By Matthew W. Hutchins
Next year stands to be a crucial year for professional sports, with all four major leagues, including MLB, the NFL, the NHL, and the NBA, entering into collective bargaining between management and players. According to Robert D. Manfred, Jr. ’83, Executive Vice President of Labor Relations for Major League Baseball, this will prove to be an important opportunity for all the leagues to engage in not only allocation of revenues but also for allocation of the price of competitive balance on the field of play. “Players and owners alike need competitive balance. Without it, the product suffers and revenues will decline. But like everything else in life, competitive balance has a price.”
Speaking at Harvard Law School’s Sports Law Symposium on March 26th, Manfred assessed the prospects for successful collective bargaining and discussed the distinguishing characteristics of Major League Baseball’s business model. While three of the four major sports have opted for the imposition of a salary cap as a core means of achieving competitive balance, Manfred does not believe that such a system would be well suited to the economics of Major League Baseball. “When revenue growth is spread among the teams unequally, the salary cap system can become problematic.” In baseball, said Manfred, the reality is that the rising tide does not lift all boats equally. “The level of revenue disparity in baseball is so great that it is very difficult to conceive of a salary cap percentage that would be acceptable to the players without creating a minimum that would literally bankrupt some of our small market clubs without a massive system of revenue sharing.”
The mechanisms used in baseball as an alternative method of regulating competitive balance include, according to Manfred, the competitive balance tax (currently paid only by the Yankees) and revenue sharing payments in addition to that tax. These revenue transfers provide a means for smaller market teams to bolster their payrolls and diminish competitive disparity. Manfred believes that the benefits of revenue sharing are real, with baseball demonstrating a high degree of competition throughout the season, but he recognized potential failures in the league’s competition structure, especially at the entry point for talent. “In general, competitive smaller market teams in baseball have used prudent talent acquisition strategies to assemble a solid core of relatively inexperienced players… In recent years however, larger market teams have begun to use their economic muscle more aggressively in the area of talent acquisition.” Manfred anticipates that the upcoming collective bargaining round will address these problems for the benefit of all parties involved. “If baseball allows talent acquisition to escalate into a dollars-driven arms race, the competitive balance will suffer.”
Despite the challenges of bringing together the players and owners to reach an agreement, Manfred believes that the leadership of the players’ unions can help bridge the gap through good-faith negotiations. “Strong union leadership is actually an advantage for management, at least for management that is actually interested in reaching an agreement.” Manfred said that the economic leverage of parties on both sides should ultimately be great enough to create the flexibility needed to reach an agreement independent of government involvement. Nonetheless, he believes that federal intervention will become a threat if there is “no football on Sunday afternoon” due to a breakdown of the process. “The temptation will become particularly acute if more than one sport becomes involved in a public and contentious negotiation.”
Based on his experience with federal involvement in the 1994 baseball strike, Manfred believes the federal government officials “simply don’t know enough about the industry” to be of help to the bargaining parties, and that any involvement will ultimately only encourage holdouts. He said he believes that the National Labor Relations Act provides a strong framework to encourage the parties to continue negotiations until they have themselves crafted an agreement that works for all parties, and that this will produce the best economic bargain for the future of each sport. “I remain optimistic that baseball and all the other leagues will find a way to strike a deal without disrupting play of the various games on the field, courts, and ice.”
This article was originally published in the Harvard Law Record.
Matthew W. Hutchins is a graduating 3L at Harvard Law School and Co-Editor-in-Chief of the campus newspaper, the Harvard Law Record. After graduation he will be clerking for the Bankruptcy Court of the Southern District of New York and then practicing in Los Angeles.
