played by both sides.

The demand for a commissioner’s discretionary fund of $100 million (later reduced to $85 million) was only a little more benign. The discretionary fund could have been used by the commissioner to reward teams that toed the commissioner’s line. The Players Association believed that this would provide a further drag on salaries. If a substantial fund were needed to help financially distressed franchises, then the players surely wanted it to operate according to set rules or be coadministered much like the Industry Growth Fund from the 1996 accord.

The right for owners to cut loose players who ask for high salary arbitration awards would undermine the value of the longstanding arbitration system to the players. Unless the owners were willing to substitute an equally effective mechanism, such as earlier free agency, it was not conceivable that the players would accept such a change.

The proposal for a new pension plan contribution system called for teams with higher payrolls to put more into the plan. However, players would still receive the same pension benefit. This proposal, in effect, would constitute an indirect tax on high payrolls supplementing the impact of the luxury tax proposal.

Selig, then, loaded the bargaining table with what the players perceived to be harsh, unacceptable demands. None of these demands was incorporated into the final settlement, and there is no direct evidence that they yielded any incremental bargaining leverage for the owners. They did, however, encumber the bargaining process and slow down the already time-pressed negotiations.⁶

I suspect that either side would maintain that the bargaining dance with all its bluster is necessary. And each side would claim that its strategy softened the other. But how many curve balls can you throw an experienced batter before he makes adjustments? It seems more likely that the final outcome has more to do with the relative unity and conviction of each side as well as the underlying economic realities than with the smoke-and-mirrors game of the bargaining process….

Notes

1.  This figure possibly should be adjusted for the superstation payments that the Cubs make to Major League Baseball (MLB), which are probably on the order of $15 million annually. However, it is also likely that the Broadcasting and Cable figure is conservative.

2.  For more on related party transactions (RPTs) and how they affect other franchises, see Zimbalist, 2003, chapter 4.

3.  Goldman Sachs reportedly purchased a 40% stake in the Yankee Entertainment and Sports (YES) Network in 2001 for $340 million. Assuming no minority discount, the Goldman Sachs’s acquisition implies an $850 million value for YES.

4.  Doubleday’s complaint was against his erstwhile Mets partner, Fred Wilpon. According to Doubleday’s counterclaim, Selig also included team stadium debt in liabilities where it was not counted in the original 60/40 rule implementation guidelines.

5.  When players are paid in future years, they also generate revenue. This type of long-term contract does not accord with traditional notions of debt, save for the special case of uninsured injury. Deferred compensation is a different matter and is discussed below.

6.  Arguably, one of the reasons why Selig put the harsh demands on the table was that the owners really wanted the outcome of the Blue Ribbon Panel’s recommendations. If they put those recommendations forth as their initial demands, the final outcome would have compromised and vitiated the magnitude of the desired changes. Thus, the owners instead decided to put extreme demands on the table with the hope of compromising to the Blue Ribbon Panel report. Of course, the natural response to such an explanation is that the bargaining pas de deux that ensued during 2001 to 2002 was the product of Selig establishing a unilateral study commission—one that did not include player representatives. Had they been included, not only could the histrionics have been avoided, but the final outcome could have been more thoughtfully, purposefully, and effectively designed.

References

Levin, R. C., Mitchell, G. J., Volcker, P. A., & Will, G. F. (2000). The report of the Independent Members of the Commissioner’s Blue Ribbon Panel on baseball economics. New York: Major League Baseball.

Major League Baseball Staff. (2001, December). MLB updated supplement to the report of the Independent Members of the Commissioner’s Blue Ribbon Panel on baseball economics. New York: Major League Baseball. Available at roadsidephotos.com/baseball/BRPanelupd.htm

….

McAvoy, K. (2002, April 1). Yanks, others get in the game. Broadcasting and Cable.

….

Shaikin, B. (2001, December 13). Fox reaches Dodger goals. Los Angeles Times, p. Sports-8.

….

Sports Business Daily. (2002a, July 25). Author, p. 11.

….

Sports Business Daily. (2002d, September 6). Author, p. 13.

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Vincent, F. (2002). The last commissioner. New York: Simon & Schuster.

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Zimbalist, A. (2003). May the best team win: Baseball economics and public policy. Washington DC: Brookings Institution Press.

MACROPERSPECTIVE

BEYOND THE BOX SCORE: A LOOK AT COLLECTIVE BARGAINING AGREEMENTS IN PROFESSIONAL SPORTS AND THEIR EFFECT ON COMPETITION

Ryan T. Dryer

I.   INTRODUCTION

Most sports fans have at least the limited understanding that collective bargaining agreements govern the employer–employee relationships between the owners of professional sports teams and players’ associations. Indeed, sports have become a big business in the United States, and the media coverage of sports has extended beyond reporting statistics and scores to include all dealings associated with the business.¹ Every year (at various times depending on the sport), fans are bombarded with numbers detailing signing bonuses, salary cap implications, arbitration results, incentive-laden contracts, and a multitude of other terms that boggle the mind of the layperson. As most sports fans (and reporters) take a what-have-you-done-for-me-lately attitude toward the performance of their teams and the organizations that assemble them, little attention has been paid to the historical progression that has led to the current state of professional sports. A historical analysis is critical to understanding why Major League Baseball, the National Basketball Association, and the National Football League² each have separate agreements governing their leagues. Such an examination helps to explain why the Collective Bargaining Agreements (CBAs) exist in their current structure. The articles of the various CBAs govern the professional sports players’ compensation, the procedures for settling disputes, and address a myriad of other issues relating to the employer–employee relationship in sports.³ This comment will examine the history of the three most prominent leagues in U.S. professional sports, the CBAs that govern the employer–employee relationship in each league, the provisions of those CBAs that influence player contracts and contract disputes, the perceptions about competition that have resulted from CBA governance of the leagues, and possible solutions to problems that exist within those leagues.

II.   MLB: THEN AND NOW

Baseball has been played in America since the first half of the nineteenth century, though it was not played professionally until 1868.⁴ In 1871, twenty-five professional clubs formed the National Association of Baseball Clubs, which would later become the National League.⁵ The American League, lagging behind slightly, was formed in 1900.⁶ Players switched teams incessantly during the baseball’s infancy.⁷ Contracts lasted only for a year, after which time the players were able to offer their services out on the open market.⁸ This process of exclusively playing one-year contracts would soon prove to be short-lived. Shortly after organized professional play began, baseball “sought to establish a policy of self-governance in all matters,” including player contracts and salary disputes.⁹ This power, once established, allowed owners to be inconsiderate in compensating their players, which often led to labor disputes.¹⁰ In 1879, these disputes led to the inception of baseball’s reserve system.¹¹ The reserve system was first a secret “gentleman’s agreement” among owners that provided a list of five players on each team to be protected and reserved for the owner of each team.¹² The other owners acknowledged this system by agreeing not to sign protected players away from their current team.¹³ This “gentleman’s agreement” proved very successful, and by the late 1880s the owners included a reserve clause in every player contract.¹⁴ The clause gave the owners the option to continue renewing each player’s contract indefinitely at a salary chosen at the owner’s discretion.¹⁵ If the player refused to sign the new contract, he was left with two options: (1) continue to play for the current team, or (2) permanently retire from baseball.¹⁶ This new system was a substantial departure from the early days of professional baseball, which more closely resembled “the early forerunner to today’s free agency.”¹⁷

The reserve system, as well as the owners’ practice of trading players for cash at will, led to even greater player discord.¹⁸ Thus, by 1885, player John Montgomery Ward helped to organize the Brotherhood of Professional Baseball Players.¹⁹ Although the Brotherhood attracted many of the great players of its day, its attempt at self-help failed as the Brotherhood “lost money and many of its star players were lured back by the owners’ promises of steady pay and steady work.”²⁰ As a result, in December of 1890, the Brotherhood folded after just one season.²¹ The players next sought relief from the courts, and in 1922, challenged the reserve clause on the grounds that the League had conspired to monopolize the baseball business.²² The players’ case went to the U.S. Supreme Court. However, the Court ruled for the league, stating that the reserve clause did not violate antitrust laws because baseball was not engaged in interstate commerce.²³ The court reasoned that “[t]he business is giving exhibitions of baseball, which are purely state affairs.”²⁴ Therefore, the transportation of persons across state lines was considered an insignificant interference with interstate commerce.²⁵ In 1953, the league’s reserve system was again challenged in Toolson v. New York Yankees,²⁶ with the players now using the advent of interstate baseball broadcasts to bolster their antitrust claim.²⁷ But, once again, the Supreme Court upheld the reserve clause, noting that invalidation of the reserve system would cause the end of competitive baseball, and thus death to the sport.²⁸ In 1972, the Supreme Court again heard a challenge to the reserve system in Flood v. Kuhn.²⁹ In Flood, “[a player] challenge[d] the reserve clause on the basis that it violated antitrust laws after he was refused the right to negotiate a new contract with another club.”³⁰ The court again sided with the owners, upholding the antitrust exemption, stating that “the reserve clause was necessary to preserve baseball’s economic stability and competitive balance.”³¹

In 1966, the players, led by United Steelworkers of America economist Marvin Miller, formed the Major League Baseball Players Association (MLBPA).³² In 1968, the MLBPA and baseball owners negotiated a collective bargaining agreement, Major League Baseball’s First Basic Agreement.³³ The agreement established a minimum salary and a grievance procedure for settling disputes whereby the Commissioner, a position chosen by the owners, would be the ultimate arbitrator of any grievance.³⁴ Two years later, the Second Basic Agreement raised the minimum salary from ten to fifteen thousand dollars and changed the grievance procedure to one where a panel of arbitrators outside the Commissioner’s office could be chosen to handle disputes.³⁵ This change in procedure would mark the first time in the history of the league that the owners would not have total control over player disputes.³⁶ The next major change occurred five years later with the 1973 Basic Agreement, which granted the players the ten and five rule.³⁷ This rule allowed players with ten years of major league experience and five years with his current team both the right to refuse a trade and salary arbitration.³⁸ In 1975, the reserve system was finally eliminated as arbitrator Peter Seitz declared that the reserve clause in a player’s contract would apply only for that contract, and therefore ended clubs’ use of the option clause as perpetual right to renew.³⁹ As a result of this ruling, the 1976 Basic Agreement allowed players with six years in the major leagues to qualify for a limited form of free agency, whereby those players would participate in a re-entry draft that would allow teams to bid for free agents in reverse order of finish to encourage competitive balance.⁴⁰ This provision was later eliminated to allow players qualifying for free agency to be available to the highest bidder.⁴¹ Salary arbitration was available to those players ineligible for free agency who had at least two years of major league experience.⁴² Free agency and salary arbitration have had a major effect on player salaries.⁴³ One year after salary arbitration was initiated in 1975 the average player salary was $44,676.⁴⁴ In 2005, the average player salary was $2,632,655.⁴⁵

Despite this rapid increase in player salaries, the MLB does not have a salary cap.⁴⁶ The MLB owners’ last attempt to enact a salary cap in 1994 failed miserably.⁴⁷ During this year, the CBA was scheduled to be renegotiated, but serious new issues in the professional baseball arena threatened the success of this renegotiation.⁴⁸ The most important issue confronting the owners was a glaring disparity in television revenue between larger and smaller market teams.⁴⁹ Local, unshared television revenues for large-market clubs were becoming increasingly profitable, to the point that the increased wealth allowed those clubs to sign many more high-priced (and presumably better) free-agent players than their small market counterparts.⁵⁰ The small-market teams were demanding that the large-market teams share their television revenues, and were prepared to vote down any new CBA that did not include such a provision.⁵¹ The large-market teams would only agree to such a revenue-sharing arrangement if the new CBA included a salary cap, so that their lost television profits could be recouped in the form of reduced labor costs.⁵² The players rejected the proposed salary cap offer, ultimately resulting in a players’ strike that lasted over two hundred days, and the unprecedented canceling of baseball’s postseason, including the World Series.⁵³ While the strike lasted through most of spring training of the following season, the strike ended shortly before the first games of the 1995 season, when the National Labor Relations Board (NLRB) agreed to seek an injunction against the owners, which allowed for the 1995 and 1996 seasons to be played under the old CBA.⁵⁴

In 1996, the owners and players finally reached an agreement.⁵⁵ The approved new CBA, which came into effect in 1997, included some interesting changes. First, the agreement included a “competitive balance” or “luxury tax” that called for the teams with the five highest payrolls to pay a 35% tax on payroll spending over a set threshold amount, thus hopefully discouraging high player salaries.⁵⁶ Additionally, the owners implemented a revenue-sharing plan that would transfer revenue from the thirteen wealthiest clubs to the rest of the franchises by the year 2000.⁵⁷ Salary arbitration remained largely unchanged, with the exception that the number of arbitrators was increased from one to three in order to reduce the number of “aberrant” decisions.⁵⁸ Finally, the owners and players agreed to jointly petition Congress to eliminate MLB’s anti-trust exemption as it pertained to labor matters.⁵⁹

The current MLB CBA, which has been in effect since 2003,⁶⁰ maintains many of the provisions that were negotiated into the 1997 agreement. Major League clubs may have title to and reserve up to a maximum of forty player contracts.⁶¹ These contract rights are maintained by the club until a player becomes a free agent or his contract is assigned. A player can achieve free agency if he has (1) fulfilled his current contract; (2) completed at least six years of major league service; and (3) not executed a contract for the next succeeding season.⁶² There is a fifteen-day election period, beginning on the latter of October 15 or the day following the last game of the World Series, for a player choosing to pursue free agency to give notice of his intentions to the Players Association.⁶³ After free agency notice has been given to the Association, the player is available to meet with any team to discuss the possibility of signing a contract.⁶⁴ Once the free agency election period has expired, the player can then negotiate and contract with any team he chooses.⁶⁵ However, if the player has not contracted with another team prior to December 1 of that year, the former club of that player has the right to proceed to salary arbitration and retain the player for the upcoming season.⁶⁶ If the player does sign a contract with a new club following the election period, the player’s former club is entitled to compensation in the form of amateur draft picks.⁶⁷

There is no maximum player salary or salary cap, though there are established minimum player salaries as well as a unique system for arbitration. Salary arbitration, without the consent of the other party, is available to any club or any player with three to six years of service in MLB.⁶⁸ Additionally, a player with two to three years of service is eligible for arbitration if he has accumulated at least eighty-six days of service during the immediately preceding season and ranks in the top 17% in total service in that class of players that have two to three years of service with at least eighty-six days of service in the preceding season.⁶⁹ The arbitration process is as follows: After the player or club has submitted notice of the intent to pursue arbitration, the player and club exchange the figures that each side will submit for arbitration.⁷⁰ If the club submits the matter to arbitration, the player has seven days after receipt of the club’s proposed figure to withdraw from arbitration (and thus continue performance at the rate contracted).⁷¹ Submissions to arbitration are made between January 5 and January 15 of each year, and the hearings are held between February 1 and February 20.⁷² The arbitration hearings are typically held before a three-person panel.⁷³ The arbitrators are selected annually by the MLB Players Association and the MLB Labor Relations Department (“LRD”), and these two groups designate one arbitrator to serve as the panel chair.⁷⁴ The procedure of the actual hearings is unique. The player and club each submit a salary figure, along with a contract for the player’s services that is complete except for the blank that would normally include the player’s salary.⁷⁵ “The hearings [are] conducted on a private and confidential basis.”⁷⁶ Each of the parties to the case is permitted just “one hour for initial presentation and one-half hour for rebuttal and summation.”⁷⁷ The arbitration panel is allowed to consider as criteria for its decision “[1] the quality of the Player’s contribution to his Club during the past season … [2] the length and consistency of his career contribution, [3] the record of the Player’s past compensation, [4] comparative baseball salaries … [5] the existence of any physical or mental defects on the part of the Player, and [6] the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance ….”⁷⁸ The arbitrators may not consider as criteria “(i) The financial position of the Player and the Club [including the competitive balance tax consequences]; (ii) Press comments, testimonials or similar material bearing on the performance of either the Player or the Club … (iii) Offers made by either the Player or the Club prior to arbitration; (iv) The cost to the parties of their representatives … [or] (v) Salaries of other sports or occupations.”⁷⁹ After considering the allowed relevant criteria for determining the player’s value, the arbitration panel renders a decision, awarding either the player’s or the club’s submission within twenty-four hours.⁸⁰ The arbitration award is an either/or proposition, thus the process is sometimes termed “final offer” arbitration.⁸¹ One submission or the other must be chosen, and the decision is reached without issuance of an opinion.⁸² The Players Association and the LRD are initially informed only of the award and not how the panel members voted.⁸³

MLB also uses arbitration in its procedure for settling “grievances.”⁸⁴ A grievance within the CBA is defined as “a complaint which involves the existence or interpretation of, or compliance with, any agreement, or any provision of any agreement, between the [Players] Association and the Clubs or any of them, or between a Player and a Club.”⁸⁵ This procedure requires a player to file a written notice of a grievance to his club’s designated representative no later than forty-five days after the facts of the matter became known.⁸⁶ Within ten days of the player’s notice, the club’s representative makes a decision on the matter and then furnishes that decision in writing to the Players Association.⁸⁷ The representative’s decision is then considered final, unless the player appeals the decision within fifteen days.⁸⁸ If the player elects to appeal, the Association and a designated representative of the LRD discuss the grievance, after which the LRD representative issues an opinion to the Association.⁸⁹ Once again, if the player does not appeal this decision within fifteen days, the matter is considered settled.⁹⁰ However, if the player appeals this decision, either the player or the association may appeal to the Panel Chairman for impartial arbitration.⁹¹ Upon receipt of notice for appeal, the Panel Chairman will set a time and date for a hearing, not to be more than twenty days from the receipt of notice.⁹² The hearings are then heard by an arbitration panel and conducted in accordance with Rules of Procedure set out in the CBA.⁹³ The hearings are informal, and begin by first allowing the initiating party to present its case, and then allowing all interested parties the opportunity to be heard.⁹⁴ Legal rules of evidence do not apply to the proceedings, so that all evidence desired to be offered by the parties is allowed, and the Panel Chairman judges its relevancy and materiality.⁹⁵ Additionally, the Panel Chairman may request that the parties produce additional evidence that the chairman deems necessary to understanding and adjudicating the dispute.⁹⁶ Following a determination by the panel, two copies of the written decision are given to each party.⁹⁷ The panel’s decision is considered the full and final disposition of the matter.⁹⁸

III.   NBA: THEN AND NOW

The National Basketball Association (NBA) was founded in 1949, when the remaining six teams in the National Basketball League (NBL) combined with the Basketball Association of America (BAA).⁹⁹ In 1954, Boston Celtics star Bob Cousy attempted to organize NBA players, becoming the first president of the National Basketball Players Association (NBPA).¹⁰⁰ At that time, the NBA had no minimum wage, no health benefits, no pension plan, no per diem, and the average player salary was $8,000.¹⁰¹ From 1957–58, the NBA first began to enter into discussions with the NBPA.¹⁰² But it was not until 1964, when the players threatened to strike for the first televised NBA All-Star game, that the NBA recognized the NBPA as the exclusive collective bargaining representative of the players.¹⁰³ Negotiations, and the CBA that followed, resulted in the players receiving an eight dollar per diem and a pension plan (albeit funded in part by the players themselves).¹⁰⁴ “In 1976, the NBA and NBPA entered into a … settlement agreement which [changed] a number of … operation[s in] the NBA, including a modification of the college draft and [the] institution of the right of first refusal.”¹⁰⁵ This agreement was known as the Robertson Settlement Agreement (RSA) and was set to expire at the end of the 1986–87 season.¹⁰⁶ The RSA eliminated the “reserve” or “option” clauses that, like those clauses that were common in the old days of the MLB, would bind a player to his team after his contract had expired.¹⁰⁷ Concurrent with the adoption of the RSA, the NBA and NBPA entered into a multi-year CBA, which incorporated the substantive terms of the RSA and would be in effect until 1979.¹⁰⁸ In 1980, the parties sought to preserve the status quo, and “executed a two-year CBA expressly incorporating the terms of the RSA.”¹⁰⁹ In 1983, many NBA teams were experiencing financial difficulty, both spending and losing a lot of money.¹¹⁰ As a result, the NBPA and the Commissioner decided to implement a salary cap in order to create a salary structure capable of accommodating the interests of both sides.¹¹¹ The cap was to be the first of any kind seen in professional sports, and the decision was predictably met with huge opposition from the players.¹¹² Though the players challenged the cap in court,¹¹³ they ultimately “yielded to financial pressure and agreed to institute [a] salary cap to restore the league’s financial health.”¹¹⁴ The salary cap that was ultimately approved by the players in 1983 called for a sharing of league revenues, appropriating 53% to the players.¹¹⁵ The salary cap also limited the amount of compensation that teams could offer new players, regardless of whether the new player was a free agent or a rookie.¹¹⁶ Additionally, the salary cap provided for a minimum total team payroll and a predetermined cap for rookie salaries.¹¹⁷ Along with the salary cap, the 1983 agreement included the “Larry Bird Exception.”¹¹⁸ The Larry Bird exception allows teams to exceed the salary cap when signing free agents in limited circumstances.¹¹⁹ Basically, the exception provides teams resigning their veteran free agents the ability to offer up to 12.5% more of the player’s salary per season, regardless of the salary cap.¹²⁰ The effect of the luxury tax is to limit team abuse of salary cap exceptions, such as the Larry Bird exception, by doubling the expense of excess spending and redistributing that penalty amount to those teams not exceeding the luxury tax threshold.¹²¹ To deter teams from using this exception to substantially exceed the salary cap, the luxury tax penalty was set to be 100% of any overage.¹²²

At the end of that season, the players sued the owners once again on antitrust grounds.¹²³ Though the lawsuit was ultimately settled out of court, the 1988 CBA was a landmark lawsuit for professional sports.¹²⁴ The 1988 agreement was an incorporation of the Bridgeman Settlement Agreement which brought the first unrestricted free agency to any professional sports league, among other player-favorable provisions, and was set to run through 1994.¹²⁵ At the expiration of that agreement, the players again unsuccessfully sought relief in the courts, again challenging the salary cap, the college draft, and the right of first refusal.¹²⁶ However, the parties entered into a no-lockout, no-strike agreement which effectively extended the CBA through the end of the 1994–95 season.¹²⁷ After a short lockout in 1995, the NBPA and NBA agreed to a new CBA that was in effect until 1998.¹²⁸ In 1998, the NBA exercised its option to terminate the 1995 agreement and attempted to roll back salaries and institute a hard salary cap.¹²⁹ The NBPA refused to submit to these demands, resulting in the longest lockout and work stoppage in NBA history.¹³⁰ The two sides finally reached an accord, and in 1999 a new six-year CBA was reached.¹³¹ The latest CBA was reached in July 2005 and will remain in effect until the end of the 2010–2011 season.¹³²

As previously stated, the NBA was the first professional sports league to establish a salary cap. The current NBA CBA defines the term “salary cap” as the “maximum allowable Team Salary for each Team for a Salary Cap Year,” and this amount is determined each year as a percentage of projected operating revenues.¹³³ The current salary cap provides for a 51% share of revenues, calculated as a percentage of projected Basketball Related Income (BRI) for the current salary cap year, minus projected benefits, divided by the number of teams scheduled to play in the NBA during the salary cap year.¹³⁴ The CBA also mandates a yearly minimum team salary, which is calculated as 75% of that year’s salary cap.¹³⁵ In addition to the salary cap and minimum salary limitations, there is also a luxury tax that mandates a dollar-for-dollar penalty tax for any team spending over the “Tax Level,” which is also defined in the CBA.¹³⁶ This amount differs from the amount listed as the salary cap because the NBA has what is referred to as a “soft” salary cap, meaning that there are exceptions that allow a team to exceed the cap. For example, the NBA salary cap for 2006–07 was $53.135 million, while the tax level was not breached until teams passed the $65.42 million spending mark.¹³⁷ Therefore, teams could spend in excess of $12 million over the stated salary cap before they would be taxed, provided their spending fell within an approved exception, most notably the Larry Bird exception.¹³⁸

While the free agency systems of the NBA and MLB are similar, the NBA’s system differs from MLB in several respects. While it is easiest to think of unrestricted free agency as the rule and restricted free agency as the exception, the restricted form plays a major role in the NBA. Understanding restricted free agency begins with determining whether a rookie player was signed to a “Rookie Scale Contract” or a “regular contract.”¹³⁹ Rookie Scale Contracts are for those players who are drafted in the first round of the NBA Amateur draft.¹⁴⁰ These “rookies” are slotted into predetermined contract amount scale (determined by each player’s draft position) and are signed to two-year contracts that give the signing team an option to renew for a third and fourth year.¹⁴¹ These rookie players become unrestricted free agents after their third season if the team does not choose to exercise the option for the fourth season.¹⁴² If the team does choose to exercise the option for the fourth year, the team may then make what is termed a “qualifying offer” for the player’s service for a new contract. By making a qualifying offer, the player becomes a restricted free agent, and his current team has the right of first refusal on competing offers.¹⁴³ This offer is a one-year proposition, and if accepted, will allow the player to become an unrestricted free agent after that year of service.¹⁴⁴ If another team wishes to sign that player for a higher amount than what his current team has offered as its qualifying offer, they will submit an offer sheet that provides terms for a contract lasting for at least two years. If the player wants to accept the offer from the other team, he would sign the offer sheet, and his current team then would have seven days to match the offer and keep the player.¹⁴⁵ If that team fails to do so, the player is deemed to have automatically entered a contract with the new team at the offered rate.¹⁴⁶ Likewise, if the current team chooses to exercise its right of first refusal and match the offer, the exercise of that right binds the player and the team to a new contract at the offered terms.¹⁴⁷ Additionally, if the player’s current team submits what is termed a “Maximum Qualifying Offer,” it must be for a minimum of six years and all guaranteed compensation.¹⁴⁸ Maximum qualifying offers are based on the provision restricting the maximum annual salary a player may receive, which is defined as a certain percentage of the total salary cap of each team.¹⁴⁹ Thus, a maximum qualifying offer states the player’s first year salary as the maximum annual salary for players with his years of service, with 10.5% increases per year for the rest of the contract.¹⁵⁰ This offer puts other teams who would consider exceeding this maximum contract offer in a difficult position, because unlike the player’s current team, new teams would not qualify for a salary cap exception with respect to that player and thus all of the money offered would count against the salary cap.¹⁵¹ Finally, unlike the MLB, there is no compensation for teams whose free agents sign with new teams.¹⁵²

Like Major League Baseball, the NBA also employs an arbitration procedure for settling grievances, as well as a system arbitrator to settle any and all disputes relating to the specific articles of the CBA.¹⁵³ The NBA grants a “Grievance Arbitrator” the exclusive jurisdiction to settle “all disputes involving the interpretation or application of, or compliance with, the provisions of [the CBA] or the provisions of a Player Contract, including a dispute concerning the validity of a Player Contract.”¹⁵⁴ The grievance arbitrator also has jurisdiction to settle disputes relating to the various trusts created by the NBA and NBPA for the benefit of the players.¹⁵⁵ The grievance arbitrator is appointed by joint agreement of the NBA and the NBPA, as is any successor grievance arbitrator that may be necessary due to the discharge or resignation of the original arbitrator.¹⁵⁶ The process used for grievance arbitration may be initiated by a player, a team, the NBA, or the players association.¹⁵⁷ Before the process may be initiated, the party with the grievance must first discuss the matter with the opposing party in an attempt to settle.¹⁵⁸ The grievance must then be initiated within thirty days of the occurrence upon which the grievance is based (or within thirty days of when the party initiating the grievance first learns of the facts of the matter, whichever is later).¹⁵⁹ The party initiating the grievance then files notice with the opposing party that they are initiating a grievance.¹⁶⁰ Upon at least thirty days of written notice to the other party, the NBA and NBPA may schedule a hearing on a date that is convenient to all the parties of the dispute.¹⁶¹ The parties then submit, no later than seven days prior to the hearing, a “joint statement of the issue(s) of the dispute.”¹⁶² Then, “no later than three (3) business days prior to the hearing, the parties shall exchange witness lists, relevant documents and other evidentiary materials, [as well as] citations of legal authority that each side intends to rely on [at the hearing].”¹⁶³ The arbitrator may also allow any party wishing to file a pre- or post-hearing brief to do so at least three business days before the hearing, unless an opposing party can show that it is unreasonable under the circumstances.¹⁶⁴ All hearings are then “conducted in accordance with the Labor Arbitration Rules of the American Arbitration Association,” as long as those rules do not conflict with the provisions of the CBA.¹⁶⁵ Following the hearing, the arbitrator is instructed to render a decision as soon as possible.¹⁶⁶ The decision is to be accompanied by a written opinion, or if both the NBA and NBPA agree, a written opinion may follow soon after the decision.¹⁶⁷ The arbitrator’s decision is considered the full and final disposition, binding all the parties to the matter.¹⁶⁸

In addition to “grievance arbitration,” the NBA also has what is termed “system arbitration.”¹⁶⁹ The NBA uses system arbitration to resolve disputes arising out of the CBA provisions relating to some of the structural provisions of the CBA such as the salary cap, minimum team salary, rookie scale contracts, the NBA draft, free agency, and league expansion.¹⁷⁰ A system arbitrator is selected by the NBA and NBPA jointly, and serves for continually renewable two-year terms.¹⁷¹ Like grievance arbitration, the parties to a system dispute must first attempt to settle the matter prior to initiating arbitration proceedings.¹⁷² However, unlike grievance arbitration, system arbitration may only be initiated by the NBA or NBPA, and the initiation must be started within three years of the date of the act upon which the system arbitration is based, rather than the thirty-day deadline for grievances.¹⁷³ The party initiating the arbitration then provides notice to both the system arbitrator and the opposing party, after which time a hearing may be commenced in as soon as seventy-two hours.¹⁷⁴ Upon notice of arbitration, the arbitrator has the authority to order the production of documents, conduct pre-hearing dispositions, and compel the attendance of witnesses to the extent necessary to make findings of fact and issue a decision.¹⁷⁵ As in grievance arbitration, the arbitrator then issues a decision, which may be accompanied by a full written opinion of the grounds upon which the decision is based.¹⁷⁶ This decision is typically the final resolution of the matter, though system arbitration does include the availability of an appeal process in most cases.¹⁷⁷ Appeals are heard before a three-member panel chosen jointly by the NBPA and the NBA.¹⁷⁸ A party seeking to appeal the decision of a system arbitrator must serve upon the other party and file with the system arbitrator notice of appeal within ten days of the decision appealed.¹⁷⁹ This service and filing of notice of appeal automatically stays the system arbitrator’s decision pending the outcome of the appeal.¹⁸⁰ The appeal process begins with the parties setting a briefing schedule,¹⁸¹ after which time each party has between fifteen and twenty-five days to serve the brief to the opposing party and file the brief with the appeals panel.¹⁸² The appeals panel then schedules oral arguments on the parties’ briefs between five and ten days after the filing.¹⁸³ The appeals panel then reviews the system arbitrator’s findings of fact and conclusions of law and issues a written decision on the matter within thirty days of that argument.¹⁸⁴ This decision constitutes the full, final, and complete resolution of the matter.¹⁸⁵

IV.   NFL: THEN AND NOW

The National Football League (NFL) has been in existence since 1922,¹⁸⁶ although the NFL as we now know it did not exist until the 1966 merger of the American Football League (AFL) and the existing National Football League (NFL).¹⁸⁷ In 1956, the players of the NFL organized to back a representative body, the National Football League Players Association (NFLPA).¹⁸⁸ At that time, the players had virtually no bargaining power, and although several proposals, such as a minimum salary requirement, were made to the owners, those proposals were likely not even considered.¹⁸⁹ The NFLPA continued to be a fairly weak organization after the AFL–NFL merger until 1970, when the players first threatened to strike.¹⁹⁰ Though the players’ threat was essentially empty,¹⁹¹ the NFLPA and the owners soon reached a four-year agreement (the 1968 Agreement) providing for a minimum wage and an improved pension and insurance plan.¹⁹² The agreement solidified the NFLPA as an established entity and formidable bargaining force, and the union then moved for larger concessions. In 1974, the NFLPA challenged the 1968 Agreement’s “Rozelle Rule,” which required any team signing a free agent from another team to compensate that team in the form of draft picks and players.¹⁹³ In Mackey v. National Football League,¹⁹⁴ the Eighth Circuit Court of Appeals found that the Rozelle rule violated the Sherman Act by creating an unreasonable restraint on trade.¹⁹⁵ The adverse court ruling prompted owners to negotiate with the NFLPA, and in 1977 a new CBA was formed.¹⁹⁶ The new CBA included increased benefits, arbitration of grievances, and reforms of the waiver system and the option clause.¹⁹⁷ In 1987, the players attempted to negotiate a new CBA that allowed for more meaningful free agency, but the inability to agree to terms led to a strike season.¹⁹⁸ The owners rendered the players’ strike unsuccessful by employing replacement players and allowing players to cross the picket line and play under the existing terms, which many players did.¹⁹⁹ Recognizing the situation as futile, the players ended the strike and filed a lawsuit.²⁰⁰ In 1993, after five years of litigation, the NFL reached a settlement that created a new CBA with a new system of free agency, a salary cap, and a salary floor.²⁰¹ The 2006 NFL CBA maintains these provisions and is to remain in effect through the 2010 season.²⁰²

Like the NBA, the NFL has a salary cap and a guaranteed minimum salary provision.²⁰³ However, unlike the “soft” salary cap of the NBA, the NFL salary cap does not allow teams to use exceptions to exceed the cap. Thus, the NFL’s salary cap is termed a “hard” cap, and attempted violations of the cap may be voided or result in stiff penalties.²⁰⁴ While the current CBA has prescribed actual dollar figure amounts for the 2006 and 2007 seasons, the balance of the agreement defines the salary cap in terms of a percentage of the projected total league revenues, minus projected total league benefits, divided by the number of NFL teams.²⁰⁵ The agreement, after defining the percentage upon which the cap is based, allows for future adjustments if the salary cap does not match the agreed percentage after the season is over and the actual numbers are tallied.²⁰⁶ The agreement also provides an exception if the final numbers substantially deviate from the projected percentage of profit that the cap is based upon.²⁰⁷ For instance, the CBA provides that an adjustment (up or down) will be made to the 2009 cap if the 2007 total league-wide cash player costs exceed or fall below a triggering percentage of the total revenues for that year.²⁰⁸ This provision ensures that the cap will not begin to substantially deviate from the bargained-for percentage of profits that either the players or owners actually receive. The exception/guarantee provisions in the agreement are an extension of this adjustment formula and exist to ensure that both the minimum salary guarantees and the cap have been followed once the actual dollars are received.²⁰⁹ For example, the guaranteed league-wide salary is set at 50% of total revenues.²¹⁰ If the final accounting reflects that the player compensation falls below that amount for a given year, then the teams must disburse the difference to the players.²¹¹ A “trigger/bail-out” provision of the agreement ensures that the minimum guarantee is further complied with, in that if the percentage of total revenue paid to the players stays at least at 56.074%, then the salary cap stays in effect for the duration of the agreement.²¹² However, if that amount falls below 46.868% in a given year, then there will be no salary cap for the league until the amount again breaks the 56.074% mark for a year.²¹³ Without these provisions, owners could constantly pay the players based on the lowest projection of league revenues, and then pay whatever difference there was up to the league-wide minimum every year.

The NFL has a relatively complex system of free agency. The system is best understood by dividing the free agents into restricted or unrestricted categories, with sub-categories of “transitional” and “franchise” players.²¹⁴ Unrestricted free agents consist of those players whose contracts have expired and have completed five or more accrued seasons,²¹⁵ or four or more accrued seasons in any capped year.²¹⁶ Such players have the right to negotiate and sign a contract with any team that the player chooses.²¹⁷ The only caveat to this unrestricted negotiation is that if the player has not signed with another team by the time NFL training camp begins or July 22, whichever is later, he may only sign a one-year contract with his current team with a pay of at least 110% of his prior year salary.²¹⁸ The player then has until the tenth week of the NFL regular season to sign this contract, or he is prohibited from playing in the NFL that year and will begin the next free agency period as an unrestricted free agent once again.²¹⁹

Restricted free agents fall into two categories: (1) players with less than three accrued seasons; and (2) players with at least three but less than five accrued seasons.²²⁰ A player “with less than three Accrued Seasons whose contract has expired may … sign a Player Contract only with his Prior Club,” if that club offers him a one-year contract on or before the March 1 deadline.²²¹ If the prior club makes no such offer, the player then becomes an unrestricted free agent, available to negotiate and sign with any club.²²² A player with at least three but less than five accrued seasons has the right to sign with any club just as an unrestricted free agent would, but with restrictions.²²³ The main restriction includes giving the prior club a right of first refusal and/or draft choice compensation if that club tenders a qualifying offer on or before the first date of the free agency signing period.²²⁴ The CBA establishes the minimum qualifying offer that a current club must make in order to maintain their right of first refusal, though clubs may make offers in excess of that minimum amount to increase the amount of draft choice compensation that the team would receive if the player signs with a new team.²²⁵ For example, if a team makes the minimum qualifying offer to a player who was originally drafted in the fourth round, and a new team makes a higher offer, the current team has two options: (1) match the new team’s higher offer and keep the player, or (2) allow the player to sign with the new team and receive a compensatory draft choice from that player’s original draft round (in this example, a fourth round draft pick).²²⁶ If the current team’s qualifying offer is in excess of the minimum allowable qualifying offer, thus placing the offer in a category requiring additional draft compensation, the cost to the new team for signing what was originally a fourth round draft choice could be as much as a first and third round draft choice.²²⁷ However, if the current club chooses not to make a qualifying offer to a player who would otherwise be a restricted free agent, that player will become an unrestricted free agent and able to sign with any new team he chooses.²²⁸

Two subsets of the NFL free agency system, “franchise” and “transition” player designations, further restrict player movement. Every year, a team is permitted to choose one player who would otherwise be a free agent to be a “franchise player.”²²⁹ A team designating a franchise player has the option of two required tenders that will make the player an “exclusive” or “nonexclusive” franchise player.²³⁰ If the team offers the designated franchise player a one-year contract of at least the average of the top five salaries of that player’s position as of the end of the restricted free agent signing period of that year, that player is an exclusive franchise player.²³¹ An exclusive franchise player may not negotiate or sign a contract with any new club.²³² To make a player a nonexclusive franchise player, a club must only offer a one-year contract of the greater of the average of the top five salaries of that player’s position from the prior year or 120% of the player’s salary from the prior year.²³³ If the team makes this designation, the player may still negotiate and sign a contract with a new team, but the former team must then be compensated in the form of two first round draft choices.²³⁴

Finally, if a team chooses to designate the same player with the franchise label for a third time, the required tender for that player is increased to either (1) the average of the highest five salaries for the position with the highest average; (2) 120% of the average of the five highest salaries of the prior year at the player’s position; or (3) 144% of the player’s salary of the prior year, whichever is greater.²³⁵ NFL clubs also have the ability to designate up to two players per year as “transition” players.²³⁶ Once a club has designated a player as a transition player, that club is deemed to automatically have offered the player a one-year contract worth the greater of the average of the highest ten player salaries for the player’s position from the previous year, or 120% of that player’s prior year salary.²³⁷ A transition player maintains the right to negotiate a contract with any team he chooses, but his prior team gains the right of first refusal.²³⁸ And unlike the franchise player designations, if the prior team does not exercise its right of first refusal, that team is not entitled to draft choice compensation.²³⁹

The NFL also has an arbitration system in place for injury²⁴⁰ and non injury grievances.²⁴¹ The non-injury grievance procedure is in place for disputes that relate to the interpretation of, compliance with, and application of the provisions of the CBA, player contracts, and other rules and bylaws of the league.²⁴² The process begins when a player, club, the NFL Management Council, or the NFLPA files a written notice of the grievance with the opposing parties within forty-five days of the occurrence upon which the grievance is based.²⁴³ The parties to whom the notice is sent then have a week to answer the complaint by setting forth admissions to or denials of the facts alleged in the grievance.²⁴⁴ “If the answer denies the grievance, the specific grounds for denial [must be stated].”²⁴⁵ If the answer does not settle the grievance, any of the parties may appeal the grievance by filing a notice to the Notice Arbitrator and sending notice of appeal to the other parties involved.²⁴⁶ The appeals are then scheduled based upon a series of dates available to four separate arbitrators and are typically heard upon the next available date.²⁴⁷ “No later than ten (10) days prior to any hearing, each party [must send] to the other copies of all documents, reports and records relevant to the dispute.”²⁴⁸ Failure to do so bars the party from offering that evidence at the hearing, although the opposing party will still have the opportunity to examine those documents and use them as it so desires.²⁴⁹ Following this disclosure, the parties have the opportunity to present all relevant evidence at the hearing—testimony and otherwise.²⁵⁰ After the presentation of evidence, either party may request post-hearing briefs, which each party will then simultaneously submit.²⁵¹ The arbitrator must then “issue a written decision within thirty days of the submission of briefs,” or sixty days of the end of the hearing, whichever is sooner.²⁵² The arbitrator’s decision is considered the full and final disposition of the dispute, binding all of the parties.²⁵³ One caveat to this procedure involves the “grievance settlement committee,” which consists of the Executive Director of the NFLPA and the Executive Vice President for Labor Relations of the NFL.²⁵⁴ This committee meets periodically to discuss pending grievances. If the committee so chooses, they may contact parties to a grievance and, with the parties’ consent, attempt to settle the grievance themselves.²⁵⁵ If the committee is successful, that settlement constitutes the full and final disposition of the matter.²⁵⁶

V.   ACTUAL CBA EFFECTS ON ON-FIELD COMPETITION VS. PERCEPTION

Comparing the success of different professional sports leagues is a difficult task. Part of this difficulty stems from the different structures of the leagues—depending on the sport, regular season games vary from 162 to 16, league mandated roster limits range from 14 to 53, the number of playoff teams may be 16 or 8, and the playoff formats may be “sudden death” or best of seven-game series. The complexity of the comparison task is compounded by the lack of a uniform opinion on what constitutes success. Are champions more attractive in “Cinderella” or “Dynasty” form? Is the success of a league better measured by its weakest teams or strongest? The answer to such questions depends on the individual fan, though a popular opinion seems to be that parity is the goal, and that competitive balance is the best indicator of success.²⁵⁷ The NFL is generally viewed as the model of parity in professional sports, while the MLB has come to represent professional sports in its most dynastic form.²⁵⁸ This is due to the perception that any NFL team may become playoff eligible in any given year regardless of their market or win-loss record from the prior season, while poor performing MLB teams are deemed resigned to a perpetual state of mediocrity.²⁵⁹

The question remains whether these perceptions are justified. Considering the popular adage that only champions are remembered, a closer examination of each sport is necessary to determine whether a disparity exists in some sports as opposed to others or if that perception is unfounded. As previously stated, developing a uniform system of comparison is difficult due to the differences in the format and schedule of each league. However, one way to determine whether real competition exists within the various leagues is to examine the chance that any given team has to achieve a berth in the league’s postseason playoff system. In examining five seasons of professional sports seasons from 2001–2005, the argument for the NFL system appears to be the most persuasive. In the NFL’s 12-team playoff format, 25 of its current 32 teams (78.1%) became playoff eligible in the five year period.²⁶⁰ Of those teams that participated in the playoffs, only one was able to accomplish the feat in all five years, while 13 of those teams only made the playoffs two or fewer times.²⁶¹ An examination of the NBA’s 16-team playoff format over the same time period reveals that 25 of its 30 teams (83.3%), participated in the playoffs.²⁶² Of those teams, five participated in the playoffs all five years, while just eight made the playoffs two or fewer years.²⁶³ And finally, in the MLB’s eight-team playoff system, only 17 of its 30 teams (56.7%) attended the playoffs from 2001–2005.²⁶⁴ Two of those teams were in the playoffs in all five years and nine of those teams played in the playoffs in two or fewer years.²⁶⁵ Over the five sample years the NBA, NFL, and MLB had 80, 60, and 40 playoff positions available respectively.²⁶⁶ If the playoff positions occupied by the teams that made the playoffs in every year are removed, assuming that those teams were in fact superior to the rest of the teams in their league due to consistent performance,²⁶⁷ then what remains is the pool of playoff slots that the rest of the teams can realistically hope to obtain. Thus, from 2001–2005 in MLB there were 28 teams (93.3% of the league) competing for 30 (75%) of the playoffs spots.²⁶⁸ The NBA had 25 teams (83.3% of the league) competing for 55 (68.8%) playoff spots, and the NFL had 31 teams (96.9% of the league) competing for 55 (91.7%) of its playoff spots.²⁶⁹ These numbers suggest that the playoff races are more consistently “open” in the NFL than in the NBA or MLB.

The percentages for the NBA and MLB are actually almost equal, even taking into consideration the fact that the MLB’s playoff system is half the size of the NBA. So then why is the NBA system generally accepted and the MLB system shrouded in controversy? One explanation may simply be the perception that meaningful competition is impossible with the rising salaries of professional athletes without a salary cap or significant restrictions on free agency. The concept that revenue sharing in the MLB would help level the playing field took a significant hit in 2000 when it was reported that the lower-payroll, small-market clubs were using the money that they were receiving as part of revenue sharing to turn a profit, rather than to increase payroll, as it was designed to do.²⁷⁰ Also, the baseball system of arbitration is not nearly as effective at restraining player movement as the other systems of free agency. This is due in part to the fact that the financial position of each club cannot be taken into account when reaching an arbitral award, thus the salaries of the players on small-market teams are measured against the salaries of the highest paying big-market clubs.²⁷¹ Because each club’s particular financial position is not considered, the placement of all players is determined by a market value that is based upon an inflated market that only exists for teams with the highest revenues and highest payrolls. The result is that owners (especially those from smaller markets) must either grant significant pay raises to the player contemplating arbitration or bid considerably more than they would otherwise be willing to pay in order to have a realistic chance of winning should a matter proceed to arbitration. For example, one study of arbitration results showed that although owners succeeded in most arbitration proceedings, the average salary of players invoking the arbitration process increased at a rate of 95%!²⁷² While the study takes into account a large number of players who reached a settlement prior to an arbitrator issuing a final decision,²⁷³ it nonetheless illustrates the notion that arbitration is a win–win situation for the players. However, the result of the arbitration process for many of the smaller market teams is that these teams are either “priced-out” of retaining players or forced to reduce salary in other areas of their rosters in order to keep the arbitrating players on staff. Thus, for some teams, the arbitration system actually forces player movement instead of restraining it. The best players (or at least the most valuable based on the criteria considered during salary arbitration) are therefore shuttled to the teams that can afford to pay their salaries, a continuous cycle that effectively ruins any attempt at equality amongst all teams in the league.

Meanwhile, the NBA seems fortunate that either the number of teams in its playoff system or a relative lack of knowledge by the average fan hides the flaw in its “soft” cap. One Larry Bird exception in the NBA is the free agency equivalent of allowing an NFL team to designate five franchise players, but without salary cap consequences.²⁷⁴ Considering that only five players are playing for an NBA team at any one time, this exception can swallow the salary cap-rule for teams that strike it rich in the draft. The Larry Bird exception was a major point of controversy in the 1998 lockout just as it was during settlement discussions prior to the 1995 CBA agreement, but the exception has survived negotiations again and again and so is not likely to be deleted anytime soon.²⁷⁵ The problem is that the effects of the exception could subject the NBA to issues similar to those that exist in Major League Baseball. Considering that wealthier NBA clubs can afford to pay not only the extremely high salaries for star players regardless of the salary cap, but also the contracts of star rookies, the Larry Bird exception limits competition by discouraging player movement.²⁷⁶ The question, then, is whether the NBA “soft cap” is actually any more effective at maintaining competitive balance than no cap at all. The playoff numbers indicate that the NBA’s soft cap has little effect on maintaining competitive balance, and thus suggest the answer to the question is “no.” There remains a real chance in the NBA that a team with good fortune in its choice of draft picks could conceivably lock-in a serious competitive advantage for years and years with skillful use of the salary cap exceptions.²⁷⁷ This situation essentially existed for the Chicago Bulls in the 1990s when that team won six championships in eight years (using the Larry Bird exception for star Michael Jordan during that period), and they could have been even more dominant had Jordan not elected to play baseball instead of basketball for a year and a half in the mid-90s.²⁷⁸ If such a circumstance comes to fruition again, critics of the soft cap demanding to be heard will have many fans listening to their howl.

….

VII.   CONCLUSION

The historical progression of the NBA, MLB, and NFL have created entities whose modes of operation, as defined in their respective collective bargaining agreements, make each distinct but popular among sports fans. While each league has undergone its own series of problems and renovations, the results have thus far been exciting and successful. The activities of the several sports leagues are monitored and discussed long after each season’s end, and while the arguments over some aspects of the leagues sometimes drown out the cheers, it is generally agreed that business is good.²⁸⁷ …

Despite the success of various professional sports, a balancing act is constantly performed to account for the interests of players and owners alike that can be profitable to both and enjoyed by fans. With both sides always jockeying for the best financial position, it seems that as soon as a potential disaster is avoided in one sport by way of a new collective bargaining agreement, another sport is furiously negotiating to avoid a ruinous strike or lockout. Throughout most of professional sports history, collective bargaining has done a brilliant job of calculating the interests of teams, players, and fans, and carrying the sports forward to successful, profitable ends. “Soft” cap or “hard” cap, free agency or arbitration, professional sports continue to represent one of the most popular forms of entertainment and most passionate outlets for fans across the country and around the world. Meanwhile, the struggle to maintain competitive balance continues, and the face of sports continues to evolve with each new CBA.

Notes

1.  See e.g., SportsBusiness Journal, http://www.sportsbusinessjournal.com/index.cfm?fuseaction=page.feature&featureId=43 (last visited Mar. 3, 2008).

2.  These are the current “Big Three” of U.S. professional sports. My apologies to the NHL, which has had a substantial decline in popularity since the 2004 lockout.

3.  See generally, 2005 NBA/NBPA CBA, available at http://www.nbpa.com/cba.php.

4.  Frederick N. Donegan, Examining the Role of Arbitration in Professional Baseball, 1 SPORTS LAW J. 183 (1994).

5.  Id.

6.  Id. at 184.

7.  Jonathan M. Conti, The Effect of Salary Arbitration on Major League Baseball, 5 SPORTS LAW J. 221, 223 (1998).

8.  Id.

9.  Thomas J. Hopkins, Arbitration: A Major League Effect on Players’ Salaries, 2 SETON HALL J. SPORT L. 301, 303 (1992).

10.  Id.

11.  Id.

12.  Id.

13.  Id.

14.  Id. at 303-04.

15.  Id.

16.  Id.

17.  Conti, supra note 7, at 223.

18.  Hopkins, supra note 9, at 304. Owner abuses included the suspension of a sick player (forcing his retirement) and the sale of players to different teams for cash. Id.

19.  Id.

20.  Id. at 305.

21.  Id.

22.  Id.

23.  Id. (citing Fed. Baseball Club v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 209 (1922)).

24.  Id. (quoting Fed. Baseball Club, 259 U.S. at 208).

25.  Id.

26.  346 U.S. 356, 361-62 (1953).

27.  Hopkins, supra note 9, at 305-06 (citing Toolson, 346 U.S. at 356-57 (1953)).

28.  Id.

29.  407 U.S. 258, 258 (1972).

30.  Hopkins, supra note 9, at 306.

31.  Id. (citing Flood, 407 U.S. at 272-73).

32.  Major League Baseball Players Association: MLBPA History, http://mlbplayers.mlb.com/pa/info/history.jsp (last visited Mar. 3, 2008).

33.  Hopkins, supra note 9, at 307

34.  Id.

35.  Id.

36.  Id.

37.  Id.

38.  Id. at 335 n.50.

39.  Id. at 309.

40.  Id.

41.  Id.

42.  Id.

43.  Id.

44.  Major League Baseball Salaries by Baseball Almanac, http://www.baseball-almanac.com/charts/salary/major_league_salaries.shtml (last visited Mar. 3, 2008).

45.  Id.

46.  See 2007–2011 MLB Basic Agreement, available at http://mlbplayers.mlb.com/pa/pdf/cba_english.pdf (last visited Mar. 29, 2008) [hereinafter MLB CBA].

47.  Daniel C. Glazer, Can’t Anybody Here Run This Game? The Past, Present, and Future of Major League Baseball, 9 SETON HALL J. SPORT L. 339, 363 (1999).

48.  Id. at 362-63.

49.  Id. at 363.

50.  Id.

51.  Id.

52.  Id.

53.  Id.

54.  Id. at 364.

55.  Id.

56.  Id. The money collected under the luxury tax is as follows: The first $5 million is held in reserve in the event a team should earn a tax refund during that year. The remaining balance is contributed to the Industry Growth Fund (IGF) used to help expand the baseball industry generally. Fifty percent of the proceeds over that amount go to player benefits. Twenty-five percent of those remaining proceeds go to fund high school and other projects where baseball is not played, and the last twenty-five percent goes back to the IGF. See 2007–2011 MLB Basic Agreement art. XXIII, § H, available at http://mlbplayers.mlb.com/pa/pdf/cba_english.pdf (last visited Mar. 29, 2008).

57.  Glazer, supra note 47 at 365.

58.  Id.

59.  Id. Congress finally acquiesced by passing the Curt Flood Act in 1998. Id. at 365 n.166.

60.  It is important to note here that a new MLB CBA was recently negotiated and will be in effect through 2011. While some minor changes were made from the 2003 agreement, most of that agreement incorporated into the new one. Changes of note include increasing the luxury tax by $40 million, eliminating deadlines for free agents to sign with their former teams, elimination of the ability of a player who was traded in the middle of a multi-year contract to demand a trade, and the ability of teams who are unable to sign their first-round amateur draft choices to be compensated with comparable choices in the subsequent year’s draft. See Barry M. Bloom, MLB, Union Announce New Labor Deal, MLB.com, Oct. 25, 2006, http://mlb.mlb.com/news/article.jsp?ymd=20061024&content_id
=1722211&vkey=ps2006news&fext=.jsp&c_id=mlb.

61.  MLB CBA art. XX, § A.

62.  Id. art. XX, § B(1).

63.  Id. art. XX, § B(2)(a).

64.  Id. art. XX, §§ B(2)(a) & (b).

65.  Id. art. XX, § B(2)(c).

66.  Id. art. XX, § B(3).

67.  Id. art. XX, § B(4)(a).

68.  Id. art. VI, § F(1).

69.  Id. art. VI, § F(1).

70.  Id. art. VI, § F(3). The clubs are bound by special exceptions from maximum salary reduction rules in the CBA that provide that the club must submit a salary figure for arbitration that is at least 80% of the player’s previous year salary and earned performance bonuses (or at least 70% of his salary and earned performance bonuses for the previous two years), unless that player received an increase of at least 50% of his previous year’s salary in an arbitration proceeding in the immediately preceding year. Id.

71.  Id. art. VI, § F(4).

72.  Id. art. VI, § F(5).

73.  Id. art. VI, § F(7).

74.  Id.

75.  Id. art. VI, § F(6).

76.  Id. art. VI, § F(9).

77.  Id.

78.  Id. art. VI, § F(12)(a).

79.  Id. art. VI, § F(12)(b).

80.  Id. art. VI, § F(5).

81.  Id.

82.  Id.

83.  Id.

84.  Id. art. XI.

85.  Id. art. XI, § A(1) (a). The definition of a grievance is pretty well comprehensive of any dispute that might occur, although it does list complaints regarding the players’ benefit plan and dues as exempt from this procedure, as well as actions taken with respect to a player by the commissioner involving “the integrity of the game.” Id.

86.  Id. art. XI, § B.

87.  Id.

88.  Id.

89.  Id. Grievances involving more than one Club or a player not under contract can be filed to begin at this stage. Id.

90.  Id. Note that there are also special procedures for grievances necessitating a medical expert. Id.

91.  Id.

92.  Id.

93.  Id. (The Rules are contained in Appendix A of the Agreement).

94.  Id. app. A, §§ 3 & 6.

95.  Id. app. A, § 8.

96.  Id.

97.  Id. app. A, § 13.

98.  Id. art. XI, § B.

99.  NBA.com: Powerful Lakers Repeat, http://www.nba.com/history/season/19491950.html (last visited Mar. 3, 2008).

100.  NBA Players Association: NBPA History, http://nbpa.com/history.php (last visited Mar. 3, 2008).

101.  Id.

102.  Id. These discussions could not be termed “negotiations,” as the NBA had not yet recognized the NBPA as the voice of the players.

103.  Id.

104.  Id.

105.  Michelle Hertz, The National Basketball Association and the National Basketball Players Association Opt to Cap Off the 1988 Collective Bargaining Agreement with a Full Court Press: In re Chris Dudley, 5 MARQ. SPORTS L.J. 251, 252 (1995).

106.  Id. The agreement was named the “Robertson Settlement Agreement” after Oscar Robertson. Robertson was the president of the NBPA until 1974, and the agreement came after a class action lawsuit instituted by the players challenging some of the League’s actions as violative of antitrust laws. See id.; National Basketball Players Association: NBPA History, supra note 100 (in the 1964 and 1970 sections).

107.  National Basketball Players Association: NBPA History, supra note 100.

108.  See Hertz, supra note 105, at 252-53.

109.  Id. at 253.

110.  See Melanie Aubut, When Negotiations Fail: An Analysis of Salary Arbitration and Salary Cap Systems, 10 SPORTS LAW. J. 189, 218 (2003).

111.  Id. at 218-19.

112.  Id. at 220-21.

113.  Id. at 253 (citing Lanier v. NBA, 82 Civ. 4935 (S.D.N.Y.)).

114.  See Hertz, supra note 105, at 253.

115.  NBPA History, supra note 100.

116.  See Aubut, supra note 110, at 219.

117.  Id. See infra footnotes 139-142 and accompanying text for a discussion of rookie contracts.

118.  Aubut, supra note 110, at 219.

119.  Id.

120.  Id. (citing Larry Coon, NBA Salary Cap FAQ, http://members.cox.net/lmcoon/salarycap.htm#16 (last visited Mar. 1, 2008) and 1999 NBA/NBPA CBA art. VII, §5(a)). Note that the application of the Larry Bird exception has several subtle yet complex variations that are outside the scope of this article. For a thorough explanation of this exception, see Larry Coon, NBA Salary Cap FAQ, http://members.cox.net/lmcoon/salarycap.htm#16 (last visited Mar. 1, 2008).

121.  See Aubut, supra note 110, at 219-20.

122.  Id. at 220.

123.  NBPA History, supra note 100 (Under the 1987–88 section).

124.  Id.

125.  Id.

126.  Id. (Under the 1994 section).

127.  Id. This agreement was made to ensure the 1994–95 season would be played in its entirety. Id.

128.  Id. (Under the 1995 section).

129.  Id. (Under the 1997–98 section).

130.  Id. The lockout extended from late summer of 1998 to January 20, of 1999. Id.

131.  Id. The CBA also included an owner option to extend to a seventh season, which was exercised for 2004–05. Id.

132.  2005 NBA Players Association Collective Bargaining Agreement art. XXXIX, § 1, available at http://www.nbpa.com/cba_articles.php (last visited Mar. 1, 2008) [hereinafter 2005 NBA CBA]. Again, the owners have the option of extending the CBA by one year to include the 2011-12 season. Id. art. XXXIX, § 2.

133.  Id. art. I, §§§ ggg, hhh, mmm. A salary cap year begins July 1 and ends the following June 30. Id. art. I, § hhh.

134.  Id. art. VII, § 2(a)(1). “Basketball Related Income” means the aggregate operating revenues received by the NBA or any of its subsidiaries during the salary cap year. Id. art. VII, § 1(a).

135.  Id. art. VII, § 2(b)(1).

136.  Id. art. VII, §§ 12(a)(17) & (f).

137.  NBA News, http://www.nba.com/news/NBA_salarycap_060711.html (last visited Mar. 1, 2008).

138.  See Aubut, supra note 110, at 219-20. The Larry Bird exception is termed the “Veteran Free Agent Exception” in the CBA. Other exceptions include the “Existing Contracts Exception,” the “Disabled Player Exception,” the “Bi-Annual Exception,” the “Mid-level Salary Exception,” the “Rookie Exception,” the “Minimum Player Salary Exception,” and the “Traded Player Exception.” See 2005 NBA CBA art. VII, § 6.

139.  2005 NBA CBA art. VIII, § 1.

140.  Id.

141.  Id. art. VIII, § 1(a).

142.  Id. art. XI, § 4(a)(i).

143.  Id. art. XI, § 5(a). Other than the specific provisions for Rookie Scale Contracts, the rest of the restricted free agency rules apply to all veteran free agents with three or fewer years of NBA service. Id. art. XI, § 4(b).

144.  Coon, supra note 120 (number 36). If the qualifying offer is neither accepted nor withdrawn and the time for accepting it passes, the current team’s right of first refusal continues. 2005 NBA CBA art. XI, § 4(c)(ii).

145.  Coon, supra note 120 (number 36).

146.  Id.

147.  Id.

148.  Id.

149.  Id. See also 2005 NBA CBA art. II, § 7 (defining the maximum annual salary). Note that the maximum annual salary is also dependent on how many years the player has been in the NBA.

150.  2005 NBA CBA art. XI, § 4(a)(ii)(B).

151.  See id.; Coon, supra note 120 (number 19).

152.  Id. art. XI, § 1.

153.  Id. art. XXXI-XXXII.

154.  Id. art XXXI, § 1(a)(i). Any dispute involving the provisions of the CBA or player contracts are defined in this section as a “grievance.” Id.

155.  Id. art. XXXI, § 1(a)(ii). These trusts include the National Basketball Association Supplemental Benefit Plan and the Agreement and Declaration of Trust Establishing the National Basketball Players Association/National Basketball Association Labor-Management Cooperation and Education Trust. Id.

156.  Id. art. XXXI, § 6. The grievance arbitrator is set to serve for the duration of the CBA, although he may resign or be discharged by either the NBA or NBPA upon notice to the arbitrator and the other party. Id. In the event of a notice of discharge, the arbitrator maintains jurisdiction to settle disputes for which a date has been set or are filed in the thirty days preceding the notice of discharge. Id.

157.  Id. art. XXXI, § 2(a).

158.  Id. art. XXXI, § 2(b).

159.  Id. art. XXXI, § 2(c).

160.  Id. art. XXXI, § 2(d):

(i) a player or the Players Association may initiate a Grievance (A) against the NBA by filing written notice … with the NBA, and (B) against a Team, by filing written notice … with the Team and the NBA; (ii) a team may initiate a Grievance by filing written notice … with the Players Association and furnishing copies of [the] notice to the player(s) involved and to the NBA; and (iii) the NBA may initiate a Grievance by filing written notice … with the Players Association and furnishing copies of [the] notice to the player(s) and teams involved.

Id.

161.  Id. art. XXXI, § 3(a). Once a hearing is scheduled, neither the NBA nor NBPA may postpone it more than once. Id. art. XXX, § 3(d). In the event that a hearing is postponed, the party seeking the postponement pays the arbitrator’s postponement fee. Id. art. XXX, § 3(c). However, if the opposing party objects to the postponement and the arbitrator finds the request was for good cause, the parties then share the postponement fee. Id.

162.  Id. art. XXXI, § 4(a). If the parties cannot agree on a joint statement, each party may issue a separate statement that is given to the opposing party at the same time as it is given to the grievance arbitrator. Id.

163.  Id. art. XXXI, § 4(c). Unless the proffering party has good cause, the parties may not rely on any material or witnesses not identified and given to the opposing party in advance of the hearing to prove its case. Id.

164.  Id. art. XXXI, § 4(d).

165.  Id. art. XXXI, § 3(g). Additionally, the arbitrator has jurisdiction and authority only to go so far in resolving disputes, including the ability to: “(i) interpret, apply, or determine compliance with the provisions of [the CBA]; (ii) interpret, apply or determine compliance with the provisions of Player Contracts; (iii) determine the validity of Player Contracts; (iv) award damages; (v) award declaratory relief ….” Id. art. XXXI, § 5(b). However, he may only decide questions of procedural arbitrability, and he may not modify terms of the CBA or any player contract. Id.

166.  Id. art. XXXI, § 5(a).

167.  Id.

168.  Id.

169.  Id. art. XXXII.

170.  Id. art. XXXII, § 1.

171.  Id. art. XXXII, §§ 6(a)-(b).

172.  Id. art. XXXII, § 2(b).

173.  Id. art. XXXII, §§ 2(c)-(d).

174.  Id. art. XXXII, §§ 2(d) & 5.

175.  Id. art. XXXII, § 3(c).

176.  Id. art. XXXII, § 3(b).

177.  Id. art. XXXII, § 3(d).

178.  Id. art. XXXII, § 7.

179.  Id. art. XXXII, § 3(d).

180.  Id. art. XXXII, § 8(a).

181.  Id. art. XXXII, § 8(b). The schedule may be agreed upon by the NBA and NBPA, or by the appeals panel if the parties are unable to come to an agreement. Id.

182.  Id.

183.  Id.

184.  Id. art. XXXII, §§ 8(b)-(c).

185.  Id. art. XXXII, § 8(c).

186.  NFL—History, 1921–1930, http://www.nfl.com/history/chronology/1921-1930 (last visited Mar. 2, 2008). This was following a name change from the American Professional Football Association. Id.

187.  NFL—History, 1961–1970, http://www.nfl.com/history/chronology/1961-1970 (last visited Mar. 2, 2008).

188.  NFL Players Association: History, The Beginning–1956, http://www.nflplayers.com/user/template.aspx?fmid=182&lmid=239&pid=0&type=c (last visited Mar. 29, 2008).

189.  Id. The representative for the NFLPA was quoted as saying that when he went to New York to present their proposals, “We never did get a chance to meet with the owners and we never got a response from any of the proposals at that time.” Id.

190.  Id.

191.  Id. The players were in a weak bargaining position, and after the owners threatened to cancel the season the strike ended after only two days. Id.

192.  Id.

193.  Aubut, supra note 110, at 212.

194.  543 F.2d 606 (8th Cir. 1976).

195.  Id. at 623.

196.  NFL Players Association: History, The 1970’s—AFL and NFL Players Associations Merge, http://www.nflplayers.com/user/template.aspx?
fmid=182&lmid=239&pid=1036&type=c (last visited Mar. 28, 2008).

197.  Id.

198.  Aubut, supra note 110, at 212. The right of first refusal and the compensation system limited player movement. Id.

199.  Id.

200.  Id. See also Powell v. NFL, 678 F. Supp. 777 (D. Minn. 1978).

201.  Aubut, supra note 110, at 213.

202.  2006 NFL CBA art. I, § 4(aw), available at http://www.nflplayers.com/user/template.aspx?
fmid=181&lmid=231&pid=507&type=c (last visited Apr. 18, 2008) (membership required to access the full CBA).

203.  Id. art. XXIV.

204.  Id. art. XXV, § 6(a). See also Aubut, supra note 110, at 216 (mentions “hard” salary cap).

205.  2006 NFL CBA art. XXIV, § 4(a). The agreement does provide that the last year of the agreement will be an uncapped year, though the same provision was included in previous CBAs and the parties have renegotiated or extended the agreements without ever actually going to an uncapped year. Id.

206.  Id. art. XXXII, § 4(b).

207.  Id. art. XXIV, § 4(d).

208.  Id. art. XXIV, § 4(b)(i).

209.  See generally id. art. XXIV, § 4.

210.  Id. art. XXIV, § 3.

211.  Id.

212.  Id. art. XXIV, § 2(a).

213.  Id. art. XXIV, § 2(b).

214.  Aubut, supra note 110, at 213.

215.  2006 NFL CBA, art. XIX, § 1(a). An “accrued season” is defined as each season a player was or should have been on full pay status for at least six or more regular season games. Id. art. XVIII, § 1(a).

216.  Id. art. XIX, § 1(a).

217.  Id.

218.  Id. art. XIX, § 1(b)(i).

219.  Id. art. XIX, §§ 1(b)(ii)-(iii).

220.  Id. art. XVIII-XIX.

221.  Id. art. XVIII, § 2.

222.  Id.

223.  Id. art. XIX, § 2(a).

224.  Id. art. XIX, §§ 2(b)(i)-(ii). The signing period dates are determined by the league and the players association every year by September 1st, and the period lasts at least forty-five days. Id. art. XIX, § 2(h).

225.  Id. art. XIX, §§ 2(b)(i)-(ii).

226.  Id. art. XIX, §§ 2(c)(i)-(ii).

227.  See id.

228.  Id. art. XIX, § 2(j).

229.  Id. art. XX, § 1.

230.  Aubut, supra note 110, at 215 (citing 2006 NFL CBA art. XX, §§ 1-2).

231.  Id.

232.  Id.; 2006 NFL CBA art. XX, § 1.

233.  Aubut, supra note 110, at 215; 2006 NFL CBA art. XX, § 2(a)(i).

234.  2006 NFL CBA art. XX, § 2(a)(i).

235.  Id. art. XX, § 2(b).

236.  Id. art. XX, § 3(a).

237.  Id. art. XX, § 4(a).

238.  Id. art. XX, § 3(b).

239.  Id. See also supra text accompanying note 224.

240.  Id. art. X, § 1. An “injury grievance” is defined as “a claim or complaint that, at the time a player’s NFL Player Contract was terminated by a Club, the player was physically unable to perform the services required of him by that contract because of an injury incurred in the performance of his services under that contract.” Id. While this is an important provision of the NFL CBA, especially due to the physical nature of the sport, the discussion of this process is outside the scope of this article.

241.  Id. art. IX.

242.  Id. art. IX, § 1.

243.  Id. art. IX, § 2.

244.  Id. art. IX, § 3.

245.  Id.

246.  Id. art. IX, § 4.

247.  Id. art. IX, §§ 6-7.

248.  Id. art. IX, § 5.

249.  Id.

250.  Id. art IX, § 7.

251.  Id.

252.  Id. art IX, § 8.

253.  Id.

254.  Id. art IX, § 13.

255.  Id.

256.  Id.

257.  See e.g., Branden Adams, Streaks, Stats, and Minutiae, THE HARVARD INDEPENDENT, Nov. 1, 2007, available at http://www.harvardindependent.com/node/20 (last visited Mar. 3, 2008).

258.  For example, Major League Baseball currently has six teams who have not reached the playoffs in the last ten years, while every team in the NFL has made the playoffs at least once in that span except for the Houston Texans, who were founded in 2002. See e.g., Pro Football Hall of Fame: Playoff Results, http://www.profootballhof.com/history/release.jsp?RELEASE_ID=584 (last visited Mar. 3, 2008); Major League Baseball: History: Division Series Overview, http://mlb.mlb.com/mlb/history/postseason/mlb_ds.jsp (last visited Mar. 3, 2008).

259.  See Pro Football Hall of Fame: Playoff Results, supra note 258;Major League Baseball: History: Division Series Overview, supra note 258.

260.  See NFL Standings: Division (years 2001-2005), www.nfl.com/standings (last visited Mar. 3, 2008).

261.  See id.

262.  See NBA.com: Season by Season Index, http://www.nba.com/history/season/index.html (last visited Mar. 14, 2008); NBA.com: 2001 Playoff Results, http://www.nba.com/history/playoffs/20002001.html (last visited Mar. 14, 2008) (only 2000–2001 through 2002–2003 seasons).

263.  See id.

264.  See The Official Site of Major League Baseball: Schedule: 2005 Postseason, http://mlb.mlb.com/mlb/schedule/ps_05.jsp (last visited Mar. 14, 2008); The Official Site of Major League Baseball: Schedule: 2004 Postseason, http://mlb.mlb.com/mlb/schedule/ps_04.jsp (last visited Mar. 14, 2008); The Official Site of Major League Baseball: Standings: Regular Season Standings, http://mlb.mlb.com/mlb/standings/index.jsp?ymd=20051002 (last visited Mar 14, 2008) (2001–2003 seasons).

265.  See id.

266.  See, e.g., John Clayton, Playoff Format is Matter of Integrity, Dec. 30, 2005 http://proxy.espn.go.com/nfl/columns/story?columnist=clayton_john&id=2275183; NBA.com: The Playoffs, http://www.nba.com/analysis/00423850.html (last visited on Mar. 3, 2008); Baseball Post-season Playoffs by Baseball Almanac, http://www.baseball-almanac.com/ws/postseason.shtml (last visited on Mar. 3, 2008).

267.  This may assume too much, but it is for argument’s sake.

268.  The Official Site of Major League Baseball: Standings, supra note 264.

269.  See NFL History, http://www.nfl.com/history (last visited Mar. 3, 2008); NBA.com: History, http://www.nba.com/history/ (last visited Mar. 3, 2008).

270.  See Richard C. Levin et al., The Report of the Independent Members of the Commissioner’s Blue Ribbon Panel on Baseball Economics (2000), available at http://www.mlb.com/mlb/downloads/blue_ribbon.pdf (last visited Mar. 3, 2008).

271.  See 2007–2011 MLB Basic Agreement art. VI, § F(12)(b)(i), available at http://mlbplayers.mlb.com/pa/pdf/cba_english.pdf (last visited Mar. 29, 2008) (MLB CBA).

272.  Conti, supra note 7, at 235.

273.  See id.

274.  This is based on the number of players allowed in each league’s active roster.

275.  See Aubut, supra note 110, at 235.

276.  See id. at 234.

277.  See id. at 235.

278.  See NBA.com: NBA Finals: All-Time Champions, http://www.nba.com/history/finals/champions.html (last visited Mar. 3, 2008); NBA.com: Michael Jordan Career Perspective, http://www.nba.com/jordan/index.html (last visited Mar. 3, 2008).

….

287.  See Monte Burke, The Big Trend, Dec. 27, 2006, http://www.forbes.com/business/2006/12/09/
sports-2007-predictions-sneakpeek_sp07_22_monteburke_sports.html.

….

MICROPERSPECTIVE: THE HOCKEY STORY

THE HOCKEY LOCKOUT OF 2004–05

Paul D. Staudohar

The lockout in the National Hockey League (NHL) gave new meaning to the old sports adage “Wait till next year.” The aborted schedule of games in 2004–05 set records that the fans would rather not see: the first professional sports league to lose an entire season, the most games lost (1,230) due to a work stoppage, and the longest-lasting shutdown (310 days) in sports history. Moreover, there was no guarantee that there would even be a “next year,” as key issues on the bargaining table remained unresolved. But in July 2005, the NHL and its players’ union finally reached a new collective bargaining agreement, allowing the 2005–06 season to start on time.

Lengthy work stoppages in professional sports are not new. In 1994–95, Major League Baseball lost 921 games over a period of 232 days from a strike, and the National Basketball Association cancelled 428 games during its 1998–99 lockout.¹ Hockey had a lengthy shutdown in 1994–95 when 468 games were wiped out during a 103-day lockout.

Team owners have increasingly relied on lockouts to put pressure on players to accede to their demands. Lockouts usually occur before or early in a season, when players have not received much, if any, of their pay. However, it is not uncommon for players to strike late in a season, when they have received most of their salaries while owners have yet to take home big payoffs from postseason television revenues.

These conflicts are costly, and perhaps it is past the time for the parties to pursue new approaches that promote a partnership between owners and players. This is especially the case with hockey, because the future of the league is threatened by the frequent wrangling over money and power. Unless a more cooperative model of negotiations is developed, the NHL could continue to recede from public view and lose its standing as a major professional sport.

BACKGROUND

The National Hockey League Players’ Association (NHLPA) was formed in 1957 by players protesting a television deal between the league and CBS that gave all of the money to the owners. Detroit Red Wings star Ted Lindsay was the first president of the union, which was able to secure a minimum salary of $7000 and additional pension contributions from the owners. But a lack of player solidarity and failure to achieve recognition from the owners caused the union to falter after only about a year of operation.²

The union came back to life in 1967 when Toronto lawyer and players’ agent Alan Eagleson took over the reconstituted NHLPA. Eagleson quickly established formal recognition of the union by the league and became the most powerful operative in the sport by gaining control of staging international hockey events and continuing to serve as an agent for several players. However, he also mishandled the financial affairs of Bobby Orr, the famous Boston Bruins defenseman, and manipulated union funds to his advantage. These missteps forced Eagleson to resign, and in 1994, following a 2-year FBI investigation, he was convicted of 32 counts of racketeering, embezzlement, and fraud. As a result, he served 6 months in prison.³

Eagleson was replaced as executive director by Bob Goodenow in 1992….

In sharp contrast to the “company union” approach of Eagleson, Goodenow adopted an adversarial posture with the owners. To demonstrate his tenacity, he led the union in a 10-day strike at the end of the 1992 season, the first ever in hockey. The union won concessions such as the right to choose arbitrators in salary disputes, a reduction in the age for unrestricted free agency from 31 to 30, and an increase in the players’ postseason revenue share.

Following the 1992 strike, the NHL hired Gary Bettman as its first commissioner, succeeding John Ziegler and then Gil Stein, who both had the title of league president. Bettman, a graduate of Cornell University and the law school at New York University, had done an excellent job as the third-ranked executive in the National Basketball Association (NBA) under Commissioner David Stern. Importantly, while at the NBA, Bettman designed and implemented basketball’s salary cap, the first in modern-day sports. He was viewed as an energetic, marketing-oriented innovator and a perfect fit for the less-than-pacesetting NHL.⁴ Like Goodenow, Bettman showed his mettle soon after becoming commissioner by dealing severely with a 17-day strike by hockey referees in 1993, when he hired replacement officials and then negotiated a 4-year agreement for little more than the league had initially offered.

When the players-owners’ agreement expired in September 1993, the union agreed to play the 1993–94 season. uninterrupted. This appeared to be an encouraging sign, but negotiations proceeded at a snail’s pace and turned out fruitless. Faced with the likelihood of a strike at the end of the season, the owners took the preemptive action of a lockout. The venture proved costly, however, because it came at a time when hockey’s economic prospects never looked brighter. Although serious negotiations commenced, they soon turned rancorous, and it began to look like the season would be lost.

Similar to what would occur in 2004–05, the big issue was a so-called salary cap. The league’s proposal, however, did not seek to cap payrolls generally. Instead, it was designed to limit salaries by requiring big-spending teams to contribute to revenue sharing with low-spending teams, enabling the latter to compete more effectively for signing and retaining top-quality players. In effect, the measure was akin to the luxury tax that was adopted in baseball in 1995. The union was amenable to a payroll tax, but at far lower levels than what the owners proposed. A true salary cap was proposed by the league for rookies, whose salaries had been escalating rapidly.

The lockout ended in mid-January 1995, barely saving the season, which was cut from 84 to 48 regular-season games. As a result, the owners dropped the payroll tax idea, but achieved a salary cap for rookies under the age of 25, who were limited to an $850,000 salary in 1995, with the cap rising annually to $1,075,000 in 2000. Eligibility for free agency was severely limited. Players who completed their first contract were no longer eligible for free agency. Although players aged 25–31 could still become free agents, their movement to other teams was stifled by stiff draft choice penalties that had to be paid by teams signing such players. Unrestricted free agency could be achieved only at age 32 (up from age 30 under the old contract) for the first two seasons of the agreement and at age 31 after that. It was the most restrictive free agency system in sports.⁵

The owners appeared to get much the better of the settlement, which was reported in the media as a solid victory on their part. Nick Kypreos of the New York Rangers, returning from Canada after the lockout, expressed the players’ view with gallows humor. Asked by customs officials if he had anything to declare, he said, “No, the owners took it all.”⁶ But there was a delicious irony in store for the players. Although the owners appeared to have “taken it all,” they nonetheless wasted little time in bestowing lavish salaries on players in individual negotiations with agents. This largesse would eventually lead to the league’s insistence on a salary cap applicable to all players, a turn of events that became the major cause of the 2004–05 lockout.

Causes

Table 2 shows average salaries in the NHL since the 1993–94 season. During this period, salaries more than tripled. Because revenues did not keep pace with salaries, the league contended that it lost approximately $1.8 billion over the previous decade.⁷ The increase in NHL salaries over the period was significantly greater than corresponding increases in Major League Baseball, the NBA, and the National Football League (NFL).⁸

Source: National Hockey League. Courtesy of the Bureau of Labor Statistics.

In a widely publicized study, the NHL retained Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, to examine its finances. Although Levitt’s work was an “independent study,” he was paid $250,000 by the league, apparently without the union’s knowledge. Levitt found that the league lost $273 million in the 2002–03 season, with 19 teams losing money and 11 teams profitable.⁹ In an earlier internal report, the league found that it spent 76 percent of its annual revenue on player salaries, significantly more than corresponding spending in other sports.¹⁰ For instance, in the NBA, the players’ share is about 58 percent of revenue.¹¹ The union was critical of the Levitt report, contending that teams understate revenues by directing them to related business entities, thereby creating a falsely bleak picture.

Nearly a year after Levitt’s report, Forbes magazine also did a study of league revenues and expenditures for the 2002–03 season. This report found that teams lost $123 million, considerably less than the $273 million claimed by Levitt, and that salaries consumed only 66 percent, rather than 76 percent, of league revenue.¹² The Forbes article attributed the difference in its numbers to what the league considers to be revenue. For example, although the Chicago Blackhawks claimed no revenue from the 212 suites the team owns in the United Center, where it plays its home games, [the family of the late] Blackhawks owner William Wirtz owns half of the arena in a separate corporation.¹³

Notwithstanding creative accounting and any discrepancy in figures, it is clear that the NHL was losing money, even though the economics of owning a particular team might be quite favorable. In a sense, the owners had no one to blame but themselves: no one had forced them to pay high salaries. For instance, rookie salaries were supposedly capped under the old agreement. But a loophole developed in this cap when the owners circumvented it by paying bonuses to rookies.¹⁴ Perhaps they took a cue from the NFL, which allows signing bonuses to be excluded from its salary cap.¹⁵ As a result of the loophole, rookie salaries soared. For example, Marian Gaborik, a rookie with the Minnesota Wild, earned 3 times his million-dollar salary in bonuses.¹⁶

Another complicating factor for the league was the financial circumstances of its Canadian teams. In recent years, the Canadian dollar has varied between two-thirds and three-fourths the value of the American dollar. Teams in Canada have to compete with American-based teams for players, yet they do not usually receive as much in revenues. Also, whereas U.S. team owners have been adept at getting local governments to pay for stadiums, Canadian clubs typically have to pay for their own arenas.¹⁷ Adding to the problem are the higher individual and corporate tax rates in Canada. Well aware of these circumstances, the NHL set up the Canadian Currency Assistance Plan in 1999, to help franchises defray some of their losses. Still, the plan is not nearly enough to overcome the inherent disparities. [Ed. Note: The NHL ended the plan when the Canadian dollar grew stronger against the US dollar.]

The NHL contracts with national television networks have always yielded far less revenue than those in football, baseball, and basketball. In 1999, the league began a 5-year contract with the Walt Disney Company for the rights to show games on ABC and its ESPN cable network. For the last year of the contract, the league received $120 million, which, when divided among the teams, amounted to $4 million for each team. Television ratings for NHL games were trending lower, and at the time of negotiations for a new contract, networks were wary of making a deal because of the possibility of a lockout. As a result, the new 2-year agreements reached with NBC and ESPN provided for only about half the previous annual return to the league. This reduction in revenue contributed to the owners’ tougher stance with the union.

The lower television ratings and right fees are symptoms of other problems facing the league, such as the suitability of the game for television, overexpansion, and the style of play. First, hockey does not translate well to television screens because the puck is small and not easily followed. (High-definition television is expected to give a boost to viewing….) Second, in a growth spurt in the 1990s, the league added nine franchises in 9 years. Because the new clubs, mostly from Sunbelt cities, paid $50–70 million entry fees to the league, expansion resulted in short-term rewards. But the novelty of the game has worn off in those cities, diminishing attendance and profits. Finally, the game featured a defensive style with a lot of pushing and grabbing that dulls fan interest. The league promotes its hard hitting and fights, which appeal to some fans, but tragedy struck in 2004 when Todd Bertuzzi of the Vancouver Canucks severely injured Steve Moore of the Colorado Avalanche by slugging him from behind and repeatedly driving his face into the ice.

ISSUES AND NEGOTIATIONS

There were numerous issues on the bargaining table in 2004–05: higher player fines for misbehavior, reducing the schedule of games, minimum salaries, playoff bonuses for players, free agency, operation of the salary arbitration process, and revenue sharing. Overshadowing all other issues, however, was the league’s desire for “cost certainty,” provided by a maximum team salary cap linked to league revenues. In the early stages of negotiations, for example, the league wanted a salary cap of $35 million per team, with the players guaranteed about 50 percent of league revenues. The union offered a rollback of 5 percent on player salaries, a luxury tax on payrolls of more than $50 million (with money going into a revenue-sharing pool), and a rollback on the rookie salary cap to 1995 levels.

What the negotiations boiled down to was that the league insisted that it get a salary cap while the union was equally adamant that it wanted salaries based on market conditions and would never agree to cap payrolls. At this juncture and for a long time to come, the dispute was more about each side’s philosophical approach than numbers. The rigid positions of the two sides resulted in the league’s announcing a lockout on September 15, 2004, the day the collective bargaining agreement expired. In anticipation of a lockout, each side established funds from which to draw, with the 730 union players eligible for payments of either $5,000 or $10,000 per month and the owners having a $300 million war chest available.

One of the problems common to sports negotiations is that the public wants to know what is happening at the bargaining table and the media are determined to supply this information. Bettman and Goodenow engaged in a battle of words in the media, as did Bill Daly, the league’s vice president and chief legal officer, with Ted Saskin, the union’s senior director of business affairs. Although several players—particularly union president Trevor Linden of the Vancouver Canucks—made public comments, the owners were relatively quiet because the league instituted a gag order. When Steve Belkin, an owner of the Atlanta Thrashers, stated in the Boston Herald that the league would use replacement players the next year if a new collective bargaining agreement was not reached, he was fined $250,000 by the league.¹⁸ Tim Lieweke, president of the Los Angeles Kings, was fined an undisclosed amount for making a derogatory comment about Goodenow.

Twice during the lockout it appeared that the stalemate might be broken. In December 2004, the union offered to cut wages by 24 percent and dropped the amount of payroll on which the luxury tax would be levied to $45 million. Although Bettman called the union’s concessions a “big-time move,” he rejected the proposal and continued to insist on a salary cap and guaranteeing players a fixed percentage of revenue as wages, while raising the guarantee to 54 percent.¹⁹ The league’s counterproposal of continuing to link salaries with revenues was rebuffed by the union, because it did not trust the owners’ revenue reporting methods.

The other significant shift in the parties’ positions occurred in a last-ditch effort to save the season. Time was running out to hold a week or so of training camp and play a reasonable number of regular-season games prior to the postseason playoffs. In a major concession, on February 15, 2005, the league dropped its demand that salaries could not exceed 55 percent of revenue, thus abandoning the notion of cost certainty. The union’s response was to accept the concept of a salary cap. These concessions brought a glimmer of hope to salvaging the season, because the focus of bargaining would now be on the numbers rather than a philosophical approach. However, even after some give-and-take with assistance from the Federal Mediation and Conciliation Service, the numbers were still far apart, with the league proposing a salary cap of $42.5 million per team and the union $49 million. Although there was a $6.5 million gap in the offers, they would apply to 30 teams and therefore caused a difference of $195 million in the positions.

IMPACT OF THE LOCKOUT

With neither side making further concessions and with time having truly run out, the league announced on February 16 that the season was cancelled, for the first time in 86 years. (The Stanley Cup was not awarded in 1919 because of the Spanish influenza epidemic.)

As a result of the work stoppage, there were layoffs of team office personnel and stadium attendants. The economic impact on league cities was not great, because fans redirected their spending from attending games to other forms of entertainment. Teams lost an estimated $2 billion in revenue from tickets, media, sponsorships, and concessions, while players gave up about $1 billion in lost salaries.²⁰ Revenue was lost by government agencies that owned stadiums, but some of this income was made up through booking other events into the facilities.

According to an estimate by the Canadian government, the country’s gross domestic product diminished by $170 million Canadian dollars as a result of the cancelled season.²¹ Because of debt servicing, the need to retain some office staff, and overhead expenses, teams spent approximately $7 million to $10 million each in American dollars during the lost season.²² These expenditures would constitute losses, but given the likelihood that owners collectively would have lost money had the season been played, the losses are not significant, and in some cases teams actually made money.

Players, too, had offsets to lost income, such as the monthly payments from the NHLPA. About 380 NHL players were playing overseas in European leagues at the time the season was cancelled.²³ The biggest number of these players signed with Russian teams, with professional leagues in Sweden, Finland, and the Czech Republic also popular destinations. Many other players signed on with minor league clubs in North America. After the cancellation of the season was announced, still more players joined teams home and abroad. The salaries of these players were far less than what they made in the NHL, although a few lucky ones did fairly well. For instance, Vincent Lecavalier and Brad Richards each signed for $1.5 million with Ak Bars Kazan, a team from the autonomous Russian Republic of Tatarstan that plays in the 16-team Russian Superleague. Lecavalier was scheduled to make $4.4 million and Richards about $2.6 million for the Tampa Bay Lightning.²⁴

At around the time the season was cancelled, cracks began appearing in the players’ solidarity. Hockey’s greatest-ever player, Wayne Gretzky, … [then] coach of the Phoenix Coyotes, said he wanted a salary cap in a new collective bargaining agreement. The league released the gag order on owners and team executives, allowing them to talk to the media and seek to influence players. About a dozen players … indicated that they would accept a salary cap, but not one linked to league revenues. This groundswell gained momentum after the season was cancelled, putting pressure on the union to settle.

The owners also were under mounting pressure. The aborted season left them with franchises devalued to a much lower level than before. On the one hand, further devaluation could occur if fans turned away from the game. Hall of Fame goalie Ken Dryden, a former president of the Toronto Maple Leafs and now Canada’s Minister of Social Development, prophetically stated, “You never want to give a fan a chance to find out whether it was passion or habit.”²⁵ On the other hand, the owners are well endowed financially, with nine of them among Forbes magazine’s 400 richest Americans.

It appeared inevitable that the players would have to accept a salary cap. Payroll limits have existed in the NBA since the 1984–85 season and in the NFL since 1994. Only Major League Baseball lacks a cap, and the union there is much stronger than the one in hockey. Moreover, basketball and football have prospered despite (or perhaps because of) a salary cap.

Commissioner Bettman indicated that the league would not start the 2005–06 season on time if a collective bargaining agreement was not in place. Yet he also was committed to the idea of beginning the season on time in October. These conflicting aims raised the possibility of the league seeking a declaration of impasse from the National Labor Relations Board (NLRB). Because the league had been responsive to the union’s demands and had made a sincere effort to reach an agreement, it would likely have been found to have engaged in good-faith bargaining, which is a necessary condition for declaring an impasse. Although the baseball owners’ attempt to declare an impasse in 1995 was thwarted by the NLRB and a U.S. district court judge, the 2005 board could very well rule in favor of the hockey owners.

Should the league have achieved a declaration of impasse, an available option was to use replacement players. This tactic was employed successfully by the NFL during its 1987 strike, and the threat of using replacement players was instrumental in ushering in the end of the baseball strike in 1995. If necessary, the NHL probably would have used replacement players to get the 2005–06 season started on time, but as it turned out, the parties reached an agreement beforehand, avoiding what could have been an ugly confrontation.

SETTLEMENT AT LAST

On July 13, 2005, the NHL and the NHLPA reached a settlement on a 6-year collective bargaining agreement.²⁶ The union can reopen negotiations after the 4th year and can also extend the agreement by a year. The centerpiece of the nearly 600-page agreement is a team payroll cap of $39 million for 2005–06, with player compensation limited to 54 percent of league revenues. [Ed. Note: The salary cap was $59.4 million in 2010–2011.] The agreement achieves the cost certainty that Bettman and the owners wanted. The cap will be adjusted annually: if revenue goes up, the cap will rise; if revenue goes down, the cap will fall. There is a minimum payroll of $21 million. [Ed. Note: The salary floor was $43.4 million in 2010–2011.] Rookie salaries are capped at $850,000 per season, with a top signing bonus of 10 percent annually. Also, like NBA players, NHL players will deposit an adjustable percentage of their salaries into an escrow account. If, after the season, the leaguewide payroll exceeds 54 percent of revenues, the teams will receive funds from the escrow account. If total payrolls are less than 54 percent, the account will be paid to the players.

Players under contract had their pay cut by 24 percent. Teams had a one-time opportunity to buy out player contracts for two-thirds of their remaining value, minus the 24-percent cut. No player can account for more than 20 percent of a team’s total payroll, which means that no player can earn more than $7.8 million in 2005–06. Minimum salaries were raised from $175,000 under the old agreement to $450,000 in 2005–06. Every 2 years, the minimum rises again, to $475,000 and finally to $500,000.

Free agency rules are liberalized. Players still will become unrestricted free agents at age 31 for 2005–06, but the age will gradually decrease to 29 and then to 27.²⁷ This seeming benefit to players is diminished somewhat by the hard cap on team payrolls.

The rules on salary arbitration were changed so that teams now can opt to take players to arbitration, whereas only players had the option before…. The number of rounds in the player draft was reduced from nine to seven, a feature that will make more incoming players free agents. The league will take a hiatus… so that players can represent their countries at the Winter Olympics … There will be no all-star game in years that include an Olympic break.

Prior to the 2005 agreement, the NHL did not have a formal drug-testing policy. The new arrangement calls for a minimum of two random tests per year for performance-enhancing drugs. First-time offenders get a 20-game suspension, a second offense results in a suspension for 60 games, and a player caught a third time suffers a lifetime ban. Compared with punishments in other professional team sports, these are stiff penalties, although the NHL program may be criticized for being vague in its enforcement provisions and lax on testing procedures.

CONCLUDING THOUGHTS

Although both sides typically lose in a lengthy work stoppage, the hockey lockout is notable in that the owners achieved such a dominant outcome. On nearly all issues in contention, the end result was solidly in the owners’ favor. The union appears to have underestimated the need for economic restructuring, Bettman’s determination to prevail, and the commitment and financial resources of the owners. The players would have been far better off if they had accepted the league’s offer in February 2005, just before the season was cancelled. Probably for this reason, Goodenow resigned as head of the union with 3 years remaining on his contract and was succeeded by Ted Saskin. [Ed. Note: Saskin was replaced by Paul Kelly, who has since left the position as well.]

A major problem for the league was its deteriorating television situation. In late May 2005, ESPN declined to exercise its $60 million option for broadcast rights for the 2005–06 season, but in August the NHL reached an agreement with OLN (formerly called the Outdoor Life Network) for a rights fee of $65 million in 2005–06 and $70 million in 2006–07. Known chiefly for its coverage of the Tour de France and hunting shows, OLN [now known as Versus] is owned by Comcast, the nation’s largest cable provider. However, OLN [Versus] is available in only about 64 million homes, compared with ESPN’s 90 million homes.

There was also a need to address the high cost of attending games. Even before the agreement was reached, some teams announced that they were slashing ticket prices. Most teams eventually did this, as well as spending more money on special promotions to entice fans back to the arenas.

The games themselves should be more exciting as a result of rule changes. There will be Olympic-style shootouts at the end of a tie overtime game to determine a winner. The center red line no longer will be counted for offsides purposes, thereby allowing longer breakout passes that should result in more scoring. A third major change involves goal-tenders: their equipment is reduced in size and their range of mobility behind the net is limited, making goalies less effective in stopping pucks.

Clubs agreed to share revenues, with the top 10 revenue producing teams contributing to a fund from which the bottom 10 teams can draw. The amount shared is variable, depending mainly on differences between hockey-related revenue and player salaries. Revenue sharing should stimulate competitive balance, so that all clubs have a better chance of winning the Stanley Cup, and smaller clubs should be more profitable as well. After the agreement was settled, the league moved forward with the player draft….

Although in the end the union had to swallow the dreaded salary cap, it may not turn out to have such an ominous impact. Small-market teams will have a better chance of retaining talented players formerly lost to rich teams that bid salaries upward. Player mobility increases under the new free agency rules, although equalized team payroll limits will prevent salaries from escalating rapidly. Perhaps the biggest advantage to players is that they can move to teams and areas they prefer. While the payroll cap keeps costs under control, it also promotes a partnership between owners and players. Under the 54-percent guarantee to the players, the more money the owners make, the more money the players can earn, so their fates are intertwined.

In the recent past, four teams—Buffalo, Los Angeles, Ottawa, and Pittsburgh—were saved from bankruptcy by new owners or internal refinancing. Overexpansion and flagging popularity have left several other clubs, including Anaheim, Atlanta, Carolina, Florida, Nashville, and Phoenix, vulnerable to bankruptcy or purchase at fire-sale prices. The elimination of some of these teams, located in Sunbelt States where hockey is not a traditional sport, would place the league on a sounder financial footing and improve the overall quality of play. The contraction of the league, however, raises a number of legal issues. Moreover, should the league itself decide to buy out and fold franchises, the union, cities, and fans would be up in arms, as occurred when baseball proposed eliminating two teams in 2002.

Although the future is unclear, it seems certain that the NHL will be a troubled league for a while. Profitable television contracts, financial restructuring, and making the game more exciting to fans will have to occur before long-term economic stability can emerge. The surest way of achieving this objective is through cooperation between the league and its union.

Notes

1.  These work stoppages are discussed in Paul D. Staudohar, “The Baseball Strike of 1994–95,” Monthly Labor Review, April 1999, pp. 3–9.

2.  David Cruise and Alison Griffiths, Net Worth: Exploding the Myths of Hockey (Toronto, Penguin Books Canada, 1991), pp. 110–11.

3.  For an interesting case study, see Russ Conway, Game Misconduct: Alan Eagleson and the Corruption of Hockey (Toronto, Macfarlane Walter & Ross, 1995).

4.  Paul D. Staudohar, Playing for Dollars: Labor Relations and the Sports Business (Ithaca, NY, Cornell University Press, 1996), p. 146.

5.  The 1995 contract was extended to secure the players’ agreement to participate in the 1998 Winter Olympics and again as part of a four-team expansion, causing a new expiration date of September 15, 2004.

6.  Quotation from Sports Illustrated, “Scorecard” section, Jan. 23, 1995, p. 23.

7.  Stefan Fatsis, “Hockey League Locks Out Players,” Wall Street Journal, Sept. 16, 2004, p. D8.

8.  Michael Hiestand, “Put a Lid on Pro Player Salaries,” USA Today, Sept. 2, 2004, p. 4B. Team success does not necessarily correlate with high salaries. The New York Rangers typically have the highest team payroll in the league, but have not performed well for several seasons. The two teams that competed for the 2004 Stanley Cup—the Calgary Flames and the Tampa Bay Lightning—had the 19thand the 20th-highest payrolls in the league.

9.  Arthur Levitt, Jr., Independent Review of the Combined Results of the National Hockey League 2002–2003 Season (Westport, CT, Arthur Levitt, Jr., 2004); and Helene Elliott and Elliott Teaford, “A Frozen Pond of Red Ink?” Los Angeles Times, Feb. 13, 2004, p. D1.

10.  Stefan Fatsis, “NHL Says Players’ Salaries Put League in Financial Peril,” Wall Street Journal, Sept. 19, 2003, p. B1.

11.  Joel Stein, “Can the NHL Save Itself?” Time Magazine, Mar. 22, 2004, p. 62.

12.  Michael K. Ozanian, “Ice Capades,” Forbes, Nov. 29, 2004, p. 124.

13.  Ibid.

14.  For a discussion of how players and their agents drove up salaries, see Bruce Dowbiggin, Money Players: How Hockey’s Greatest Stars Beat the NHL at Its Own Game (Toronto, McClelland & Stewart, 2003).

15.  Paul D. Staudohar, “Salary Caps in Professional Team Sports,” Compensation and Working Conditions, spring 1998, pp. 6–8.

16.  Kevin Allen, “Lockout Threat Has Both Sides on Edge,” USA Today, international edition, Sept. 17, 2003, p. 5B.

17.  L. Jon Wertheim, “Uh-Oh, Canada,” Sports Illustrated, June 21, 2004, p. 65.

18.  “NHL Fines Thrashers’ Co-Owner $250,000,” Los Angeles Times, Oct. 13, 2004, p. D4.

19.  Joe Lapointe, “N.H.L. and Union Each Reject Proposals,” New York Times, Dec. 15, 2004, p. C13; and Alan Adams, “NHL Season Hanging by Thread,” USA Today, Dec. 15, 2004, p. 1C.

20.  Stefan Fatsis, “NHL Calls Off Its Entire Season With Labor Face-Off Cold as Ice,” Wall Street Journal, Feb. 17, 2005, p. B2.

21.  “Go Figure,” Sports Illustrated, “Scorecard” section, Feb. 14, 2005, p. 16.

22.  Darren Rovell, “Lockout Will Test Depth of Owners’ Pockets,” on the Internet at ESPN.com, Feb. 11, 2005, p. 2.

23.  Figure from the International Ice Hockey Federation, reported in Time Magazine, Feb. 21, 2005, p. 19.

24.  Michael Farber, “Tampa Bay to Tatarstan,” Sports Illustrated, Jan. 10, 2005, p. 62.

25.  Quotation from Helene Elliott, “Union Says NHL Players’ Solidarity Intact,” Los Angeles Times, Feb. 8, 2005, p. D3.

26.  The players subsequently voted 464–68 (87 percent) in favor of the agreement, while the owners ratified it by a 30–0 vote.

27.  An exception is made for 18-year-old players, who can become become eligible for free agency as early as age 25.

Discussion Questions