Taking the Low Road

I have been negotiating deals for more than two decades. In fairness, I have never been involved in collective bargaining, nor have I had any multi-billion dollar deals cross my desk. But, there are some principles of negotiation that are applicable to all types of deals – regardless of industry, venue, or value. One of those principles is that the best place to be in any negotiation is on the high road. You may win some and you may lose some, but in the end, you can hold your head high if your side of the street is clean. Muddy the waters, hedge on the truth, or fail to be forthcoming, and you will either cower under a sword of Damocles for the life of the deal, or, in the event of an impasse, you will carry the burden of “what if.” Neither is a great way to go through life; and neither bodes well for a long and/or successful career.

As I watched what I guess can be called a “negotiation” between Major League Baseball and the Major League Baseball Players Association unfold over that past two months, I kept asking myself, “Who is going to take the high road?” I wanted to know which side – press coverage be damned – was going to present an offer or series of offers that would allow them and their constituents to sleep well at night, regardless of the outcome. Well, baseball is starting up again (maybe?), no “deal” was done, and neither side ever even hinted at taking the northern route.

I can understand and appreciate that many of you reading this didn’t follow this as closely as I did; and some of you may be confused by the outcome. So, at the risk of being pedantic, and without stepping on the thousands of fingers that have already written about the current state of the state of baseball, allow for this basic primer.

After spring training shut down and the prospect of an actual season became tenuous, the owners and the players – back in late March – came to an agreement about what to do for the coming season (or, what to do if there was no season). The problem is that once they pulled that contract out of the drawer, they couldn’t agree upon what they had previously agreed upon. That’s an inauspicious place to start. But we do know a few things for sure:

• The players were provided an advance of $170M against their eventual 2020 salaries, to be divvied up based on service time. If the season didn’t happen (it still may not), this money was the players to keep, no give backs.

 

• If the 2020 season happens, no matter how many games get played, each player would get credit for a full season of service time. (For the uninitiated, service time affects when a player is eligible for salary arbitration and free agency. This is obviously an important issue.) And if the season is scrapped, players would get the same amount of service time for 2020 as they received for 2019. So, Mookie Betts would still become a free agent next fall as he would get credit for a full season (he played a full season in 2019); and Gavin Lux would only get credit for about 1/7th of the 2020 season, as he only spent about that much time on the Dodgers’ roster in 2019.

 

• The one issue that you have been reading about ad nauseam is what would happen if the teams played with no fans in the stands. The players believed the March contract was iron clad that they received a pro rata share of their salaries – with or without fans. The owners disagreed, and seized on this language: “[T]he Office of the Commissioner and Players Association will discuss in good faith the economic feasibility of playing games in the absence of spectators or at appropriate substitute neutral sites.” Somehow the players didn’t believe this says what we can all read it says. And this, my friends, was the first time the players could have taken the high road and chose otherwise.

My guess is that the players received some bunk legal advice. I think they were told that it was pro rata no matter what, and then the die was cast. There was no slinking back to the membership to say, “Um, guys, remember what we told you about that pro rata thing? Yeah, well, we forgot about that other provision that mentions economic feasibility and the absence of spectators.” Rather, they charged right ahead and essentially dared the owners to “prove us wrong.”

It seems that the owners must be afraid of heights as well, because they twisted themselves into various Wetzels trying to get out paying the players. First they claimed that pro rata was only if fans were in the stands (not an unfair reading). But then they said they could only play X number of games because they would lose $640,000 for each game played in empty parks. When asked to provide the proof such assertion, they hemmed and they hawed, but they didn’t bring any receipts. Then they dawdled. They fiddled while Rome burned. They took their sweet time responding to the players. And when they did respond, they simply dressed up the same offer in different clothes. When you drilled down on their offers, they presented the players with about $1B in salaries, payable either (a) over 82 games, or (b) over 76 games, or (c) over 60 games, or (d) to be allocated amongst the players based on how much they would otherwise be paid. But it was like a Taco Bell menu each and every time – all of the ingredients were the same, it was just a question of what shape you wanted it delivered. The players rejected each one.

“Wait a minute”, you may be saying. “Didn’t they come to an agreement? And isn’t that why we have an upcoming season?” Unfortunately, they didn’t. One of the provisions of that March agreement allowed the commissioner to set the schedule if no agreement could be reached. And it seems that this was the trump card the owners kept in their back pocket the whole time. If they could just delay the negotiations until only 50-ish games became feasible, they could implement the schedule and save a bunch of dough.

The players knew this; they knew that at the end of the day, they could be “forced” to play. But, they wanted to make sure if that ever happened, they would get their pro rata salaries. So, they continually pushed back against offers that would have actually earned them more money (e.g., 80% for 70 games vs. 100% for 50 games), because they should get “a day’s pay for a day’s work.” At some point in this battle (about two months too late), the owners realized two things: (1) the players were never moving off the pro rata concept (right or wrong, they were willing to die on that hill); and (2) the players were setting the owners up for a grievance.

A quick sidebar about grievances. These are available in labor situations when one side doesn’t believe the other side acted reasonably in a negotiation. They are long and costly. But, by the players estimation, if they could show the owners were being unreasonable, they could win a grievance and extract the value of the difference between the number of games the owners instituted, and what they could prove was a reasonable and feasible number of playable games. The players believe(d) this could be somewhere in the neighborhood of $1 billion. A grievance could and would happen while games are being played, so it would not result in any work stoppage.

Back to our story. Once the owners gave up on trying to reduce salaries below a pro rata share, they offered the players a 60-game schedule, but conditioned on the players waiving their right to file a grievance. The players countered at 70 games with the aforementioned waiver. The owners responded by saying they would not respond. The players then took to press releases and social media to proclaim, “Tell us when and where.” They told the owners to set the schedule and they would be there. So the owners did just that.

Low road, meet the players. The players then started to balk at some of the health and welfare provisions; they started to complain about the number of days in the schedule; they said they couldn’t necessarily be there “when and where” the owners wanted. Ultimately, the owners set a schedule the players would abide by, the health and welfare issues were resolved, and a season was set.

So now we have a season to look forward to. I am not a huge fan of Trevor Bauer – I think he is mercurial, not a great teammate, and oftentimes thinks he is the smartest guy in the room. But, I have to say he nailed it with this tweet:

“So we gave up shares of playoff money, eliminating the qualifying offer for 2021, paycheck advance forgiveness, Covid 19 protections, and protection for non-guaranteed arb contracts for next year in order to hold on to our right to file a grievance…”

As stated above, the grievance may ultimately be worth a lot of money, so waiving that right is a big deal. But, that is a roll of the dice. And it is money that if it comes, won’t come for years. And the players were willing to waive it for just an additional 10 games. So, to preserve their right to file a lawsuit, the players passed on the following (h/t to Jeff Passan), all of which were on the table at one point or another:

• Expanded post season (from 10 to 16 teams) for 2020 and 2021. This was agreed. It was a done deal. More teams competing (which, over 60 (or 70) games, would have been incredible). More money for more playoff games (see below). Losing this was simply asinine.

 

• Universal DH for 2020 and 2021. This was agreed. It was a done deal. As it stands, we will have it for 2020, but no guarantee beyond this season. This is an additional roster spot for an aging slugger, or a toolsy fringe prospect who can play various positions allowing a corner outfielder or first baseman to have an occasional day off. Losing this is taking money out of players’ pockets.

 

• Forgiveness of $33M of the above-referenced $170M advance. This one was not agreed, but seemed playable. And it has real-life implications for certain players. If a player has a guaranteed MLB contract, he received a minimum of $286,500 from the $170M allotment. The players demanded pro rata compensation; and now they are playing 60 games, or 37% of the regular season. Some examples:

A player like Collin McHugh of the Red Sox has a guaranteed contract of $600K, of which he is only entitled to 37%, or $222,000. But he has already been paid $286,500. So, he technically owes the Red Sox $64,500 for the right to play this year. Yes, they figured that out, and he does not have to write a check to the team every two weeks. But save for incentives in his agreement, he will not be paid anything additional for playing in 2020. Cant’ see how that was a win for the players.

But McHugh is relatively rich (he has made about $16M so far). Take the case of Braves prospect Cristian Pache. He is entitled to $46K for a “split” contract (between the majors and the minors). If he doesn’t spend any time in the majors this season, he is entitled to $17K. Per the March deal and the $170M advance, he has already been paid $16,500. There is no minor league season this year, so no minor league salaries. But Cristian won’t go home to become a barista. He most likely will be on the 60-man “taxi squad” that is ready to fill in when a player gets hurt or gets Covid. For that right, for being a professional athlete required to remain in shape, for being ready to play at a moment’s notice and exposing himself to sickness with roommates and in the clubhouse, Mr. Pache will get an additional $500 over the next three months. Yes, that is correct. He will get about $40/week – pre-tax. I am sure Pache could have used some of that $33M in salary forgiveness.

According to Bob Nightengale of the USA Today, 19% of all players will be playing for virtually free this year, earning $25,000 or less since they already received their share of the $170M advance. Doesn’t seem like a good deal.

 

• The players had asked for a 50/50 split of incremental playoff money. The league offered a flat $50M. They will get neither.

 

• To protect future free agents in a down economy, the league offered to eliminate direct draft-pick compensation for free agents tagged with qualifying offers. Teams losing a top free agent would get a compensatory draft pick, but the signing team would not be penalized by having to give up a top pick. This would be a boon to the players and an extra incentive (or not a disincentive) for teams to sign a free agent. That proposal, too, went the way of the dodo bird.

 

• And for the fans, the owners had asked and the players had agreed to additional commitments to wearing microphones on the field and other broadcast enhancements. The players had also offered to hold events such as an off-season All-Star Game or Home Run Derby to generate additional revenue. All gone in a fit of pique.

 

• If there is one silver lining in all of this, it is that in the player’s final proposal, they offered to allow advertising on jerseys. Thankfully, that also died in their inability to close a deal.

 

Covid-permitting, there will be baseball in 2020. To crib Jayson Stark, ultimately they didn’t drive the bus off the cliff. But neither side passed the driving test. It is easy to stand on the sidelines and judge the parties and their various chess moves; it is much harder to be in the arena. And yet, some decisions seem quite simple on their face.

Joel Sherman, I believe, was the first to posit that the owners could offer pro-rated salaries, with a three-year deferment. Imagine how much more smoothly this could/would have gone if the owners offered that as soon as the players hardened their position with regard to further salary reductions. Sure, the owners didn’t want to take on additional debt in these trying times, but they could have made up the difference by offering smaller contracts and making fewer free agent signings in the future. Three years down the road, they could have been in an even better financial position. And they would have called the players’ bluff. And they could have started down the road to recovery with additional playoffs, and additional television revenue, and advertising on uniforms, and an extra-seasonal All-Star Game and Home Run Derby. And they would have taken the high road which would go a LONG way towards mitigating the risk of a potential $1B grievance award. They did none of that.

The players could have made the same deferment offer. They could have gotten more players, and more games, and more revenues, and more advantageous free agency, and more fun and excitement. They could have positioned the owners to make more money to give them less ability to cry poverty next off-season. And they could have shown strength by wisdom, not intransigence. Going into the 2021-22 labor negotiations, the players will have very little leverage; the game is somewhat damaged; the billionaires have the resources and capital reserves to hang on a whole lot longer than the vast majority of players. The owners’ assets will be there for decades, they have ample time to recoup any losses brought on by a strike or a lockout. But the players have just a few years to make their money, to monetize their asset. Lose (part of) another season to labor strife and the losses will be considerably more than the value of 10 games (which, due to Covid, may never get played).

The players won this battle in the court of public opinion, but they didn’t win anything else. They lost time, they lost money, and they lost the high road and any chance to win the next one. And whether they actually play the 2020 season or not, the next one portends to be a doozy.

July 23…

PLAY BALL!!