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Baseball labor relations: the lockout of 1990.

Baseball labor relations: the lockout of 1990 The 32-day lockout of baseball players from spring training camps by team owners in 1990 caused a renewed sense of frustration amonf fans. Once again, the great American pastime was shut down by a labor dispute.

The second longest work stoppage in baseball history was resolved without lasting damage to the regular season. However, the lockout raises some interesting questions. Could it have been avoided? Why is baseball so prone to work stoppages? Can anything be done to prevent interruption of the sport in the future?

Background

Much of the past conflict in baseball can be attributed to the need to eliminate the old system of paternalism and remove restrictions on player movement in the labor market. To initiate this change, the players hired Marvin Miller as executive director of their union in 1966. A former official of the United Steelworkers Union, Miller was an exeptionally able leader and negotiator. He won the confidence of the players, and welded the Major League Baseball Players Association into a cohesive unit. Agreements that Miller negotiated with the team owners in 1968 and 1970 set the stage for later breakthroughs that would result in undreamed of economic gains for the players.

The price paid for these gains has been work stoppages. In 1972, the players walked out of training camps 5 days before the start of the season. At the urging of President Richard M. Nixon, the negotiators met with a Federal mediator, and agreement was reached to increase pension and health insurance funds by $890,000. The strike caused the cancellation of 86 games of the regular season.

In 1976, the owners locked the players out of training camps for 17 days because no Basic Agreement had been signed. Complicating matters was the 1975 landmark ruling by arbitrator Peter Seitz in the Messersmith case, which for the first time granted free agency to players. (1) Reacting to pressures from some of the owners, Commissioner of Baseball Bowie Kuhn ordered the opening of training camps. A new Basis Agreement was reached in August, including a provision allowing players to become free agents after 6 years of major league experience.

In 1981, the key issue was compensation to teams that lost free agents to other teams. Agreement on other issues had been reached the previous year, when a strike had been averted by establishing a joint committee to study free agency compensation. When the committee was unable to resolve the issue, a 50-day strike resulted in the cancellation of 713 games during the 1981 season. Free agency compensation rules were established, but 6-year players continued to have relative freedom to change teams. Another strike occurred in 1985, this time for only 2 days, over many economic issues. An important outcome of this strike was that players would subsequently be required to wait 3 years (rather than the previous 2) to become eligible for salary arbitration.

These work stoppages indicate a continuing inability of the owners and players to reach agreement without having a test of economic strength. As a result of the confrontations, the players have achieved, among other things, a high level of mobility in the labor market, salary arbitration for veteran players, and a pension plan that is perhaps the most generous in American industry. Despite this wealth and countervailing power, however, the players' relationship with the owners remains adversarial. The old wounds have been slow to heal.

Influencing negotiations in 1990 were the grievance arbitration decisions on collusion. A feature of past Basic Agreements was a provision prohibiting collusion by either players of clubs. In 1985, the owners reduced their signing of free agent players dramatically, and continued to do so in 1986 and 1987. The chilling of the labor market led to grievances by the players' union for each of the 3 years, claiming that the owners had conspired to avoid signing free agents and thus held down their market value. Arbitrators Tom Roberts in the 1985 case and George Nicolau in the 1986 and 1987 cases found against the owners, and it is likely that as much as $100 million will eventually be paid in damages to the players found to have been the victims of collusion. It is not surprising that the owners were rankled by the collusion decisions. Moreover, the removal of collusion restraints led to a salary explosion, as teams bid astronomical sums for free agents. Prior to the 1990 season, nine players signed multiyear contracts for salaries of $3 million or more a year. The owners seemed to need protection from their own largesse.

There were other early signs that the 1990 negotiations could lead to trouble. About a year before talks opened, the owners began requiring players to include lockout clauses in individual salary contracts, prescribing that these players would not be paid in the event of a lockout. Also, both sides began to acculate war chests. The owners set aside about $170 million and arranged a line of credit with Citibank for another $130 million. The players pur away between $70 to $80 million from payments under royalty and licensing agreements. Another ominous sign was that, in late 1988, new national television contracts were negotiated that increased revenues to $1.5 billion over 4 year, providing about $16 million annually to each of the 26 major league clubs. As this represented a 102-percent increase over the old television agreements, there was substantially more money to fight over.

Bargaining issues, 1990

The principal issues on the bargaining table during the 1990 negotiations are summarized below. The three major positions of the owners were especially controvercial because they proposed a radical restructuring of the Basic Agreement. Perhaps their most palatable demand from the players' standpoint was for revenue sharing. Because each side would gain from increases in revenue, there would be mutual incentive to expand the size of the pie. Revenue sharing would also promote financial stability on the downside. That is, should income decrease, say as a result of a serious economic recession, salaries would moderate along with revenues so that clubs would not be caught in a financial squeeze. A related advantage, more to the benefit of the owners than of the players, would be cost certainty, allowing for more accurate planning of budgets and league expansion.

Owners' proposals:

* Players would be guaranteed 48 percent of revenue from ticket sales and national and local radio and television contracts, which would make up about 82 percent of owners' total revenue.

* A pay-for-performance system, in which players with zero to 6 years experience would be paid on the basis of seniority and performance based on statistical formulas. Each team would pay 1/26th of the total, and multiyear contracts would not be allowed.

* A salary cap limiting the total amount of salary any team could pay to players. Players with 6 years or more experience would still be free agents, but they could not be signed by a particular team if doing so would put that team over the salary limit.

Players' proposals:

* Eligibility for salary arbitration restored to players with only 2 years of major league experience.

* A raise in minimum salary from the current $68,000 to $125,000.

* Continuation of the current formula fixing owners' contributions to the benefit plan (pensions and health insurance) at about one-third of television revenues from the All-Star game, league playoffs, and the World Series. This would work out to about $83 million a year for the owners' contribution.

* Triple damages for collusion, and language protecting the players' union from future collusion by the team owners.

* An increase in roster size to 25 players from teh current 24.

Implications of the proposals. The owners' proposal on pay-for-performance was tantamount to establishment of a wage scale for players in the first 6 years. It would have had the effect of eliminating salary arbitration. Apart from the seniority factor, salaries would be determined by statistical formulas based on performance in the player's previous two seasons. Players would be separated into four categories for statistical purposes: (1) starting pitchers; (2) relief pitchers; (3) outfielders, third basemen, first basemen, and designated hitters; and (4) catchers, second basemen, and shortstops. While a creative idea, this proposal had virtually no chance of acceptance by the players. There are too many variables involved in performance. For example, pitchers in small ballparks like Boston's Fenway Park would be at a great disadvantage compared with those in larger parks like Busch Stadium in St. Louis. Also, no account was taken in the formulas of defensive performance or intangibles like character and sacrifice for the benefit of the team, nor was there a precise indication of how salaries would be computed.

The salary cap was proposed to protect teams in smaller markets, such as Milwaukee and Minnesota, from having their free agent players bought up by prosperous teams in New York and Los Angeles. Teams in large cities would be unable to control the market for star players because the salary cap would limit the number of highly paid players they could sign. Teams spend considerable amounts of money in developing young players. A salary cap would discourage free agency and enable a team to retain more of its quality players, thus yielding a greater return on investment.

As to issues proposed by the players, the most controversial was the change in eligibility for salary arbitration. Initiated pursuant to the Basic Agreement in 1974, salary arbitration allows a player who wants to sign with his old club, but is unable to agree on salary, to present the dispute to an outside, neutral party. Both the player and the club make a final offer on salary and the arbitrator must then pick one offer or the other, with no compromising allowed. Over the years, salary arbitration has been a crucial factor in raising player salaries, perhaps as important as free agency. Even players who lose in arbitration almost invariably wind up getting a significant raise. For example, a typical player might have made $300,000 in the previous year. In arbitration, he asks for $700,000 and the club offers $600,000. Even if the arbitrator picks the club's offer, the player would still get a big raise. (2)

In 1985, the owners contended that their financial considerations necessitated an increase in the length of time required for eligibility for salary arbitration from 2 years to 3 years. The players' union agreed to this change, making players wait the extra year. But the owners' profits subsequently soared to high levels. With the recent increases in television coverage guaranteeing future revenues, the players wanted the eligibility requirement moved back to 2 years. This issue became a major stumbling block for the negotiators.

The negotiators

Historically, the attitudes and behavior of baseball negotiators have been of paramount importance in determining bargaining outcomes. The verbal exchanges between Marvin Miller and owners' negotiator Ray Grebey provide examples of how clashing personalities can impose barriers to agreement. Although some conflicts are inevitable, there is little doubt that the road to agreement can be relarively smooth or rocky, depending on how the negotiators conduct their business.

In 1990, the players were represented by Donald Fehr, executive director of the players' union. A law school graduate opf the University of Missouri, Fehr had joined the law firm of Jolley, Moran, Walsh, Hager and Gordon in Kansas City, which presents the union. His work on the Messersmith cased led to his appointment as general counsel for the union in 1976. In this capacity, he worked closely with Marvin Miller. Fehr appears to have the same astute but occasionally acerbic approach to negotiations as Miller. When Miller retired in 1983, Kenneth Moffett, formerly with the Federal Mediation and Conciliation Service, succeeded him. But, Moffett's tenure lasted only a few months and he was replaced by Fehr.

The six-member Player Relations Council represents the bargaining arm of the major leauge baseball team owners. In 1990, its members were: Allan "Bud" Selig (chairman) of the Milwaukee Brewers, Jerry Reinsdorf of the Chicago White Sox, Carl Pohlad of the Minnesota Twins, Fred Wilpon of the New York Mets, John McMullen of the Houston Astros, and Fred Kuhlmann of the St. Louis Cardinals. All the council members are owners of their clubs, except Kuhlmann, who is the president of the Cardinals. Chief negotiator for the owners was Charles O'Connor, who had succeeded Barry Rona as general counsel of the Player Relations Council in 1989. Although new to sports, O'Connor has an extensive background in labor relations.

Two other key participants in the 1990 talks should be mentioned. Fay Vincent, former deputy commissioner of baseball, became commissioner when A. Bartlett Giamatti, the former Yale University and National League President, died in office after a brief but distinguised service. Steven Greenberg, a lawyer and former players' agent, is baseball's current deputy commissioner.

The negotiations

The initial negotiating session was held on November 29, 1989, shortly before the Basic Agreement was scheduled to expire at the end of the year. Little progress was made in the early talks. This is typical of negotiations in professional sports. It seems that a strike deadline or start of the regular season must be impending before negotiators become serious about their task. By mid-February 1990, with spring training 2 weeks away, Commissioner Vincent began to sit in on negotiations. Realizing a threat to the opening of training camps, because of a possible lockout by the owners, Vincent made several proposals to get the talks moving.

It was not an easy decision for Vincent to become involved. As Commissioner of Baseball, he is hired and paid by the owners, but he is also responsible for acting in the "best interests" of the game. Failing to try to prevent a lockout or strike would not fulfill that responsibility. While the top management official usually stays in the background during labor-management talks and allows the negotiator to make the deal, (3) there was some precedent for involvement by the commissioner. As mentioned earlier, Commissioner Kuhn had ordered camps to open in 1976 (and was later criticized for not doing more to end the 1981 strike). Commissioner Peter Ueberroth's mediation was helpful in holding the 1985 strike to only 2 days.

Three of Commissioner Vincent's proposals became the focus of attention: (1) minimum salaries of $75,000, $125,000, and $200,000 for players in their first 3 years, with a 75-percent cap on increases in salary arbitration; (2) a 2-year study commission on revenue sharing, and reopener of the 4-year Basic Agreement after 2 years; and (3) no increase in the players' benefit plan. Vincent helped narrow the issues in dispute. Shortly after hearing his proposals, the owners dropped their demands for revenue sharing, pay-for-performance, and salary cap. Given the groundbreaking nature of these demands, especially in light of baseball's success under the old system, they would have eventually been discarded. Vincent's proposals accelerated this process while allowing the owners to save face.

A few days later, however, the owners made a proposal that enraged the players because it introduced controversial new items for consideration. This offer included prohibiting the use of free agency and multiyear contract comparisons in salary arbitration cases, and eliminating maximum salary cuts (20 percent for 1-year contracts and 30 percent for 2-year contracts) for players with 3 years to 6 years of service. Reacting to the players' outrage, Steven Greenberg telephoned Eugene Orza, associate general counsel for the players' union, to say that "Yesterday didn't happen," and the proposal disappeared. (4)

Meanwhile, on February 15, a lockout occurred when the owners refused to open training camps. Why did the owners resort to this tactic? Although lockouts account for only about 5 to 8 percent of all work stoppages, their frequency is rising. The owners used the lockout mainly as an offensive weapon, to presure the players into an early settlement. Certain kinds of lockouts may not be legal, such as those calculated to "bust" a union. But, in 1965, the U.S. Supreme Court had held that a company did not violate the Taft-Hartley Act when, after reaching impasse in negotiations, it shut down its plant to put pressure on a union that was threatening to strike during the company's businest season. (5) Although this case is the leading precedent on the subject of lockouts, its applicability to the baseball lockout was clouded by uncertainty over whether impasse had been reached and the fact that the players' union had not threatened to strike.

Were the owners to start the season after reaching impasse and without an agreement, they would have been able at some later time, perhaps at the end of the season, to impose employment terms unilaterally on the players. This is what occurred in professional football after the unsuccessful players' strike in 1987 over free agency: the football owners put their own free agency rules, known as Plan B, into effect. The baseball players' union would not want to have the owners impose terms on them. Therefore, the players would almost certainly have had to strike to achieve an agreement before the 1990 season ended. Such a strike--say, in August--would hurt the owners because they derive most of their income from television contracts late in the season, based on revenues from the league playoffs and World Series. Thus, by locking out the players to precipitate an agreement, the owners were defending themselves against a strike later on.

Now that the principal bargaining demands of the owners were off the table, it seemed logical to assume that an agreement would quickly follow. The owners were enjoying unprecedented success with 5 consecutive years of record attendance and a generous new television deal. Player salaries were averaging $600,000. Why kill the golden goose? With the owners' retreat, however, the union realized that power had shifted dramatically in its favor. At this point, perhaps too greedily, the union made a stand on reducing eligibility for salary arbitration from 3 years to 2 years. Several days went by with considerable discussion but no progress on this issue.

Complicating the situation, as is often the case in sports, was the intraorganizational side of negotiations. This was more a problem for the owners than for the players. The players realize the importance of organizational solidarity and have learned to put aside their differences and stick together. Their union does an excellent job of communicating with the players, so they know what is happening at the bargaining table and why. (6)

The intraorganizational problem on the owners' side were threefold. One was the differing philosophies or approaches toward the union. On the Player Relations Council, for example, owners McMullen, Reinsdorf, Selig, and Pohlad were considered hard-liners, while Wilpon and Kuhlmann were viewed as moderates. Second, there were the differences between owners from large and small markets, which arise over issues like revenue sharing. The New York Yankees, for example, receive $50 million annually from their local television contract. Clubs in small markets like Kansas City and Milwaukee, however, receive only about one tenth as much for their local telecasts. Yankee owners would be reluctant to share their revenues with teams in smaller markets. Third, there was the problem of not knowing who is in charge of bargaining for management. Was it Charles O'Connor, the Player Relations Council, or the commissioner's office? Negotiation becomes more complex when there is no single source of authority to rely on.

Initially, there was little concern on either side over the lost spring training time. Virtually all players now attempt to keep in good physical shape yearround. They are not paid for time spent at training camps, except for expenses. From the clubs' standpoint, most lose money on their spring training operations anyway. But some preseason training is necessary to mold players into a team, and about 3 weeks before the scheduled start of the 1990 season, there was pressure for settlement from both sides. Therefore, on March 8, Commissioner Vincent offered to open the training camps if the players agreed not to strike later in the season. The union, as expected, rejected this idea because it would take away their bargaining leverage.

Settlement

Although salary arbitration became the focal point of the dispute, another remaining issue of importance was the benefit plan covering pensions and health insurance. After initially offering no change in the benefit plan, the owners had gradually increased their offer. It appeared that compromise would be achieved through tradeoffs between the arbitration and benefit plan issues. On arbitration, the union insisted on 2 years' eligibility while the owners stuck at 3 years. Commissioner Vincent proposed a compromise at 2 years and 140 days.

Getting the parties to accept a final compromise was largely the work of deputy commissioner Greenberg. Agreement was reached on arbitration by making 17 percent of the players with between 2 and 3 years of service eligible, assuming they were with the club for at least 86 games during the previous season. The 17 percent will represent about 15 players per year. The players accepted the owners' offer to increase the benefit fund to $55 million. In effect, the players got some of what they wanted on salary arbitration and the owners did not give up that much on the benefit fund increase. Key features of the 1990 Basic Agreement follow:

* Salary arbitration--Eligibility for the top 17 percent of players with 2 to 3 years of major league service.

* Benefit fund--Increased owners' contribution to $55 million annually.

* Minimum salary--Raised from $68,000 to $100,000.

* Roster size--Increased from 24 to 25 in 1991.

* Collusion--Language prohibiting collusion and providing for triple damages.

* Reopener--Either side may reopen the 4-year contract on major economic issues after 3 years.

* Revenue sharing--A six-member study commission will report on revenue sharing and baseball economics.

Because agreement was not reached until March 19, the requisite 3 weeks of spring training delayed the start of the season from April 2 to April 9. This would have cut the full season of 162 games to 158. However, Commissioner Vincent was able to work out an agreement with CBS, which holds television rights to the league playoffs and the World Series, to push back the start of postseason play so that the postponed games could be made up. Avoidance of a shortened season preserved the sanctity of individual and team performances, which is especially important to baseball purists.

Spring training generates about $300 million from the 18 teams that train in Florida and another $145 million from the 8 teams that train in Arizona. (7) Although all of this revenue was not lost, many businesses, nonprofit organizations, and cities dependent on spring baseball were harmed. ESPN, a cable television network, had to cancel several spring training games, but still had to pay for the broadcast rights because it lacked contractual protection against a lockout. There were only 3 weeks of spring training instead of the usual 6, and each team played 15 games rather than 30 games. Club and player losses were minimal, although several prospective major leaguers did not get much chance to prove their worth before the season, and risk of injury to all players was greater. According to a poll taken by The Sporting News, 69 percent of the fans indicated that they would reduce their attendance and broadcast participation if the lockout delayed the regular season. (8) Past experience shows, however, that fan loyalty is not really affected by baseball work stoppages.

A key to future labor peace in baseball may be the adoption of revenue sharing. This practice would help the parties view each other less as adversaries and more as partners. Formation of a study commission, provided in the new Basic Agreement, will assure that revenue sharing will get careful consideration. It is not apparent what effect the 3-year reopener provision will have, if any. There would be just 1 more year remaining under the contract if it were reopened. Exercise of the reopener provision by either side would raise the specter of a work stoppage as early as 1993.

One of the positive outcomes of the negotiations is the relatively great degree of civility displayed between the negotiators. There were some caustic exchanges between the parties through the media, especially in the late stages of the talks, but the attitudes and behavior were generally positive and professional. Fehr, O'Connor, Vincent, and others deserve credit for eschewing the hostility of the past. Their experience during the negotiations should promote a smoother transition to a successor agreement.

ALTHOUGH BASEBALL is the pioneer in developing the sports labor model, it may be time to look to other sports for examples of labor peace. Basketball's system of salary caps and revenue sharing, negotiated in 1983, has been successful. Players are guaranteed 53 percent of gross revenues, and there have been no work stoppages. Nor have there been any in hockey. As in basketball, hockey owners and players view themselves as being in a joint venture. Cooperation, rather than confrontation, is used to resolve issues of mutual concern. There will always be debates over money issues in professional sports. Given the popularity of sports, however, the profits are ample for all to share. It is primarily a question of developing mechanisms for distributing the gains equitably among the participants.

Footnotes

(1) This decision, involving pitchers Andy Messersmith of the Los Angeles Dodgers and Dave McNally of the Baltimore Orioles, enabled players who had played for their clubs for a year without a contract to sell their services to other clubs. For further discussion, see Paul D. Staudohar, The Sports Industry and Collective Bargaining, 2d. ed. (Ithaca, NY, Cornell University, New York State School of Industrial and Labor Relations, 1989), p. 35. Available from ILR Press, Ithaca, NY.

(2) In 1990, of the 24 players who arbitrated their salaries, the 14 players who won received increases averaging 141 percent, while the 10 players who lost received increases averaging 123 percent. See Richard Justice, "Root of the Lockout," San Francisco Chronicle, Feb. 27, 1990, p. D3.

(3) Paul D. Staudohar, "Baseball Impasse: Locking Out for No. 1," The New York Times, Mar. 11, 1990, p. 27.

(4) Murray Chass, "Arbitration Eligibility is Major Hangup," The Sporting News, Mar. 5, 1990, p. 13.

(5) American Ship Building Co. v. National Labor Relations Board, 380 U.S. 300 (1965).

(6) The use of replacement players was not a threat in baseball. This tactic had been used successfully by owners during the 1987 football strike to divide the players, as discussed in Paul D. Staudohar, "The football strike of 1987: the question of free agency," Monthly Labor Review, August 1988, pp. 26-31. Although the active major league roster has 24 players, the total roster is 40 players, which includes players under contract with a major league team but assigned to a minor league club. Because many of these players are or have been members of the players' union, it would be difficult to obtain highly skilled players to serve as replacements.

(7) Data from Sports Illustrated, Feb. 19, 1990, p. 7.

(8) "Voice of the Fan," The Sporting News, Mar. 19, 1990, p.3.

Paul D. Staudohar is a professor of business administration at California State University, Hayward.
COPYRIGHT 1990 U.S. Bureau of Labor Statistics
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Title Annotation:Research summaries
Author:Staudohar, Paul D.
Publication:Monthly Labor Review
Date:Oct 1, 1990
Words:4543
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