Collective Bargaining and MLB: The Real Rules of the Game
Feb 17 2022 Update Ray Glier joined the Fanalytics podcast for a deep dive into his recent MLB Lockout article for Emory Business Magazine. In this episode, Ray and Mike discuss all sides of Major League Baseball's ongoing labor dispute as well as implications for the sport's fans. Also streaming on Apple Podcasts, Spotify, and Stitcher. Feb 7 2022 Update The MLB lockout continues. This CBS sports piece digs into the motivations of the players and owners. One specific point of contention that may have struck you as curious is the union's desire to alter the structure of MLB's revenue-sharing system. Why, one is likely to ask, do the players care how revenues are shared among teams? While that questioning instinct is understandable on the part of fans and outside observers, the matter at hand isn't so difficult to understand after all. Indeed, the union has very clear and eminently justifiable reasons for wanting to discuss revenue sharing as part of the current negotiations. I think about these labor negotiations and disputes in terms of the owner’s and player’s incentives. In general, the incentives are simple. The owners have a long-term perspective as they manage team brands that produce cash flows for an indefinite period. In contrast, the players have a much shorter timeline as individual careers are usually just a few years. Both sides want to maximize their share of the revenue pie. The article points out that revenue sharing reduces the incentives of small market teams to invest in a roster. Frankly put, the recent high rates of sharing – 48 percent of local revenues, to repeat – means that small-market teams have very little skin in the game. The best way to boost gameday revenues is to invest in the on-field product and improve the roster. Small-market teams, however, receive so much money via revenue sharing that they have little incentive to invest in player payroll. Basically, teams on the lower end of the revenue continuum are guaranteed profitability regardless of on-field results. That's not healthy. I did some research more than a decade ago that investigated this point. The research involved a model of the economic incentives faced by big versus small-market teams. The key conclusion was that revenue sharing formulas need to create fan-friendly incentives. In this case, fan-friendly means incentives to put a winning team on the field. Revenue sharing formulas should be based on a combination of winning rates (the most fan-friendly metric), attendance (counter-intuitive, but it’s an indicator of teams appealing to fans), and market size. Interestingly, the current CBA also reduces the incentives for large market teams to spend. The luxury tax essentially decreases the value of payroll spending at a certain level. And indirectly, by reducing the incentives of small-market teams, the agreement reduces competitive pressures on the large markets. It’s a fight over the current revenue pie with little attention paid to the group that can help grow it. Build a CBA that creates a level of competitive balance that excites fans. Build a league that creates incentives for fans. Original Post from Jan 23, 2021 Below: A major sports story that seldom gets major attention is the ongoing negotiations between Major League Baseball and the baseball players union. The fate of the 2022 season, or at least opening day, hangs in the balance. “Ongoing” might be a generous term as this CBS article claims that the players are scheduled to present a counter proposal on January 24th in only the second meeting between the two sides since the December 2nd lockout. CBS also provides a summary of the two side’s positions. The Owners: · Raising the league minimum salary and opening up more money available to so-called "Super Twos," players who qualify for arbitration for four years instead of the standard three before hitting free agency. · Extra draft picks for teams that don't manipulate service time for top prospects in order to gain an extra year of control in lieu of simply playing the best players on the big-league roster at all times. · Further adjustments to the league's previously proposed draft lottery, which would include incentives for teams to stop extreme tanking. The Players: The players have wanted more money in the pockets of younger players, since the overwhelming majority of players who appear in the majors don't make it to free agency (six or even close to seven years). They have also expressed concern about too many teams not putting the best product possible on the field (the tanking and service-time manipulation). It’s about payrolls and player freedoms. How the dispute is settled will dictate the scale of the advantages that big-market teams enjoy and the strategies used by small-market clubs to be “occasionally” competitive. This is going to be a frequently updated post based on the latest developments. But as a starting point, let’s begin with a few clarifying thoughts as the prospects for Opening Day start to get a little shaky. 1. Compared to other leagues, MLB has fewer constraints on payrolls and less revenue sharing. These structures (or rules or the game) have led to predictable results—domination by teams with massive resources and the use of frequent tanking strategies. Different teams are responding to different economic incentives. 2. Fan concerns tend to enter the discussion only when the concerns support one side's bargaining positions. Case in point, the players, would like to lessen the prevalence of tanking because it involves cutting payrolls. 3. If one side is more naturally set up to be on the fan’s side, it is the owners. The owners want to protect the long-term value of their brands. The average MLB career is less than 3 years. The players have much more short-term perspectives and little incentive to care about the league's long-term health. 4. However, the natural tendency (in 2022) is probably for fans to take the players' side. An intriguing part of the background material is that baseball players tend to have relatively small social media platforms compared to NBA and NFL stars. An open question in this dispute is which side will win the public relations battle? 5. To highlight the importance of MLB getting this right, the figure below provides the percentage of Gen Z, Millennials, Gen X, and Baby Boomers baseball fans (Next Generation Fandom Survey from Emory Marketing Analytics Center). The percentage of males and females indicating that they are baseball fans drops precipitously from the Millennial cohort to the Gen Z group. Baseball (and every other sport) is in a challenging moment as it tries to get a reluctant generation to become core fans. Losing an Opening Day should be a frightening prospect.