Standing midway up a flight of stairs and surrounded by members of the media, agent Scott Boras looked like a celebrity being accosted by fans. As one of baseball’s most important power brokers, with billions of dollars in contracts negotiated for his clients, Boras possesses good insight into how the new collective bargaining agreement will impact the players and the game.
He forecast more freedom to spend than some initially thought when the new agreement was announced earlier this month, but predicted an even greater battle down the road.
Yes, the slight increase in competitive balance tax thresholds and punitive surtaxes on drastic offenders could restrict players’ earning power. But changes to revenue sharing might offset the competitive balance tax.
“It’s no longer the barrier that it was because the clubs are paying a lot less on revenue sharing and they have more choice spending and they have more money and freedom to do what they want to do on that,” Boras said during baseball’s winter meetings at the Gaylord National Resort and Convention Center in Oxon Hill, Md. this week.
The threshold for the CBT, also known as the luxury tax, increased from $189 million in 2016 to $195 million in ’17, and it will increase each year, finishing at $210 million in 2021. It remained at $189 million for the final three years of the previous agreement.
“It was stagnant before,” Gerrit Cole, the Pirates’ Major League Baseball Players Association representative and a Boras client, said by phone last week. “It is moving now.”
Teams whose payrolls exceed that threshold pay a tax: 20 percent for first-time offenders and up to 50 percent for clubs that overspend the ceiling at least three years in a row. But the new agreement added surtaxes on the overages, ranging from 12 percent on the portion of the payroll that falls between $20 million and $40 million above the threshold for first-time payers to 45 percent on the portion of payroll more than $40 million above the threshold for third-time offenders.
Confusing, we know.
What it means is severe disincentives for big spenders like the New York Yankees and Los Angeles Dodgers to blow way past the limit without a care. This could reduce player salaries, as could the fact that big spenders who sign qualified free agents lose second-round picks and could have their first-rounder moved back 10 spots for spending too much beginning in 2018. But another change might make up for it.
According to reports from Fox Sports and Yahoo! Sports, the new CBA eliminated the performance factor portion of revenue sharing. The performance factor was a one-page chart buried on the CBA’s page 222 correlating each club with a percentage that dictated how much of the net transfer value teams paid or received. Its elimination means big-market clubs will pay less into the revenue sharing plan.
While the luxury tax changes effectively institute a soft cap on spending, players agreed to a hard cap on international signing pools. The new agreement limits teams to between $4.75 million and $5.75 million, and while clubs can trade for a portion of their bonus pools, they cannot blow past them as they had done.
“[Director of Latin American scouting] Rene [Gayo’s] historically done a lot of damage in the industry [with] lower dollars,” Pirates general manager Neal Huntington said. “To be able to have more dollars to spend gives Rene the freedom to spend a little bit more, but also to add more numbers to our system. One of the reasons we went away from two Dominican Summer League teams was it was almost impossible to fill two Dominican Summer League teams on the pool limit that we had.”
The previous system assigned the bonus pools in reverse order of winning percentage. The Pirates, who won 98 games in 2015, had the second-lowest pool this year, with just more than $2 million to spend.
The biggest concession the players negotiated also benefitted the Pirates. Signing free agents who declined qualifying offers now costs a team’s third-highest pick for clubs like the Pirates, who are not disqualified from revenue sharing. This is much less of a deterrent than losing a first-rounder.
“History shows that elite talent typically comes in the first round,” Huntington said. “There’s really good players and some great players after the first round, but the talent curve drops off significantly really at the top half of the first round, let alone the entire first round.”
One of the factors that made completing this CBA so important — the overall health of the industry, which reached roughly $10 billion in revenue this year — might make for an even bigger showdown in 2021, when the five-year agreement expires.
“These CBAs have been getting done because the revenues of the game have been about $2 billion increases per every five years,” Boras said. “The next one there’s going to be a dramatic increase of revenues. MLB is projecting from $10 [billion] to $15 billion. So with that, solutions that have allowed us to come to an agreement in past CBAs are very, very different than the solutions we’re going to need for the future CBA.”
Bill Brink: email@example.com and Twitter @BrinkPG.