No one held a gun to New York Mets team owner Steve Cohen when he signed Juan Soto to a $765 million contract, but now he and his fellow owners want a salary cap to make sure that never happens again. (Photo by Alejandra Villa Loarca/Newsday RM via Getty Images)
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This is the second in a multi-part series regarding the MLB labor negotiations. The first can be found here.
The current Major League Baseball Collective Bargaining Agreement expires on December 1st. This is the train light at the end of the tunnel that owners, players, and fans have seen coming since the last CBA was signed in 2022. Every interested party fully expects that the owners will lock out the players when the clock strikes midnight that day, and a long, cold winter may ensue.
Unlike in previous negotiations, MLB dealmakers have begun sending over their proposals considerably earlier in the process. The first one landed in late May, more than six months prior to the deal’s expiration. It is hard to know the actual reason for the early disclosures, but it may be simply to stake their position before the players union can frame the issues.
Regardless of motive, the proposals that have come out of MLB’s New York headquarters have been vast and aggressive, and have landed with a thud in both clubhouses around the league, and with people who cover the sport for a living. The starting point for the entire negotiation is that the owners want Major League Baseball to join all of the other major sports with an ironclad salary cap.
As discussed in the first part of this series, there are three main reasons behind this want and desire: (1) to provide each team with cost certainty; (2) to protect owners from themselves when it comes to paying the players; and (3) to provide a competitive balance amongst all 30 teams. Here we look at the second issue.
No More Mega Deals
In late 2023, the Los Angeles Dodgers shocked the world by signing the game’s best player, Shohei Ohtani, to a ten-year, $700 million contract. Besides the sheer audacity of the number was the idea that all but $20 million of it would be deferred well into the future.
A little more than a year later, the New York Mets bestowed a 15-year, $765 million contract on Juan Soto, with the chance for that number to climb to $805 million. The Mets outbid the Yankees, who came in at sixteen years and $760 million.
Shortly after that deal closed, the Toronto Blue Jays kept hometown hero Vladimir Guerrero Jr. in place with $500 million over 14 years.
There is a litany of similar contracts we could discuss, but these serve as good examples of what owners want protection against. And if you are wondering how and/or why savvy business leaders with multi-billion dollar assets under their control in a ten-figure league need that protection – via the oft-derided salary cap – then you are asking the right question.
Under the new proposal sent out to the players union last week, the maximum contract a team could offer a free agent (from another club) is five years, so there is no way the Mets could have signed Soto. For players staying with their teams, the max would be six years. So, say goodbye to Vlad’s fourteen year pact. Further, the owners would end all contract deferrals, so Shohei would have had to take all of his money on an annual basis, would not have acquired a long-term annuity for him and his family (or the ability to avoid state taxes after his retirement), and the team would have less money to spend on other players over the life of the deal. And he would have been limited to five years rather than the ten he signed for.
Further, the owners would like to limit the value of new contracts to $202 million, which pencils out to 15% of the proposed $245 million salary cap. It does not take a math genius to figure out how much these limitations would suppress players’ salaries. Even Kyle Tucker’s deal, which at four years would have come in under the five-year length restriction, would have surpassed the dollar max by $35 million. A player coming back to his original team could sign for six years and $265 million, or 16% of the cap.
Rookies Still Have A Chance To Cash In
And if a team wants to lock up a rookie for the long-term, they would have the right to do so beyond the above-reference amounts. A rookie – someone without a full year of service time – could get twelve years and $500 million. But for each year of service time accrued, the number of years and the total value of the contract decrease.
Stop Me From Hurting Myself
What do all of these artificial limitations have in common? They are governors on what owners can spend, whether they want to or not. Nearly every owner in baseball is a billionaire, and they all have been successful in business (even counting Hal Steinbrenner, who has never truly worked outside the Yankees organization). They all understand how to read a cash-flow schedule and analyze a profit-loss statement. No one has held a gun to any of their heads to make outsized deals for any of the players mentioned above or elsewhere within the game. They made each and every one of these decisions of their own volition, with a full understanding of the impact that each would have on their bottom line. If those deals don’t work out, they have no one to blame but themselves and their front offices who ostensibly did the regression analysis leading up to and through the negotiations.
It is surprising that Dodgers owner Mark Walter would want to limit what he can spend on his roster. (Photo by Meg Oliphant/Getty Images)
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Collusion By Another Name
In October of 1990, the owners agreed to pay $280 million to settle the collusion claim made by the players stemming from their illegal actions (or inactions, in some cases) between 1985 and 1987. In short, the owners colluded to artificially suppress players’ salaries. With the advent of a salary cap, the owners are hoping to do legally that which they were found to have done illegally.
In short, owners seem to be actively admitting that they cannot control themselves; that the spirit of competition causes them to make poor business decisions; that they need specific rules to keep them from entering into unsound contracts. In any other industry, a CEO making such an admission would be cause for dismissal. In sports, it’s a negotiation position.
There is no doubt that the players will view this attempt to depress their salaries with the same jaundiced eye they did back in the ‘80s and ‘90s, which means the impending lockout may be in place for a long time.
As for the owners’ claim that the salary cap will increase parity across the game, that will be addressed in a later column.
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