In one of the largest developments in professional sports in years, the 2022 baseball season is in jeopardy because of the Major League Baseball Lockout: team owners and players have not been able to agree on a new collective bargaining agreement for the sport. In this podcast, litigation attorneys Scott Wagner and Kenneth Duvall walk listeners through the areas of dispute and some of the legal issues involved in negotiations over the collective bargaining agreements at stake. Listen in to learn about what the different stakeholders are demanding and possible developments that may come out of this industry-wide stoppage.
DUVALL: Hello, everyone. My name is Kenneth Duvall, and I'm a partner at Bilzin Sumberg's litigation department. I am joined by Scott Wagner, a fellow partner in the litigation group. We are happy to welcome you to a discussion on an important development from the world of professional sports, the Major League Baseball lockout.
WAGNER: Thanks, Ken; the 2022 baseball season is in jeopardy because the baseball team owners and the players have not been able to agree on a new collective bargaining agreement. We want to spend some time today taking you through the areas of dispute and some of the legal issues involved, including, believe it or not, a 1922 decision from the Supreme Court that sets baseball apart from all the other major sports in the United States. Before we get started, Ken, why don't you take us through the background of the lockout to give the audience some context?
DUVALL: Sure, happy to do so, Scott. So for those of you old enough, this lockout probably brings back memories of that 1994 strike. Now a strike and a lockout are two sides of the same coin. A strike is a work stoppage initiated by the labor and sports that would be the players. While a lockout is a stoppage initiated by the owners. So this time around, the owners took the initiative to bring a stop to baseball. Fortunately, the stoppage occurred during the offseason, so no baseball games have been lost. Yet, at least. Ever since the resumption of baseball after the 1994 strike. There had been uninterrupted peace until now; the owners and players had agreed to a series of CBA's that is collective bargaining agreements. Each CBA sets forth the relationship between owners and players, including things like revenue sharing. The most recent CBA expired at the beginning of December of last year, 2021. And because the owners knew that they and the players were miles apart in negotiating a new CBA, the owners initiated a lockout. And here we are, still in the offseason, still with a lockout, still waiting for a new agreement between the owners and the players. So with that background in mind, let's dive in, Scott. So let's start off for the audience. What is it that makes sports different from other industries in terms of its competitive structure?
WAGNER: So in sports, and whether it's baseball or football or basketball, while the owners are competing with each other to win games and win championships, they are not seeking to put each other out of business or to buy them out as in other industries. Instead, the owners need each other. Each team needs many other teams to play against. And just to put it in context, Coke doesn't need Pepsi to survive. But the Yankees need the Red Sox and the Orioles and the Mets. If they don't have anyone to play against, there's no product. So.
DUVALL: So you're saying as a Cardinals fan? I should be glad the Cubs exist?
DUVALL: All right. So the owners and players are obviously fighting over some explicitly financial issues, which are interesting in their own right. But there are other points of contention at issue, including some of the rules of the game itself. So Scott, can you walk us through and tell our audience: What do you think about some of the proposals that are out there, whether they're good or bad for the quality of the game? Just give the audience a sense of what all is at stake here.
WAGNER: Well, you know, why don't we just start with what each side wants. And what the owners want is to maintain the status quo. The owners are very happy with the amount of money that they made under the last CBA. And so, for the most part, they don't want any major changes. The one big change they want is to expand the playoffs. And they want to put more teams in the playoffs. And the reason for that is that it puts more money in their pockets because under the current structure or the structure of the past CBA, all of the profits from the playoffs go into the owners’ pockets. So by expanding the playoffs, the owners get more money, but it does not increase the pool of money available to players.
On the other hand, the players are asking for, as you might expect some, more significant adjustments. And really, it's to change a bit the balance of the profit sharing. And the idea is that more money would go into the players’ pockets. So one of the big issues on the table that has financial implications but that is not specifically financial is an adjustment to the rule that provides for service time manipulation. And what is service time? Baseball Players need a certain amount of service time to be eligible for free agency. Until they're free agents, baseball players are, for the early part of their career, linked to a set salary. And then, after the first few years, they're eligible for arbitration. What every baseball player is looking to do is to get to free agency as quickly as possible. And when you are eligible for free agency is determined by your service time. And perhaps the most well-known example of service time manipulation relates to Kris Bryant, and that was back in 2015. In 2015, Kris Bryant was widely accepted that Kris Bryant was one of the best prospects in Major League Baseball and that he was good enough to make the Cubs opening day roster. However, the Cubs kept him in the minor leagues. And they only brought him up to the major leagues one day after enough time had passed so that he would not get full credit for service time in the 2015 season. The implication of that was that it allowed the cubs to control his rights for an extra year, meaning that he would become a free agent following the 2021 season, as opposed to the 2020 season. Ironically, once the CBA issues are resolved, Kris Bryant will be one of the two or three most sought-after free agents on the market. And sorry, Ken, I don't think he's gonna go to your beloved Royals; it looks like he's going to come to my Mets. One of the other issues that's been discussed is getting younger players for free agency faster. There's actually been some progress on that over the last few days. And the players have actually given up on that, and they're looking for other concessions from the owners. Other issues include reducing or eliminating the penalties for team signing players that reject a team's qualifying offer. So right now, the way things work is that if a team gives one of its players a qualifying offer and another team signs that player, the team that lost a player gets a draft pick, and the thought is that that depresses offers to players who received qualifying offers. The last point I'll mention is that the players don't like the playoff adjustment, one because it is a nice financial benefit only to the owners. But also, if more teams are making the playoffs, the thought from the players is that it will mean that teams will likely be spending less money because they'll be able to make the playoffs with worse records.
DUVALL: God, I think we could spend an entire podcast on any one of those great issues. All those are hot disputes. You know, the one I'll just make a quick comment on is, you know, as a baseball fan, I recall distinctly that Kris Bryant episode; I was very happy to see the Cubs keeping their best player down in the minor leagues for another month. But it's interesting, as lawyers as we look at it, you know, from the player side, they thought it was manipulation. But from the owners’ side, they just say they're using the rules. And so that's why we're at the point where players want to change the rules. So, Scott, all these issues are floating out there. How are these issues going to get resolved? You think?
WAGNER: Well, they're the players, and the owners have actually spent significant time over the last two or three days discussing the issues and looking towards resolutions. One thing I think that we'll see is that right now in the current CBA there's no pay for. So there's no minimum amount that teams have to spend on salary; I think it's likely that we will see that in the next CBA and that each team will be required to spend a certain amount on salary. And that will be accompanied by an increase in the luxury tax. And that's a tax that certain teams have to pay once their payroll goes over a certain cap. One thing I don't think we will see is a salary cap; I believe that baseball will continue to be the only major sport in the United States that does not have a salary cap. There will also likely be some accommodations to let younger players make more money. In the last few days, it's been reported that both the players and the owners believe that there should be a bonus pool available to players in their first three years of service. So players who are playing very well will be able to make more money. And while the both sides agree that there should be a bonus pool available. The sides are about $100 million apart on how large that bonus pool should be. The expanded playoffs, I think that that ultimately will probably make it into the new collective bargaining agreement, and there will be expanded playoffs. But perhaps that will be accompanied by some sort of revenue share that will allow the players to benefit in some way from the additional playoff teams. On the competitive issues, those things will work themselves out. For example, I think it's likely that the universal DH will make its way into the new collective bargaining agreement that benefits players where it creates an extra spot on teams for a hitter to play. And it just seems like an easy concession for the owners to try to get towards an agreement.
DUVALL: I got to admit, even as a somewhat traditionalist baseball fan myself, I think I've warmed up to the DH; when the best pitcher who hits, you know, bats about 200, it’s not always pleasant to see. So, alright, sounds like Scott, there's some common ground you think there'll be found, but, you know, we're about two months here into the lockout spring trainings now coming up. I'm starting to have flashbacks in 1994. So the big question, the I'd say million-dollar question, but it's far bigger than that, will there be a 2022 baseball season?
WAGNER: It's really a billion-dollar question. And I think the answer is yes. While there may be some games lost and the season may not start on time, I think there's enough people around baseball who remember 1994 and really want to avoid a lost season. It is pretty well understood that baseball really suffered from the strike in 1994. And it took a while for baseball to come back. And you know, many people really believe that it wasn't until I believe it was 1998, when Mark McGwire and Sammy Sosa were chasing Hank Aaron's home run record that baseball really came back. And so, it took several years for the game to recover after the last strike. So I think with that background, and you know, history being a guide, it will mean that we will not lose entirely the 2022 season. The sides have been talking over the last couple of days and, you know. It can, you know, like we tell our clients when they're negotiating a settlement or a deal, the parties are always miles apart until they're not. In the right situations once there is progress, final deals tend to come together rather quickly. But in the negotiations, thus far, it's been a situation where it's been two steps forward, one step back. So while there's been some progress on free agency and arbitration issues, as I said earlier, the size of the bonus pool for young players, the parties are still really far apart.
DUVALL: More, Scott, I think you've given some cause for optimism, and I hope that the owners and the players do look at it in the way we advise our clients, which is approach things rationally, look for the win-win. And here, yeah, no, baseball would definitely be a lose-lose. So here's hoping the next few weeks will bring some progress between the two sides. What's been interesting about this offseason is the lockout isn't the only interesting legal news going on. So, Scott, you touched earlier on MLB’s antitrust exemption. And there's been some news on that front. Since the offseason began, several minor league teams, represented by some attorneys, who are known in the antitrust field, they've launched a lawsuit aimed seemingly at the heart of Major League Baseball's monopoly. So how do you see that challenge going to the century-old precedent playing out?
WAGNER: Let's take a step back, and we'll kind of build towards where we are with the lawsuit. I think, as we mentioned at the outset of our discussion, baseball is unique amongst the sports in the United States and that it has an exemption from the antitrust laws. The exemption stems from an opinion written by the legendary Supreme Court Justice Oliver Wendell Holmes in a case called Federal Baseball Club of Baltimore, the first National League of professional baseball clubs. And this case is coming up on its 100 year anniversary. And in that opinion, the Supreme Court granted baseball an exemption from the antitrust laws. And through the years, other leagues and organizations, the NFL and the NBA, have tried to take advantage of baseball's antitrust exemption, but the court has never expanded it beyond baseball. In fact, just last year, the NCAA tried to take advantage of the baseball exemption and the court has never expanded it beyond Major League Baseball. So the suit that you reference, Ken, is brought by several minor league baseball teams, and they are challenging baseball's monopoly because of a decision by Major League Baseball to reduce the number of minor league clubs that are affiliated with Major League Baseball, and made last year over the last few years Major League Baseball has reduced the number of minor league affiliate teams by 40 teams and the minor league teams are arguing that the collective decision by Major League Baseball to reduce the minor league affiliates is anti-competitive and violates United States antitrust laws. In the courts’ consideration of the NCAA case that was up at the Supreme Court last year, Justice Gorsuch made a comment that called into question the wisdom of baseball's antitrust exemption. And the Minor League clubs have seized upon that comment and are using this factual scenario as an opportunity to challenge baseball's antitrust exemption. And the truth is, there really is no justifiable reason why Major League Baseball should be treated differently than any other sport. That said, the baseball exemption has survived numerous challenges over its 100-year history. Now, it's going to take a while for this minor league case to weave its way through the courts and get up to the Supreme Court. And you can never predict what the Supreme Court is going to do. If I were sitting in Major League Baseball shoes, I'd be concerned about Justice Gorsuch's comments. It certainly indicates that the Minor League clubs will have a receptive ear if the case gets to the Supreme Court, and the major league antitrust exemption could certainly be in jeopardy. And if the court takes away Major League Baseball's antitrust exemption, the next collective bargaining agreement could look very different.
DUVALL: There's been so much talk among lawyers over the last few years, as you know, Scott, about how the remade Supreme Court with so many new justices on the bench are going to affect various areas of the law. And it's fascinating that here it is, you know, coming home to roost, possibly for baseball, this 100-year-old precedent might be at risk. So it could be seismic in the long term.
WAGNER: And look, it could be something that a very divided court agrees on.
DUVALL: Gotcha. Well, we'll have to, I guess, see, watch the stands and see if any of the justices are at baseball games or not. All right. Well, to our audience, thank you for tuning in. We look forward to bringing you more informative and timely podcasts on issues of importance to you. All of our podcasts can be found on the Bilzin Sumberg Lawcast at bilzin.com.
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