Employment Practices of Major League Baseball

Purpose
Everyone has their own form of entertainment whether its sports, movies, politics, etc.  We all know what their salary adds up to, but what's in it?  For instance, take a baseball player that makes $25 million a year, what other allowances and compensation does he get?  From a human resources standpoint, the baseball player has not only the same benefits as a regular full-time employee has and more.  The focal point will be the question "Is Major League Baseball Players Association helping or hurting baseball players?"  We can count many benefits of the MLBPA and an HR manager would probably praise them, but the union can be destructive as well.
History of MLB Labor
Reserve Clause
In the reserve clause, players were held to their first employer for most of their careers if not all.  This was a monopoly that the ballplayers were experiencing, a market that had a single employer and many potential employees.  Baseball players were powerless and were limited when they bargained for wages, which allowed team owners to pay the players less than what they produced.  The players were never unhappy because they were paid higher than the average wage (Haupert, 2005).  The reserve clause stated that the team, not the player, had sole right of the player's contract and the team had the right to keep the player as long as they desired.  The team could sell, trade, or release a player under the reserve clause (Thornley, 2010).
Challenge of the Reserve Clause
Curt Flood, an outfielder and member of the St. Louis Cardinals, was traded to the Phillies and refused to report.  Curt Flood contested by writing a grievance letter to then MLB Commissioner Kuhn explaining that he was not a piece of property to be bought and sold. Flood didn't want to play for Philadelphia and wanted to "test the market" and see what other clubs would offer him.  The request that Curt Flood made in the letter to Kuhn was denied, Flood sued Kuhn and Major League Baseball, the lawsuit eventually led to a Supreme Court ruling on the issue of the reserve clause (This Day in History: Curt Flood Challenges MLB Reserve Clause, 2009).  The lawsuit entailed an overturn or change in baseball's reserve system, the claim also contested that MLB was violating the 13th amendment on antitrust legislation.  Flood had an obstacle to get through, the ruling in 1922 of Federal Baseball Club of Baltimore v. National League of Professional Clubs, which exempted organized baseball from the Sherman Antitrust Act (Norwood, 2010). Curt Flood was not successful and the Supreme Court ruled 5-3 in favor of Major League Baseball (Begemann, 2007).
Brief Overview of Free Agency
Free Agency came into effect after the challenge from Curt Flood and the many lockouts and strikes of the MLB (Labor Pains, 2003).  The players who have seven or more years experience as a major league baseball player have the right to file for free agency.  The player does not have to file for free agency and can take the final offer arbitration instead.  The free agents are split up into two categories, type A and type B, based on the production their contributions.  Type A consists of players that are in the top 20 percent of their respected positions.  Type B consists of players that are between the top 21 to 40 percent of their respected positions.  For a former team, that either had a Type A or Type B player, it is necessary to provide final offer arbitration to earn a draft pick from the team that is signing the player.  The team that signs the type A free agent gives up either a first or second round pick to the former team and a pick between 1st and 2nd round picks (sandwich pick).  For a type B free agent, the compensation would only be a sandwich pick.  There is also a limit of signing Type A and B free agents.  If there are less than 14 type A or B free agents, then all the teams can only sign one type A or B free agent. If there are 15-38 type A and B free agents, then teams can only sign two.  If there are 39-62 type A and B free agents, then teams can only sign three.  Even with this rule in place the teams can sign as many type A and B free agents relative to what they've lost (Kendrick, 2010).


Beginning of Arbitration
In 1975, two players Andy Messersmith and Dave McNally finished out their one year contracts and filed a grievance that basically pointed out that a team should only be allowed to extend an expired contract for one year.  An impartial arbitrator replaced the baseball commissioner on grievance rulings in 1970 and arbitrator Peter Seitz ruled that, "contract language only permitted the team to control an unsigned player for one season, and thereafter the player was a free agent" (MacDonald & Reynolds, 1994).

During the 1990 baseball strike, the ballplayers and owners signed a four year deal that instituted a higher minimum wage from $68,000 to $100,000, as well an arbitration agreement that stated that the top 17% of ballplayers who had two to three years of service were entitled to arbitration.  Any player that is below the top 17% has to wait a minimum of three years. MLB has three structures of contracts: rookie, intermediate players, and senior players.  The rookie contracts were ineligible for arbitration and could not file for free agency (basically the reserve clause), this included players that had only one to two years of service.  The intermediate players had a service of three to six years and eligibility for arbitration but not free agency.  Senior players who had over seven years of service were granted eligibility of final offer arbitration or free agency (MacDonald & Reynolds, 1994).



Arbitration Process
The inner workings of salary arbitration is unique, it starts out with both the player and the team submitting a final offer salary to an arbitrator.  Arbitration can be filed with the player's and team's consent, some players can file for arbitration without the team's consent.  The players and teams have 10 days to notify each other of seeking arbitration from January 5th to January 15th.  The team and player often agree on a negotiated salary, but if there is no settlement, they attend an arbitration hearing. At the arbitration hearing, the arbitrator looks at the two salaries, one submitted by the team and one submitted by the player to render the decision.  Arbitration hearings take place from February 1st to 20th in three cities: Chicago, Illinois; Los Angeles, California; and New York, New York.  The location is dependent on distance of the city from the team, for instance, if the team is located in Oakland then the arbitration hearing would be in Los Angeles.  During this arbitration hearing period (Feb 1st to 20th) the teams still can negotiate with players before their scheduled hearing, if there is still no agreement then they both attend the arbitration hearing.  At the hearing, the team and the player have one hour to present and rebut each other's case. The arbitrator then has 24 hours to decide which salary the player has for the next season.  The arbitrator guidelines to decision making as stated in Faurot and McAllister, "quality of production of the player of the previous season, length and consistency of player contribution in past seasons, comparative baseball salaries, injuries (mental or physical) affecting performance, and the teams recent record or performance" (Faurot & McAllister, 1992).



About the MLBPA
The Major League Baseball Players Association (MLBPA) is a union (collective bargaining representative) for all Major League Baseball Players.  The MLBPA started in 1968, when Marvin Miller negotiated a collective bargaining agreement in MLB (the first in professional sports).  The agreement raised the minimum salary from $6,000 to $10,000, then in 1970 players used negotiated arbitration to settle conflicts.  Since then, the MLBPA has been responsible for five strikes (1972, 1980, 1981, 1985, and 1994-95) (MLBPA, MLBPA Info: FAQ, 2010) (History of the MLBPA, 2010).

Brief Overview of MLB Player Benefits
Union Dues
Each player has to pay $50 dollars per day every season (MLBPA, MLBPA Info: FAQ, 2010).
Incentive to Perform Well
The player's pool is an incentive for teams to make it to the playoffs.  When teams compete in the playoffs, they are awarded a percentage of the total gate receipts.  The shares of the playoff pool are split up into partial shares, full shares, and cash rewards (McTaggart, 2005).  For instance, the Houston Astros awarded, "39 full shares, 28 partial shares and eight cash rewards from a pool of $9.9 million" (McTaggart, 2005).  Astros players that were awarded a full playoff share got $191,985.45 each (McTaggart, 2005).
Player's Pool (Constructed)
Created from Total Gate Receipts
First Four World Series Games: 60%
First Four League Championship Series Games: 60%
First Three Division Series Games: 60%
(MLBPA, MLBPA Info: FAQ, 2010)
Players' Playoff Pool (Distributed to the players from the clubs)
World Series Winner: 36%
World Series Loser: 24%
League Championship Series Losers: (2) 24%= 12% each
Division Series Losers: (4) 12%= 3% each
Non-Wild Card Second Place Teams: (4) 4%= 1% each
(MLBPA, MLBPA Info: FAQ, 2010)
Negotiations
The player can hire an agent to conduct or assist him in negotiations of the salary or special agreements to be added to his uniformed contract (contract between a club and a player).  MLBPA will provide the Office of Commissioner a list of player agents that represent each player.  The club can require a player to show up to their location only once during the process of contract negotiation.  However, this limitation doesn't apply to telephone conference calls with the player and his certified agent.  The player is entitled to have the club pay for both (round trip) first class transportation and hotel during his presence at negotiations.  After the negotiation of the Uniform Player's contract by both parties, the club will submit the contract to the commissioner for acceptance.  The commissioner is to approve or deny the contract with the notice of the MLBPA within 20 days of receiving it.  If the commissioner denies it, he or she has to submit an explanation within 10 days after the decision. Grievances that challenge the commissioner's decision needs to be exchanged within 10 days by both parties (team and player/player's agent) and the hearing is to take place 15 days after filing the grievance.  The panel is to issue the award or verdict 15 days after the hearing (MLBPA, 2007-2011 Basic Agreement, 2007).
Salary Terms
•    Multi-year contract that provides for current salary only (This means the payment isn't upfront or deferred compensation)
•    Multi-year contract that provides upfront payments or deferred compensation that are allocated to one or more years of the contract
•    Multi-year contract that provides upfront payments and/or deferred compensations that are not allocated to certain years of the contract
(MLBPA, 2007-2011 Basic Agreement, 2007)

Deferred Compensation
Pay is deferred as a mutual decision or the club and player may choose to alternate the discounting of the present value of the deferred amount (MLBPA, 2007-2011 Basic Agreement, 2007).

Performance Bonuses
If a performance bonus is earned, the club has the option to include both earned and unearned portions of the bonus or exclude the unearned portion and repeat the bonus the next year of the contract (MLBPA, 2007-2011 Basic Agreement, 2007).

Additional Compensation
The player can earn compensation by performing other services for the club besides serving his skills as a baseball player.  Payments can be agreed upon if the player is going to be released before his contract is up or if he is traded.  The player is granted his value of individual property rights from the club.  Players can get compensation for a post-active MLB career employment, for instance being a sports analyst (MLBPA, 2007-2011 Basic Agreement, 2007).
Expenses & Allowances
Clubs will pay the travel expenses of the players (team) to other cities, for example first class jet air and hotel accommodations, if the team can afford that expense.  Clubs also have to notify the team's Player Representative (team player who represents MLBPA, each team has one) as well as the MLBPA before December 1st (of every year) of in season hotels the clubs will be booked at.  However, if the club cannot afford (or the team cannot be fit into) first class flights, the club can have the players fly coach (two players get three seats and first class meals).  If the club finishes in another city, then the club has to pay for first class jet air fare and meal to the player's home city.  This also applies if the player wants to go back to the club's home city, they would also have to pay for the player to go back to his hometown as well.  The club also has to compensate players (first class airfare and meals) from their own homes to spring training place of the club (might be in a far location).  For a championship season, offseason, and spring training, seasoned players as well as incoming players are compensated traveling expenses.  These traveling expenses also apply to termination of a player's contract and players that join the reserve armed forces (MLBPA, 2007-2011 Basic Agreement, 2007).


Spring Training Allowances

In 2007, the spring training allowance was $267 dollars weekly and $47.50 for supplemental weekly allowance.  The allowances for the years following up to 2011 include a cost of living adjustment rounded to the nearest $.50.  Players that live outside of the spring training headquarters of the club gets a daily meal and tip allowance of $75.50 (2007, same adjustments as explained earlier), they will also get a room allowance of $25 dollars a day ($15 dollars a day for club owned facilities) (MLBPA, 2007-2011 Basic Agreement, 2007). 

Moving Allowances
Players that sign with another club during free agency are compensated for all moving and other expenses. The amount of the compensation between distances:
Standards
•    $1,450= greater than 2,000 air miles between former and new team
Special Outcomes
•    $1,150= 1,000 to 2,000 air miles between former and new team
•    $850=1,000 air miles between former and new team
•    $0=Within 50 miles between former and new team
•    A player moving from a residence more than 25 miles from the new team will receive compensation.
(MLBPA, 2007-2011 Basic Agreement, 2007)

Retirement
MLB's pension plan is generous compared to most employers (most employers just offer 401K) and they start when the player hits 62 years old (Guina).  The pension system is well funded with a value of $1.2 billion (in 1999) (Schwartz, 1999).  An MLB player only needs 43 days of service to be qualified for a pension equaling to $34,000 a year and it only takes one game to qualify for medical benefits (Guina). A player who has served 10 years in the MLB is fully vested.  In some cases, the fully vested player can earn up to $100,000 annually after reaching the age of 62 (Top Pro Athlete Pension Plans, 2010).  A veteran playing 10 seasons and retiring at 67 years old can receive $130,000 a year.  If a player decides to retire at the age of 45 then they get $32,600 a year.  In addition to the pension plan, there is a 401k in which the league pays in $7,000 for each player every season and the player decides where the money is to be allocated (Schwartz, 1999).
MLB Strikes and Lockouts
Strikes
The MLBPA went on strike in 1972 over issues of player pensions and binding arbitration.  There was a work stoppage of baseball for 14 days (86 total MLB games).  After that time frame, the MLBPA and team owners reached a new agreement on the Collective Bargaining Agreement (CBA).  The owners agreed to add $500,000 to the union pension fund and the players gained rights to salary arbitration.  However, the players didn't get paid for the missed games during the strike.  In 1980, another strike occurred, this time the regular season wasn't impacted.  Instead, MLB lost the final eight days of spring training in 1980, and an agreement of a four year agreement on the CBA, as well as a clause to re-open the free agency issue in 1981.  MLBPA went to strike in 1981 for 50 days causing 712 MLB games to be canceled.  The issue was free agency compensation, and the result was that the clubs lost rights to be compensated for a lost free agent.  However, the clubs (team owners) did reserve the right to keep a player for six years and the loss of a player is compensated with another player and prospects from the amateur draft.  In 1985, MLBPA went on strike during spring training for a total of 32 days because of salary arbitration.  This resulted in an agreement by the owners to pay $33 million into the pension fund for three years and $39 million in 1989.  The minimum salary increased from $40,000 to $60,000 for players.  The biggest strike that MLBPA organized was in 1994-1995, for 232 days and a cancelation of 938 MLB games for issues dealing with salary cap and revenue sharing.  The postseason was cancelled for the 1994 season and it took a judge ruling to end labor disputes and ordered that the previous labor conditions applied in the 1995 and 1996 season.  In 1997, a new CBA was signed with the addition of the penalty of a luxury tax on teams that overspend (big market owners) (Labor Pains, 2003).
Lockouts
Major League Baseball experienced three lockouts in the history of the MLBPA labor union.  In 1973, there was a dispute for 12 days (late spring training start) on the issue of salary arbitration.  A new three year CBA deal was in place, the owners raised their payments into the pension plan and increased minimum salaries for players from $13,500 to 15,000 for the first year and to 16,500 into the third year.  In 1976, there was a lockout because of the issue of free agency and re-entry draft for 17 days (late spring training). In the cases of Andy Messersmith and Dave McNally, the Federal Judge Oliver made the decision that they were free agents (upholding baseball arbitrator Peter Seitz the year before).  Then Bowie Kuhn (commissioner) ordered spring training to resume and a negotiation involving the new basic agreement to occur.  In 1990, there was a lockout concerning the issues of salary arbitration and salary cap for 32 days resulting in a late opening of spring training.  The result was that owners had to contribute more to the annual pension fund, up to $55 million, and salary arbitration was made eligible to 17 percent of players who had two to three years of experience. Baseball's minimum wage salary increased to $100,000 (Labor Pains, 2003).
Collusions by the Owners
The 1990 lockout agreement also called for the punishment of baseball teams colluding with one another to get free agents at lower prices.  The owners who colluded in the seasons of 1985-1987 were fined $280 million in damages, teams of five or more would pay triple for future offenses (MacDonald & Reynolds, 1994).

Many people would think because of the high risk of paying out the players substantially for the act of collusion, owners would not be susceptible to colluding.  According to the union head of the MLBPA, owners might still be colluding with one another.  There might have been collusion that took place in the season of 2009.  The agents of free agent players argue that they were receiving similar offers from different teams.  The MLBPA with their new union boss Weiner will be investigating to find out whether there was any collusion of owners in the 2009 season (Associated Press, 2010).  After penalties that were set to prevent collusion, the fact that team owners might still be colluding is astonishing.  This would indicate that the owners will take any advantage possible to get their own incentives.  Even though this investigation is pending, this concern is still prevalent.  Major League Baseball owners and the Major League Baseball Players Association seem to distrust each other.

Conclusion
The MLBPA takes care of its players; it supported the creation of free agency and arbitration that freed the players from the shackles of the owners.  However, the five strikes the MLBPA had really hurt the financials of the league.  This also caused the players to earn less money and play fewer games. Another strike could impact the MLB greatly, so there should be more effort of cooperation between the MLB owners and the MLBPA, instead of having a win-lose mentality.

Works Cited
Associated Press. (2010). Weiner: Union has concerns. Retrieved April 11, 2010, from ESPN: http://sports.espn.go.com/mlb/news/story?id=5061414
Begemann, P. (2007, May 30). Curt Flood and Free Agency. Retrieved April 11, 2010, from Slide Share: http://www.slideshare.net/micdshistory/curt-flood-and-free-agency
Faurot, D. J., & McAllister, S. (1992). Salary Arbitration and Pre-Arbitration Negotiation In Major League Baseball. Industrial and Labor Relations Review , 697-710.
Guina, R. (n.d.). Sports Pensions. Retrieved November 17, 2010, from cashmoneylife: http://cashmoneylife.com/2007/04/13/sports-pensions/
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MacDonald, D. N., & Reynolds, M. O. (1994). Are Baseball Players Paid their Marginal Products? Managerial and Decision Economics , 443-457.
MLBPA. (2007). 2007-2011 Basic Agreement. Retrieved November 17, 2010, from MLBPA: http://mlb.mlb.com/pa/pdf/cba_english.pdf
MLBPA. (2010). MLBPA Info: FAQ. Retrieved November 17, 2010, from MLB Players: http://mlb.mlb.com/pa/info/faq.jsp
Norwood, S. (2010). Baseball's Forgotten Man: Curt Flood and The Transformation of American Sport. Project Muse , pp. 1-8.
Schwartz, D. (1999, March 1). Baseball pension plan tops in pro sports. Retrieved November 17, 2010, from Sreet & Smith's: Sports Business Journal: http://sportsillustrated.cnn.com/baseball/news/2002/05/25/work_stopppages/
This Day in History: Curt Flood Challenges MLB Reserve Clause. (2009, December 24). Retrieved April 11, 2010, from History Channel: http://www.history.com/this-day-in-history/curt-flood-challenges-mlb-reserve-clause
Thornley, S. (2010). The Demise of the Reserve Clause. Retrieved April 11, 2010, from Milkees Press: http://milkeespress.com/reserveclause.html
Top Pro Athlete Pension Plans. (2010, July 16). Retrieved November 17, 2010, from Financial Edge: http://financialedge.investopedia.com/financial-edge/0710/Top-Pro-Athlete-Pension-Plans.aspx
McTaggart, B. (2005, November 22). Astros reaping Series reward. Retrieved December 3, 2010, from chron Sports: http://www.chron.com/disp/story.mpl/sports/3479559.html