Earlier this week, MLB and the MLBPA worked out a new Collective Bargaining Agreement, which will cover the 2017-21 seasons. The owners will reportedly vote on the new agreement on December 13th, which is merely a formality. Once they give the thumbs up, the new CBA will be ratified and everything will be good to go.
The new CBA won’t have any direct impact on this offseason. Teams are operating under the old rules, so they still have to give up their first round pick to sign a qualified free agent. The new luxury tax rules will affect decision-making for sure, though that’s only a matter of degree. The luxury tax threshold went up, so here’s the new payroll target. That sorta thing.
Looking over the details, it sure seems like the owners got the better of the players’ union this time around. This is the second straight CBA that appears to favor the owners. Not a great decade for MLBPA leadership, I’d say. The Yankees do benefit from the new CBA, at least somewhat. There are definitely some negatives as well, however.
1. The revenue sharing savings are significant. The new CBA removed the Performance Factor from the revenue sharing system, which will save the Yankees a ton of money. Long story short, the supplemental revenue sharing pool, which is based on market size, has been eliminated. Because the Yankees are in the largest market and generate the most revenue, they were contributing the most to the supplemental pool.
The Yankees and every other team still have to pay into the basic revenue sharing pool — each team dumps 34% of their net revenue into the pot, which is then paid out to the 30 teams equally — so they will still be forfeiting a big chunk of change to small market clubs. The supplemental pool, which is determined through the Performance Factor, is gone now. The Yankees get to keep that money, which likely measures in the tens of millions. Simply put, the Yankees now have a lot more money available to them. It’s not going to revenue sharing anymore.
2. The draft pick compensation rules aren’t as harsh. The free agent compensation rules are a little convoluted — they’re tied to revenue sharing and the luxury tax now — but they guarantee teams will be able to keep their first round pick when signing a qualifying free agent. Because the Yankees don’t receive revenue sharing money, they’ll have to give up their second highest pick to sign a free agent. If they paid luxury tax in the most recent season, they have to give up their fifth highest pick too.
Those terms are much more favorable than the current system. First round picks are mighty valuable, both in terms of expected return and the associated draft pool money. The second highest pick, which will usually be a second rounder, is not going to be something that stops a team from signing a qualifying free agent. The Yankees tend to spend in bunches. When they sign qualified free agents, they sign several at once, a la the 2008-09 and 2013-14 offseasons. They can do that and still keep their first rounder. Pretty cool. (Or they could sign one qualified free agent each offseason and still keep their first rounder. That’s pretty cool too.)
1. The luxury tax threshold didn’t go up that much. The luxury tax threshold did not rise until year three of the current CBA, the one expiring this offseason. The threshold was $178M in 2011, the final year of the old CBA, and it remained $178M in both 2012 and 2013 as well. It wasn’t until 2014 that it jumped to $189M, where it has remained since.
Under the new CBA, the luxury tax threshold will rise to $195M in 2017, so right off the bat that’s a $6M increase. By the end of the new CBA, the threshold will be $210M. That’s a $21M increase over five years. The expiring CBA featured an $11M increase over five years. Compared to the current CBA, the new one provides a much larger long-term luxury tax threshold increase. Hooray!
The problem is the threshold still isn’t rising as quickly as payrolls around the league. In 2012, the first year of the current CBA, the average payroll was $95M, or 53% of the $178M threshold. Only one team was over the threshold that year (the Yankees, duh). The Phillies were the only other team within $15M of the threshold. By 2016, the final year of the current CBA, the average payroll rose to $131M, or 69% of the $189M threshold. Six teams were over the threshold (Dodgers, Yankees, Red Sox, Tigers, Cubs, Giants) and another (Angels) was within $10M.
See the problem? Payrolls are growing at a faster rate than the luxury tax threshold. Nathaniel Grow explained last year that the players are receiving a smaller piece of baseball’s total revenue right now than they have at any point in the last two decades. I can’t imagine that’ll change with the new CBA, especially since it comes with such high tax rates — a first time offender that is at least $40M over the threshold gets hit with a 62.5% tax rate — that the luxury tax effectively acts as a soft cap.
I could be wrong, but it seems a lot of people are assuming that once the Yankees get under the luxury tax threshold and reset their tax rate, they’ll spend big again and go back over. I’m not entirely convinced that’ll happen. Hal Steinbrenner insists the Yankees don’t need to spend $200M to field a winner, and it wouldn’t surprise me if staying under the threshold is a long-term goal. If it is, all that revenue sharing money the team is saving won’t go into the roster. Payroll will remain essentially unchanged.
2. The international free agency system is awful. Gosh, how badly does the new CBA screw over international players? As is, the new agreement effectively prevents Shohei Otani from coming over until 2019, when he’ll be 25 and no longer subject to the hard cap. How impossibly stupid. MLB and the MLBPA should want players like Otani in the league. Instead, they put together a deal that actively pushes him way. So dumb. So very dumb.
Anyway, the international hard cap takes away New York’s ability to flex its financial muscle in that market. One of the reasons the Yankees went on that massive spending spree during the 2014-15 international signing period was because it might have been their last chance to spend huge, and sure enough, it was. Rumblings of an international draft are not new. They’ve been around for years. We got a hard cap instead of an international draft, which is just as bad.
Because the hard cap isn’t enough, teams will also have to forfeit a chunk of their spending pool to sign qualifying free agents. So yeah, the Yankees only have to give up their second highest pick, but they also have to give up at least 10% of their bonus pool to sign a player. That stinks. It stinks for the teams because they can’t spend freely, and it really stinks for the kids trying to get signed. Their earning potential is so limited now. It’s a shame.
* * *
The owners go into CBA talks every five years with the same goal: cut costs. They accomplished that this year with the international hard cap, and also by giving teams less of a reason to increase payroll thanks to the harsh luxury tax rates. Mission accomplished for the owners.
The new CBA helps the Yankees because they’re going to save a boatload of revenue sharing money behind the scenes. An absolute ton. It also hurts them by marginalizing their financial might, both internationally and on the MLB roster with the luxury tax. Depending on which side of the table you sit, the new CBA is either really good (owners) or really bad (pretty much everyone else) for the Yankees. Each new CBA keeps whittling away at their financial advantage.