Just How Far Apart Are the League and the MLBPA?

As you’ve probably heard, Major League Baseball canceled the first two series of the 2022 season yesterday, after a self-imposed deadline to finish negotiations with the Major League Baseball Players Association on a new collective bargaining agreement passed with no deal reached. The two sides didn’t appear to be close to an agreement before negotiations ended; indeed, they remained far apart on several key economic issues.

The gulf between them is significant, but it doesn’t seem unbridgeable. Negotiations in three areas – compensation for young players, the competitive balance tax, and postseason expansion – will be key to reaching an agreement when talks resume. Those are far from the only issues that separate the two sides, of course, but they dwarf the rest; presumably a compromise in those three areas would precipitate a deal. Or at least, that was my assumption when I began to look at the differences. Let’s see just how far apart MLB and the MLBPA actually are.

Young Player Compensation

There are three parts to this aspect of negotiation: minimum salaries, the pre-arbitration bonus pool, and changing arbitration eligibility. The gap in minimum salaries isn’t significant. The final MLBPA offer was a $725,000 minimum salary beginning in 2022 and increasing by $20,000 per year. The owners countered with a $700,000 minimum salary, increasing by $10,000 per year.

The league paid roughly $289 million in minimum salaries in 2021. If they adopted their proposed minimum salary schedule over the next five years and the number of players receiving the minimum remained the same, the league would pay an average of $364.7 million per year over those five years. If they adopted the MLBPA proposal, they would instead pay an average of $387.5 million. That’s a total difference of $22.8 million per year or $760,000 per team per year, an easily bridgeable gap.

The sides have agreed to the concept of a bonus pool that would reward high-performing pre-arbitration players. The league proposes to pay $30 million per year to those players out of central revenue, while the MLBPA now wants $85 million per year. That difference, $55 million per year, would presumably be shared evenly by each team, as the money comes out of a central revenue pool. That’s a gap of $1.8 million per team per year. The aggregate differences in the minimum salary and pre-arbitration bonus pools come to roughly $75 million per year league-wide. That’s less than 2% of the overall salaries paid to players in 2021. It’s hard to imagine those two numbers in aggregate could keep the two sides from finding an agreement.

One potential sticking point: an MLBPA proposal to significantly expand Super-Two arbitration eligibility. Currently, the top 22% of players with more than two but less than three years of service time are eligible for arbitration. The union initially proposed granting arbitration eligibility to all players with more than two years of service time. They slowly walked that number back to 80%, then 75%, and finally 35%. In the final flurry of bargaining, the MLBPA reportedly agreed to leave eligibility unchanged, but it’s unclear whether that offer is still on the table, as it was contingent on the rest of the deal working out to their liking, which clearly didn’t happen on Tuesday. In the event that the union returns to their 35% proposal, it would mean roughly $20 million more in player salaries per year.

Competitive Balance Tax

The gap in CBT proposals has narrowed significantly since negotiations began. MLB’s initial offer was wildly more restrictive than the current regime: Exceeding the CBT by any amount would carry a 50% tax penalty, up from 20% currently, and rising to 75% and 100% at $20 million and $40 million above the tax line.

MLBPA countered with a tax structure that matched the existing one of 20%, 32%, and 62.5% for those three levels. As of the frantic negotiations on Monday night, the league had agreed to accept the unchanged tax structure proposed by the union, though they reportedly made some fine-print adjustments that altered the deal. For the purposes of this analysis, I’ll assume the league relents on those points and accepts the union’s proposed tax structure exactly.

At that point, the remaining difference is the level at which the CBT kicks in. The league proposed a structure that starts at $220 million and grows to $230 million over the course of the agreement. The union proposed a structure that starts at $238 million and grows to $263 million. As these two sides have the same tax structures, I estimated the potential increase in payrolls based on the number of teams that either exceeded the tax or behaved as though they were constrained by it, stopping payrolls within $5 million of the first penalty level. (It seems likely that the escalating repeater penalties of the last CBA would remain in place, though it’s not clear at this juncture. It doesn’t alter our math much anyhow.)

In 2022, the difference in expected payroll expenditure due to different CBT levels comes to roughly $100 million. That number rises to $125 million in 2023, before leveling off around $150 million in 2024 and beyond. That works out to an average of $135 million per year in expected spending gap due to differing CBT thresholds, though there are wide error bands around that number due to my estimation method. That’s $4.5 million per team, though it wouldn’t really work that way; the vast majority of that increase would be borne by the teams that already choose to spend near the tax line. The Bob Nuttings of the world would bear zero increased costs due to the changed tax level; it’s simply not a binding constraint for most of the league.

Playoff Expansion

In 2021, 10 teams qualified for the playoffs. The league proposed expanding the postseason to 14 teams with the top team in each league receiving a bye; the players countered with a 12-team field that features additional structural advantages for higher seeds. The league appeared to accept a 12-team compromise in exchange for other concessions in their latest rounds of bargaining, though the exact details were never settled.

Going from 14 teams to 12 amounts to a $15 million difference in TV revenue (ESPN has reportedly offered $100 million for a 14-team format vs. $85 million for a 12-team one), though the changes in competition incentives would likely be more significant. Broadly speaking, the two proposals are the same, but I believe there’s still a meaningful gap here. The MLBPA has consistently suggested playoff formats that give meaningful advantages (byes, “ghost wins,” full-series home field advantage) to higher seeds. The league has generally pushed for a flatter structure that treats every team but the highest seed equally. That’s a major gap in spending incentives — less meaningful benefits for getting a higher seed means less reason to spend in an attempt to net one.

Other Issues

The CBA negotiation isn’t solely about these three main points. I’m not sure how to mathematically estimate all of the other issues on the table, but they’ll be worth monitoring when negotiations resume. The league has proposed an international draft, and was reportedly willing to drop draft pick compensation for free agents in exchange for concessions, though it’s unclear if that made it through to their final offer. The two sides still differ on revenue sharing, with the MLBPA wanting to revamp its structure to reward teams in the revenue sharing pool for winning and spending. There’s the matter of a draft lottery, though the differences there are exceedingly small now that both sides have agreed to have one at all.

In addition, the two sides will have to come to an agreement on service time manipulation. The league proposed awarding a full year of service time to the top-two Rookie of the Year finishers, while the MLBPA proposed awarding a full year of service time to a broader swath of top rookies. The league proposed bonus draft picks that might marginally increase teams’ incentives to call their best players up early — a proposal that the Union doesn’t seem to have issued a direct counter to, potentially because any such rule would establish a precedent that service time manipulation is the norm. Finally, the league has reportedly asked the union to drop its grievance against the Pirates, Rays, Marlins, and A’s for failing to use revenue sharing money “in an effort to improve [the club’s] performance on the field,” as is required by the terms of the revenue sharing agreement.

If the only differences between MLB and the MLBPA were pre-free-agency compensation and the CBT thresholds, the monetary difference in the two proposals would work out to roughly $200 million per year in player salaries. That’s a bargain for the league; total payrolls have barely budged in the last five years even as revenues have trended ever upward. If payrolls increased by $325 million in 2022 – a high-end estimate of what would happen relative to the previous CBA terms if the league simply accepted the union’s offer – that would mean aggregate league-wide payroll growth of 6.7% since 2017, the first year of the last CBA. That’s not an annual growth number, it’s a total – equivalent to a 1.3% annual growth rate. On a per-team basis, the difference in the two proposals works out to roughly $5.5 million in new spending in 2022 relative to last season. Increases in TV deals alone more than cover that, and low-payroll teams would bear less of the burden than high-payroll teams due to the amount of money that a higher CBT is expected to contribute to the overall total.

If the league wanted it, they could lock in a very gradual increase in payrolls, one that wouldn’t really do anything to jumpstart the stagnant payroll growth from 2017-21 and that would increase at a rate of roughly 1% per year thereafter. Given that every team is bringing in at least $100 million per year before selling any tickets or receiving revenue sharing, losing games over the sliver of a difference that exists between their proposals and those of the union seems foolhardy. But apparently $5.5 million per team — plus whatever other gains ownership feels it can make that I haven’t estimated monetarily — is too much for the league to concede despite the huge and uncertain cost associated with canceling games and delaying the season.