December 26, 2006

The Players Strike Back and Gil Meche Wins Big

Gil Meche signed a five-year contract with the Kansas City Royals on December 7. Meche, a right-handed starting pitcher, will be paid approximately $11 million a year according to Dick Kaegel on The Royals were delighted to announce this acquisition and give Kansas City fans hope after years of poor play. The rest of us? We are scratching our heads at how a pitcher who has never pitched more than 187 innings in a season, has a career-ERA of 4.65, and only twice in six seasons, has exceeded 100 strikeouts, can command a contract that not only pays him $11 million a year, but also locks in job security for the next five – a long duration in the career of a Major League pitcher.

This is not to pick on Gil Meche and the Royals. The Cubs signed Ted Lilly, 30 years old, who was 15-13 with a 4.31 ERA to a four-year, $40 million deal. Alfonso Soriano’s agent negotiated an eight-year contract with the Cubs. Soriano is a very good player, but eight years? It reminds us of Dave Winfield signing a ten-year deal with George Steinbrenner and the New York Yankees after the 1980 season. (It was a long-time coming when the Yankees traded Winfield to the Angels in May 1990.) Meche and the Royals represent this off-season’s signings and are the current manifestation of a larger trend which has been growing for the past thirty-five years. One after another, the players are asking for and taking a larger chunk of baseball revenues.

On July 12, 2006, the last day of the three-day All-Star break, Major League Baseball announced its new seven year television agreement with Fox and Turner worth an estimated $3 billion. Major League Baseball is composed of the 30-owners of the 30 teams in the National and American Leagues. This television money flows into Major League Baseball offices in New York City and out to the bank accounts of the clubs. When I watch a Major League baseball game, am I watching to see Bud Selig sit at his desk and write memos, Phillies CFO Jerry Clothier sign payroll checks, or Angels owner Arte Moreno guide the organization? No offense to Messrs. Selig, Clothier, and Moreno, but I want to see the Phillies play and I want to see great players like Albert Pujols, Ichiro, Roger Clemens, and Chris Carpenter.

Fox and Turner are willing to pay $3 billion over seven-years because they want to make money. They expect companies to pay them more than $3 billion over this period to advertise on their networks during ball games. The companies want to make money and they expect that we fans will purchase their products when we see them advertised during games. What of us the fans? For the most part, we are ok with this trade. Companies advertise to us, and we purchase their products and we purchase cable television in exchange for the opportunity to watch our favorite players and teams. So, we indirectly pay Major League Baseball to watch our favorite teams and players. The players then have to negotiate with the owners for a share of this pay-off. This is their salaries.

Until the mid-1970s, players were bound to a single-club with the Reserve Clause. There was no free-agency. A player had a little power to negotiate a new contract but ultimately he could play or not-play. If a player would not negotiate a new contract, a team could reduce his salary up to 20% and impose a new contract. In this sense, the owners controlled the amount of revenues that the players earned. The owners called the shots.

Think about it from the player’s point of view: You sign a contract at the end of which you have little power to negotiate with other employers. Once you sign with one employer, you cannot subsequently decide at contract’s end to move to another city or employer. Want to be closer to home? Sorry. Want to earn more now so that you can retire early? Sorry.

The owners had control of MLB's revenue for generations. Why should the players not have some of this control now? We are watching a shift in the power of the purse from the owners to the players. It gained momentum in the late-1960s, was spurred by Jim Bouton with Ball Four where he wrote openly about salaries and deals, Curt Flood in his case Flood v. Kuhn (407 U.S. 258) in which he challenged the Reserve Clause in the U.S. Supreme Court, and then blossomed in free-agency in 1975. This trend is about the players dictating their own fate, what each wants, and that each is going to ask out-loud for money in which they are partners in earning.

Who did the great playing in the 1920s, and 1930s, and 1940s? Who did the revenue earning for the owners? The players! The media asked Babe Ruth in 1931 how he could demand $80,000 a year in salary when President Herbert Hoover was making (only) $75,000 in salary. What did Babe say? “I had a better year than he did.” Ruth said it because he meant it and I would expect also because he was a little bitter. Ruth had almost single-handedly restored the game’s popularity after the 1919 World Series White Sox gambling scandal. He was wildly popular and yet he could not command the share of receipts that he likely deserved.

The players blossomed with free agency and some like Pete Rose and Nolan Ryan claimed millions because they had just come though most of their career without free agency. They had been the most recent generation of passive-earners so they went out and showed what they could do, and in part, as reparations to support themselves in their future. Ryan jumped the California Angels after the 1979 season to sign the first ever $1 million per-year contract with the Astros. Rose left his hometown Reds in 1979 when he became a free agent and signed a four-year, $3.2 million contract with the Philadelphia Phillies, temporarily making him the highest-paid athlete in team sports.

We saw players negotiate for themselves and show other players what could be done. It was Winfield buying 10-years of job security earning millions. It was Ricky Henderson – already a superstar in Oakland who bought himself the Yankees for his resume. It was Rose orchestrating a trade back to the Reds – negotiating out the then current manager Vern Rapp right in front of his own eyes – and landing safely. Pete had left Cincinnati in 1979 because he was now calling the management’s bluff – no longer would Pete allow management to dictate the terms of his employment. So Pete says he is going to show that he and the players can take the money and run. He did it and led the way for other players and then he returned to the organization, again, on his own terms.

We are not sure that Meche is going to turn around the Royals. Outside of Chicago’s North Side, few expect the Cubs to be the best team in baseball in 2007. No, we are witnessing something much bigger which is the shift in earning power and self-determination from owner to employee. Who among us would turn down the opportunity to earn $11 million per year?


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