Why baseball’s billionaire owners and millionaire players just can’t get along

CNN, CNNBUSINESS

By Chris Isidore, CNN Business

Major League Baseball’s string of 26 straight seasons of labor peace came to an end early Thursday when the owners locked out the players. That’s bad news for fans of the sport, even if there isn’t a single game canceled as a result.

In the world of labor relations, a lockout is management’s equivalent of a strike, when it shuts down the business rather than have union members continue to report to work. In some ways an off-season lockout in sports is something of a non-event. Assuming the two sides can reach an agreement in the next few months, no games, ticket sales or television rights dollars will be lost.

But the fact that the billionaire owners and millionaire players couldn’t reach a deal on how to divide up an estimated $11 billion in annual revenue is a sign of the financial challenges facing the national pastime, and raises concerns that the dispute could drag on to the point where games are canceled.

And even if baseball’s entire 162-game schedule is played next year, the lockout clearly shows that the era of labor peace is over. A new era is starting, one that could lead to future strikes, lockouts and lost games.

A history of unrest

From 1972 through the last work stoppage that wiped out the 1994 World Series, baseball owners and players never reached a new labor contract without a work stoppage of some kind.

Those 24 years of labor unrest changed the sport, bringing about free agency and dramatically raising both salaries and revenue. But it also angered many fans more than watching their team blow a lead and lose a game in the ninth inning.

Baseball Commissioner Rob Manfred said the owners didn’t want a lockout, but were forced to impose one by the players’ demands, leading to the expiration of the sport’s collective bargaining agreement late Wednesday night.

“We worked hard to find compromise while making the system even better for players, by addressing concerns raised by the Players Association,” Manfred said in a statement. “Regrettably, it appears the Players Association came to the bargaining table with a strategy of confrontation over compromise. They never wavered from collectively the most extreme set of proposals in their history.”

But the players’ union said that the lockout coming now, when many athletes are not yet signed for the upcoming season, is only an attempt to try to split player unity.

“This shutdown is a drastic measure, regardless of the timing,” the union said. “It is the owners’ choice, plain and simple, specifically calculated to pressure players into relinquishing rights and benefits, and abandoning good faith bargaining proposals that will benefit not just players but the game and industry as a whole.”

Frustration with the game’s economics

The negotiations come at a time when both sides are feeling that the economics of the sport have been moving against them, and that they need to correct that in these current talks. That’s never a good situation when it comes to reaching a labor deal.

In 2020, baseball went through a season shortened to a little more than a third of its normal length, and played without any fans in the stands due to the pandemic. And although teams played a full season in 2021, restrictions on attendance in most parks for much of the year, and concerns by fans about returning to crowded venues pushed attendance down 34% from 2019 levels. That caused significant financial losses for most teams.

But the more serious problem going forward may be the changing nature of the way Americans consume entertainment.

For years, the money baseball collected from television rights deals has been growing steadily, not only from national broadcasters such as ESPN and Fox, but even more from the regional sports networks in different major markets around the country. Those rights deals were fueled by the fees those networks could charge to cable systems for every subscriber they had, whether they were watching games or not.

But now many Americans are moving away from cable and toward streaming services. The Pew Research Center estimates that the number of US households with cable or satellite television fell from 76% in 2015 to only 56% in 2021, and that drop is expected to continue.

Sports are still attractive programing for advertisers and broadcasters. It’s something viewers typically want to watch live rather than after the fact when they can skip through ads on the recording. But there are fewer and fewer people watching sports. And that worries the ownership, said Andrew Zimbalist, economics professor at Smith College and an expert in the business of sports.

“Everybody realizes there’s a sea change out there and you don’t want to get swallowed up by the waves,” Zimbalist said. “What baseball was able to benefit from, from 1990 up until recently, is that the 70% to 90% who didn’t watch the games were paying cable fees that paid for those deals. If that changes, how do you make it up?”

But the players also are feeling economically battered. In the last few years, salaries have been falling.

The average opening day salary in 2021 was still a healthy $4.2 million, but that was down 5% from 2019, according to the Associated Press, and down 6.4% from the peak reached at the start of the 2017 season.

And that average is inflated by the huge salaries collected by game’s biggest stars. The broad “middle class” of players have seen their salaries fall much more, as the median salary, the point at which half the players earn more and half earn less, was $1.15 million at the start of 2021, down 18% from 2019 and 30% below the $1.65 million record high at the start of 2015.

“Obviously if you’re one of the 10 best players there’s never been a better time to be a player,” said Victor Matheson, an economics professor at the College of the Holy Cross. “There are record contracts being signed right and left. But that’s not true for the broad middle class.”

The trouble with free agency

That’s one of the reasons the union, and many agents and players, are claiming that the free agent system is broken. Among the changes the union is seeking is allowing players to become free agents earlier in their careers, as well as fewer financial penalties for teams that have the sport’s top payrolls. Manfred and the MLB say that would reduce the competitive balance in the league and leave fewer teams with a shot at a championship.

Most of the players who are still without contracts are in that broad middle class category, and management may be hoping to form a split among union members.

“For owners, they get to sweat a bunch of players for that two-month time period without worries about losing any revenue,” said Matheson.

One strength of the union during its heyday, when it was generally seen as the winner in contract after contract, is that the players were battle tested and completely unified.

Even older players who might be losing one of their final set of paychecks by going on strike were willing to do so because they had seen what past strikes had achieved. And they were there to tell the younger players the importance of staying unified in a strike.

But today, there is not a single player who has ever been on strike or locked out, which hasn’t been the case since the first work stoppage in 1972.

“They had a culture and history that said, ‘When we go on strike, we win,'” Zimbalist said. “When you don’t have that experiential history, you’re going in with fewer weapons.”

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