Wednesday, February 04, 2009
Escrows and 24% rollbacks
When the NHL had its work stoppage, both the league and the union knew that revenues that first year after the agreement will either be flat, or be down a bit. With salaries tied to revenue, and with most players already signed, there was simply less budget for the unsigned players. What to do? Well, the players offered a 24% rollback in wages. What did this do? It created budget room, as there was a cap to work against. Furthermore, if all teams paid to the cap, too much of the revenue would go to the players. (There is both a team payroll cap, which is set at the start of the season, plus an overall league payroll cap, which is determined at the end of the season following an accounting of the revenues.) So, the players hold back some of their wages into escrow. If the league payroll cap is exceeded, then the players only get part (or none) of their escrow back.
All the sports leagues today are in that same boat. While there is no payroll cap in MLB, clearly some teams operate under a self-imposed budget. Indeed, with such uncertainty in potential revenues in the next year or two, the “some” teams must mean “most” teams. I don’t know if a new Yankee Stadium is recession-proof, but they sure are behaving like it is.
Is there collusion? I don’t think so. If MLB/MLBPA had team and league payroll caps like the NHL, then I think all the players would have been signed by now. (And have done so, so that the total league payroll will be identical to what they are going to get this year.) All the existing contracts could have been rollbacked by say 5%. That gives each team a few extra million$ to spend in breathing room. Right now, there’s no breathing room. (How often has an arb-eligible player, who will earn less than the free market, ever been released only to be subsequently signed by another team just weeks later? This should happen never. And yet it’s happening now.) And if all the teams went crazy spending on Manny, Dunn, et al? No problem. That’s why you have escrow, so you can rollback even more.
The balancing act is to determine how much rollback for the players to accept so that the unsigned players get their fair share. Indeed, the MLBPA should have insisted on players giving rollbacks in the face of a recession. As it stands, the current free agents will be setting such a low baseline for next year’s free agents and last-year arb-eligible players that it could stagnate salaries.
It seems to me that the current state of MLB is exactly what one would expect if a large portion of contracts have been guaranteed, and with a shrinking pie, the remaining unsigned players are signing for scraps. Anyone saying that what we are seeing is collusion simply is not accounting for the reality of what MLB teams are faced with. If MLB’s salary structure was setup like the NHL, there would be no talk of collusion. Indeed, we are going to find next year with the NHL, that players will hold up an enormous amount in escrow to account for the shrinking pie. In effect, the NHL players will have salary rollbacks for the 2009/10 season.
Redistributionists.
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