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Nuclear Warning For Owners

 

In sharp contrast to the frenzy surrounding the NBA in July 2010, the November 2011 start of MLB’s free agency period came and went with little fanfare.

While LeBron James, Dwyane Wade, Amar'e Stoudemire and Chris Bosh all signed near-maximum contracts, there are no arbitrary salary limits for baseball’s biggest stars. Even though it’s much easier for an individual player to dominate in basketball, the absence of max contracts in baseball makes it far riskier for MLB franchises to sign a top player.

The owners broke the union in 1999 by guaranteeing bigger profits to the NBA’s middle class in return for capping the salaries of the league’s top stars. But now that they’ve tried to squeeze role players’ salaries with a harsher luxury tax, the players are trying “the nuclear option”: dissolving the union and bargaining individually.

If not agreed to in collective bargaining, the NBA’s system, with a rookie draft and wage scale, max salaries and a luxury tax, is a series of blatant violations of an individual player’s rights as an employee. Foreign baseball players can become professionals as 16-year olds and sign with any of the 30 MLB franchises; American baseball players can become professionals at 18 and use college as leverage to bargain with the team who drafts them.

As someone who grew up in Texas, the weather and lifestyle of New York City was one of the main reasons I chose not to enroll at Columbia Law School. As an American, it’s a bit off-putting that an 18-year old LeBron James never had the same choice.

There’s a reason Jeffrey Kessler, one of the most powerful lawyers in the country and the man who won free agency for NFL players, has been eager to pursue an anti-trust case in court. He thinks he can win.

The NFL owners did not win the decertification case against their players; they merely got the federal courts to lift the injunction preventing them from locking out the players while the case was still being argued. That ruling forced the NFL players to choose between pursuing a case and settling to save their season, but now that the NBA players are faced with the very real prospect of losing a season anyway, they might be inclined to see whether Kessler can win as decisively as he did in McNeil vs. the NFL in 1992.

For the NBA owners, the lockout has been all upside, as they’ve framed any compromise to make their new system more like the NFL’s. But if they lose to Kessler, they might wake up with a system more like MLB’s.

With maximum salaries not set in collective bargaining, one aggressive MLB franchise can raise the value of all of baseball’s top players. And with many young player’s salaries determined by arbitration, every owner has to pay when one overspends.

In April, the Philadelphia Phillies signed 1B Ryan Howard to a five-year $125 million extension, a move that was questioned widely throughout the sport. Now, Howard’s contract is the benchmark for two far superior first basemen, Albert Pujols and Pierce Fielder, who entered free agency in November.

The St. Louis Cardinals offered Pujols a nine-year $210 million contract before the season. The deal, which will probably need to be raised for him to accept, would have the Cardinals on the hook to pay Pujols $23 million when he’s 40-years old.

In a common value auction (like MLB free agency) with incomplete information (individual players long-term health and motivation), a “winner’s curse” can often occur. St. Louis, a well-run franchise in a mid-sized market, could end up regretting re-signing one of the greatest players in franchise history in the prime of his career.

The Minnesota Twins gave Joe Mauer, a local kid and AL MVP catcher, an eight-year, $184 million contract shortly  But after Mauer struggled through an injury-plagued season, the Twins have to be worried that they’ve tied up a huge part of their payroll for the next decade in a rapidly declining player. Joe Johnson’s contract in Atlanta, widely cited as one of the reasons the NBA’s economic model is broken, is nothing in comparison.

The Milwaukee Brewers, meanwhile, would love to even have that dilemma. There’s no chance the organization, worth $376 million, can afford to give their homegrown star, Prince Fielder, the 10-year, $175 million plus deal he wants.

The reality, as the salaries of baseball and soccer players show, is that individual players can be worth as much as some franchises. Does anyone think the 30th best soccer club in Spain, playing in the Segunda Division, is worth as much as Cristiano Ronaldo or Leo Messi? Who is more likely to generate revenue and drive TV ratings over the next decade -- LeBron James or the Charlotte Bobcats? Dwight Howard or the Sacramento Kings? When LeBron left Cleveland, the franchise lost over $100 million in value.

The biggest contract in sports is the ten-year, $275 million deal Alex Rodriguez signed with the New York Yankees in 2007. The value of the entire Bobcats franchise is estimated at $281 million, and five others -- the New Orleans Hornets, the Indiana Pacers, the Memphis Grizzlies, the Minnesota Timberwolves and the Milwaukee Bucks -- are worth even less.

Once the players opted to forgo decertification in July, the owners didn’t bother with the pretense of negotiating in good faith. Now, as a court case begins that has a chance to fundamentally alter their business model, they have to wonder how bad the fallout of a “nuclear winter” might actually be.

 

 

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