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Friday, November 14, 2003

Collusion IV?

Eugene outlines the ins and outs of collusion and related shenanigans.

Several media outlets have recently reported that the MLBPA is considering a collusion grievance against Major League Baseball.  Because of the baseball anti-trust exemption collusion would normally be legal among the 30 independent and competitive teams in baseball, however the Collective Bargaining Agreement between the MLBPA and Major League Baseball prohibit collusion.

ARTICLE XX?Reserve System

 

E. Individual Nature of Rights

(1) The utilization or non-utilization of rights under Article XIX(A)(2) and Article XX is an individual matter to be determined solely by each Player and each Club for his or its own benefit. Players shall not act in concert with other Players and Clubs shall not act in concert with other Clubs. (Emphasis added)

 

This is the most relevant language in the Collective Bargaining Agreement regarding collusion and, in fact, was originally proposed, and some reports say, insisted upon, by the owners.  In 1966 Sandy Koufax and Don Drysdale held out in spring training.  They negotiated together to make sure that they received the best possible salaries.  Remembering this, the owners decided that it was entirely necessary to prevent such concerted activity from occurring in the future and they included a provision against it in their proposal for the 1976 CBA.  The players agreed as long as there was parallel language.

 

The first case of owner collusion, which tested this language in the CBA, occurred in 1985 right after a new Collective Bargaining Agreement was signed.  In that Agreement the players conceded one year of salary arbitration, becoming eligible after three instead of two years of Major League service, and reduced their traditional one-third payment of all television revenue toward players? pensions. 

 

Soon after signing this agreement the owners’ Player Relations Committee sat down with the other owners, the general managers, the club presidents, the league presidents, and the Commissioner and devised a plan that would, in their minds, ensure the death of free agency.  These people all decided that the way to eliminate the system that they had tried to negotiate out of existence for years, was to eliminate it through a gentleman’s agreement.

 

There were a series of meetings after the 1985 Championship Season.  The first important step involved the clubs taking an informal vote against the signing of long term contracts.  Commissioner Peter Ueberroth took up the cause calling the signing of long term contracts “dumb.”  Then, after a few more meetings, Leland MacPhail, the Director of the Player Relations Committee, distributed a list of all players who had filed for free agency.  Arbitrator Thomas T. Roberts, who was baseball?s grievance arbitrator at the time, wrote in his decision in "Collusion I":

 

The distillation of the message of these meetings resulted in every major league club abstaining from the free agency market during that winter until an available free agent was “released” by his former club upon the announcement that the former club was no longer interested in his services. (Roberts, Thomas T.  “Grievance No. 86-2” Collusion I)

 

This concerted activity against free agency went unpunished for two years, so two seasons were affected by this type of collusion.

 

In 1985’s free agent period, 29 of the 33 free agents went back to their old teams having received no other offers and the four who moved on were no longer wanted by their former teams.  The free agents averaged only a 5% salary increase.

 

In the two seasons prior to the owners’ gentleman’s agreement, 75 free agents had signed long term deals, presumably so that clubs could prevent the players from leaving after becoming free agents again.  Apparently, owners were no longer worried about these players becoming future free agency because two-thirds of the free agents signed one year deals.

 

In 1986 the collusion was much broader based.  It was not just a handful of free agents who were affected, and it included some of the league’s top stars.  Andre Dawson, Reggie Jackson, Tim Raines, Jack Morris, and Lance Parrish all filed for free agency following the 1986 season.  This time cracks in the owners’ armor were seen.

 

Andre Dawson, who wanted to leave the astroturf of Montreal to play on the grass of Chicago’s Wrigley Field, got no offers besides that of his former club.  He was forced to give the Cubs a signed, blank contract, and told them to fill in the salary.  After signing Dawson, the Cubs’ president, Dallas Green, sent a letter to the Player Relations Committee explaining his actions.  He knew he had violated the gentleman’s agreement, but felt he had no choice.

 

Lance Parrish’s case showed the clubs were not all completely agreed, but that an agreement had transpired.  Bill Giles, owner of the Philadelphia Phillies, expressed interest publicly that if Parrish was not signed by his former club by January 8, that he would be interested in Parrish’s services.  This led to calls from Jim Campbell of the Tigers, Parrish’s former team, Dr. Bobby Brown, the President of the American League, and Bud Selig and Jerry Reinsdorf of the Player Relations Committee.  All told Giles that he should not sign Parrish and that he should keep his “fiscal responsibilities” in mind.  (Nicolau, George. “Grievance No. 87-3” Collusion II)  Eventually, by signing Parrish against the will of the conspiracy, Giles was one of the leading contributors to the decline of collusion in that form.  Collusion could have never occurred for as long as it did if not for the compliance of all Major League owners, presidents, and general managers. Giles straying did not create serious breakage of their agreement, but it provided enough evidence of the owners’ conspiracy for the grievance process to stop the owners? violation of the Agreement.

 

Despite Giles leaving the fold for one player, there were distinct effects of collusion on baseball salaries.  The average salary of free agents from 1986 to 1987 declined 16%, and almost three-fourths of free agents received only one year contracts.

 

According to the Major League Baseball accountants, 1986 proved to be the first operating profits in eight years. This, of course, is despite the fact that every season from 1984-87 attendance records were set.  Additionally, during the same period, licensing revenues grew by more than 150% to $450 million.  Regardless, in 1987 average salaries declined 2% and revenues grew 15%, raising operating profits to $103 million.

 

If the previous two years of collusion against free agency didn’t create enough distrust between the players and owners, 1987 marked a new strategy of collusion to reduce the effects of free agency on baseball salaries.  Instead of not signing free agents at all, the clubs decided that it would be best they set up an information bank declaring to each other what free agent offers to players were, in order to keep offers “fiscally responsible.”  Once again, this ownership strategy was to reduce the effect of the free market on free agency in baseball.

 

There were different reasons that this action was considered collusion.  In fact, without the previous actions, it can be theorized, that this form of collusion may not have been considered a violation of the CBA.  The form itself was different, but because the effects were similar, the arbitrator once again found the owners in violation.

 

George Nicolau, who took over as the baseball grievance arbitrator after Thomas Roberts was dismissed by the owners after the first collusion decision, ruled that the:

 

information bank converted the free agency process into a secret buyers’ auction, to which the sellers of services -the players- had not agreed and the existence of which they were not aware… and… it is evident that many clubs used the bank to report offers to free agents and to track just how far they would have to go with particular players.  (Nicolau, George.  “Grievance 88-1” Collusion III)

 

The penalties for collusion were based upon three different methods, but all of those methods were based upon a make whole remedy, and none included penalties.  It is also true that the make whole remedies were only for those players who were directly affected by not being allowed to be true free agents during the collusion period.  Marvin Miller claims that through this part of the decision, the owners wound up winning out.  He claims that because of the limited free agency, other players who chose not to be free agents, or could not become free agents suffered as well.  During the collusion years average salaries increased at a much lower rate than in previous years and in subsequent years.  In fact, in 1987 the average Major League Salary declined $66.

 

Through bargaining, the players have modified the potential penalties for violating the CBA collusion section.  Rather than providing only a make whole remedy, instead the CBA provides for treble damages for players who have been found to be directly affected by collusion by owners.  Damages don?t only include lost salary, but also include "lost additional contract years, lost signing bonuses, lost trade restriction provisions, lost option buyout provisions, and lost incentive bonuses (e.g., performance, awards, attendance and weight bonuses)."  Interest, attorneys? fees, and expert witness fees are all remedies included in the current CBA.  The MLBPA can also reopen the CBA if the Arbitration Panel finds a violation by five or more clubs.  If two or more clubs are found to be in violation any player directly impacted would be able to declare his free agency (although not during the season). Arbitrators also have the authority to order a non-monetary award such as injunctive relief.

 

All of this adds up to much stiffer penalties than those imposed upon the owners during the three collusion findings of the past.  Needless to say, it would be unwise for owners to engage in collusion again.

 

The main reasons collusion was uncovered previously was that certain marquis players received no offers other than from their previous teams and competitive owners could not resist bidding on players who were not given their "gentlemen?s release."  It took leaks from owners in order for the case to be made by a preponderance of the evidence.

 

Once that collusion was uncovered, it was again a blatant and open use of an information bank that made the case for the players in the year of collusion.

 

During this past year, there the owners and GMs have been very tight lipped.  It will be tough to find the smoking gun that the MLBPA found in the previous cases.  They will have to make their case through a purely economic argument ? showing that similar players were not offered similar contracts, and that those differences were not based upon individual team needs, nor the economic downturn.  It will be a very difficult case to prove.  The MLBPA, however, only takes cases that it feels it can win. Perhaps that?s why, despite much clamoring by several agents, no grievance has been filed thus far.  Perhaps they are making sure that the case is strong enough to prevail prior to filing.  And, there is also the possibility that the MLBPA or several independent agents are mounting a PR campaign to shake a few dollars more out of owners who are, for perhaps the first time in free agent history, acting independently in showing fiscal restraint.

 

Eugene Freedman Posted: November 14, 2003 at 06:00 AM | 16 comment(s) Login to Bookmark
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   1. Joey B. Posted: November 14, 2003 at 03:57 AM (#613985)
It will be tough to find the smoking gun that the MLBPA found in the previous cases.

A big understatement, because there is no collusion, and the smoking gun doesn't exist.

And, there is also the possibility that the MLBPA or several independent agents are mounting a PR campaign to shake a few dollars more out of owners who are, for perhaps the first time in free agent history, acting independently in showing fiscal restraint.

Ding, ding, we have a winner!
   2. ColonelTom Posted: November 14, 2003 at 03:57 AM (#613986)
Wouldn't the Montreal Expos' situation be relevant to a discussion of collusion?

Absolutely, for the reasons Dale stated. The mere existence of a collectively-owned "reserve pool" of players - which is essentially what the Expos have become for MLB - is collusive, especially with the league's insistence on keeping the Expos' budget in limbo until after much of the winter has passed each of the last 2 years. By not deciding on the budget, they've effectively left other teams assuming that the supply of quality available players will increase later in the offseason, so why sign a guy now at a higher market price?

This farce has to stop.
   3. Ziggy Posted: November 14, 2003 at 03:57 AM (#613991)
How is the MLBPA not a collusive organization? If the CBA says that players can't act in concert, doesn't that rule out unions?
   4. strong silence Posted: November 14, 2003 at 03:57 AM (#613995)
One piece of evidence of collusion is Selig's mandate to teams to improve their debt/equity ratios. Selig should not care how teams spend their money so it appears that what he really wants is for teams to spend more to pay down debt (the Giants, who financed their own stadium, have already said 2004 payroll will be lower) so that fewer dollars will be spent on players.
   5. Fat Al Posted: November 14, 2003 at 03:57 AM (#613997)
How is the MLBPA not a collusive organization? If the CBA says that players can't act in concert, doesn't that rule out unions?

Who do you think signed the CBA? What do you think the "C" in CBA stands for? By your reasoning, the CBA would also mean that Major League Baseball would need to be disbanded because it is the owners acting in concert.
   6. Ziggy Posted: November 14, 2003 at 03:57 AM (#613998)
Well obviously the union didn't negotiate itself out of existence, but that's sure what the section quoted seems to imply. More than anything I was wondering how - at least according to that section of the CBA - collusive actions on behalf of the owners differs from union action on behalf of the players.
   7. WTM Posted: November 14, 2003 at 03:57 AM (#614004)
I expect you have to read the reference to acting in concert in context with the previous sentence, which refers to each player and team determining certain matters solely for his or its benefit. I don't know what articles are being referenced in that sentence, but I'd guess that the import of the sentence is that players and teams shall negotiate contracts individually--which in fact is how it's done. So the part about not acting in concert probably refers to individual contract negotiations, not to all activities that labor and management might engage in. It's ludicrous to read the provision as saying that the collective bargaining agreement prohibits collective bargaining.

It's very difficult, imo, to discuss this coherently without knowing what evidence the players have that the owners are sharing information.

I do, however, wonder about the numerous stories I've seen about the union putting pressure on individual players not to sign contracts that the union thinks will hurt the overall market. If that's not acting in concert, I'm not sure what is.
   8. ChuckO Posted: November 15, 2003 at 03:57 AM (#614005)
I'm ignorant of the legal issues on much of this so I have a question. When it comes to the law, how does a labor union differ from an association of independent contractors? It would seem to me that the latter is a better characterization of the MLBPA. For example, I've never heard of a member of the Teamsters or Steelworkers negotiating his salary on his own.
   9. DM Posted: November 15, 2003 at 03:58 AM (#614006)
If you have one agent who is representing a group of players, then how is that not sharing information? Also, if there is a public auction for players where all the deals are in the open, isn't that like how free agency first started when all the tema were in one room and bid on players. I remember seeing a picture of that when reading a book on Catfish Hunter.
   10. Sam M. Posted: November 15, 2003 at 03:58 AM (#614007)
the union putting pressure on individual players not to sign contracts that the union thinks will hurt the overall market. If that's not acting in concert, I'm not sure what is.

It is. Unlike the silly remarks some have made about the union itself being a violation of the CBA, this is a genuine issue. If the owners were smart, and could prove that this actually happens, they'd file a grievance about it against the union. They wouldn't need direct, smoking gun evidence.
   11. Eugene Freedman Posted: November 15, 2003 at 03:58 AM (#614008)
Chuck,

An independent contractor has a specific definition under employment law as well as tax law. Contractors generally provide their own supplies, set their own hours and pace of work, are responsible for their own training, basically controlling the way the work is performed. The purchaser of the services still controls the finished product. An employee is subject to the control of the employer and the employer provides things such as supplies, training, and instructions.
   12. Ziggy Posted: November 16, 2003 at 03:58 AM (#614011)
Dolph is quite right in all of his comments, but I don't think that this situation is a sustainable one. The owners/GMs have incentives not to report their real offer, and eventually that interest will win out over their interests invested in keeping salaries low.

Say the Braves think Sheffield is the key, and that they'll ensure themselves victory - and thus more money - if they have him. They can offer him $10m/year, but report only $8m. Then the yankees offer $8.1m, and he goes to the Braves. Once that's happened even once this arrangement is dead.

It's a collective action problem, the optimal stratagy for each club (or at least a number of them) is to cheat. Whereas the optimal stratagy for the owners as a whole is not to cheat.
   13. Evil Twin Posted: November 16, 2003 at 03:58 AM (#614014)
What do you make of the following from the Milwaukee Journal-Sentinel, from the article at my webpage link.

Also last summer, Major League Baseball executives went over the financial plans of all the teams. Sixteen teams, including Milwaukee, were asked to come to New York to provide more detail, DuPuy said.

"Ulice was the person who presented the business plan, who defended the plan," DuPuy said.

Among the items discussed, DuPuy said, was payroll.

   14. Steve Posted: November 17, 2003 at 03:58 AM (#614016)
What about the debt-equity rule?

Doesn't the debt-equity rule act to some degree as a de facto cap on things like length of contract? I think this is having the largest impact on the market. I mean, would it even be possible for the Rangers to sign Alex Rodriguez to the contract he signed under the new rules?

And isn't that the biggest change we've seen in the market? Salaries have dropped somewhat, but players just aren't getting as many years as they used to at the big dollars.
   15. James B. Posted: November 17, 2003 at 03:58 AM (#614020)
As Eugene points out, the clause is based on the Koufax-Drysdale precedent -- two players holding out together. It's as if Greg Maddux said, "I won't sign unless you also sign my pet catcher, Eddie Perez. We're a package deal."

Kind of like Michael Moriarty and Robert DeNiro in the "Bang the Drum Slowly".
   16. DM Posted: November 20, 2003 at 03:58 AM (#614061)
Actually, the agents in a sport such as basketball which has fewer players, have more power than their counterparts in other sports. I remeber hearing stories about David Faulk asking certain teams to sign players of his to lucrative contracts on the basis that when a player they really wanted became a free agent, he would look at them more favorably.

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