A look at the free agent system that is not working!

As we enter a new season of player movement, we observe the landscape where several aspects seem pretty obvious:

  • The normally top spending teams are restrained by the luxury tax thresholds particularly potential repeat offenders. ($208 million CBT in 2020)
  • A significant chunk of teams sit out the free agency season despite the fact that they field non-competitive products, their payroll is low and their finances are in the black. These are the some of the same teams who receive funds in MLB’s revenue sharing and just keep those funds to add to their profits. Teams like the Pirates, Orioles, and Tigers.
  • Mid and lower end free agents have a hard time finding employment let alone market value employment.
  • Most of the free agency frenzy surrounds a select few players. It so happens that this year 2 of these players are members of the 2019 Nats: Stephen Strasburg and Anthony Rendon.

I think it’s fair to say that the current free agent system is extremely flawed and in order to understand its origins we need to go back a couple of decades. In August 1994, the owners decided to lock out the players in a labor dispute which wiped out the end of that season and the world series. To view that dispute as a players vs. owners is too simplistic a view, it was more accurately a small market vs. large market struggle. Once free agency was introduced, the small market teams had no chance to compete with the big boys because their revenue streams were so uneven. The large markets were not that concerned with the rising costs of labor because they could afford it, and it got them championships but in the end you can’t compete against yourself (The Yankees revenues dwarfed everyone else) so in order to rein in costs for the small markets, the owners devised a system by which the players would bear the brunt of the cost controls and were willing to take on the union to impose that system. What the owners weren’t banking on was the absolute unanimity of the players behind their union and Donald Fehr who was the head of the MLBPA. Eventually a judge called the owners lockout illegal and play was resumed with no new agreement.

Faced with the backlash from the lockout and the steroid scandals, the players and the union quickly agreed to a new CBA agreement fearing a work stoppage. The latest agreement was signed in 2016, and it’s the current working arrangement. While the owners lost every work stoppage dispute over the years they sneakily got a win through this agreement. The luxury tax threshold acts as a defacto cap but in addition to that the owners essentially got a cap without a floor. With revenue sharing, small market teams are now technically able to compete with the big boys, but they aren’t obliged to. In other words, an owner can pocket the revenue sharing checks and their fans be dammed. Similarly, for free agents the market does not act like a true free market system unless you are one of the cream of the crop.

What is the solution? In my view the NHL system works best. Simply there is a cap and a floor and it’s not arbitrary. These figures are derived from overall revenues where payroll is always a percentage of revenues (I think it’s something like 65% but I’m not sure). In order to make that happen though all teams in the MLB have to act like one business for the purpose of calculating all revenues and baseball owners have never been willing to open their books for these purposes. I’m fairly certain that this analysis is incredibly simplistic, but I also feel that the next CBA will be all out war. Both sides better get down to negotiating soon because I’m not sure baseball can withstand another major work stoppage.


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