Indians

How the new MLB CBA impacts small-market teams like the Indians: WFNY FAQs

Jason Kipnis Cleveland Indians Walk-off
Jason Miller/Getty Images

The MLB and MLBPA managed to come to an agreement on a new five-year CBA, which means baseball will not have a labor interruption until 2021 at the earliest. News continues to trickle about the agreements and changes made such as the “best” record determining home field advantage for the World Series,1 but the biggest items seem to enable small-market baseball teams to compete.

MLB was said to have grown worried of the long-term damage that might be inflicted by the absolute dominance of large-market ballclubs on the competitive landscape. While the Indians did manage to push Game 7 of the World Series into extra innings before finally succumbing to the Chicago Cubs, they were the only team in the bottom half of payroll (and revenue) to be among the 10 postseason teams.

Recent years have seen the Boston Red Sox, San Francisco Giants, and Los Angeles Dodgers (among others) widen the revenue gap, which has allowed them to also widen their contention windows. Without an ace up the sleeve such as a player development system that churns out high quality pitchers at a rate unseen across the MLB landscape (thank you Indians Director of Player Development, Carter Hawkins), the lower revenue teams are left hoping to sneak into the postseason and perhaps ride a wave to a championship Because Baseball. The hope was that MLB would recognize the discrepancy and proactively looked to correct the problem before it became any worse.2

Maury Brown of Forbes has been accumulating the details of the new CBA.3 A significant change is a bit of a complication to the entire ordeal. MLB ballclubs were broken up into three distinct classes. Luxury tax payer teams (crazy big markets), teams that cannot receive revenue sharing (big markets), and teams that can receive revenue sharing (small markets). Here are the changes Indians fans should care about the most.

International Signings Hard Cap

The Dominican MLBPA members came out in force against having an international draft, but MLB achieved their goals without one. The entire idea behind the draft was to limit teams like the Los Angeles Dodgers and Boston Red Sox from manipulating the system to their benefit.

The rules (now the old rules) of a soft cap allowed teams to pay a penalty of ignoring their cap if they were willing to accept being unable to sign a player over the minimum the next year. As an unintended consequence, a few teams with the biggest budgets spent far more money than their cap space every other year with the idea they could supplement their system with the most elite prospects in that manner.

Big Savings for Big Fans at Fanatics.comWorse, some teams cheated the system. Latin American prospects have a trainer who acts as their agent as well. So, certain MLB clubs – the Boston Red Sox were caught – would sign players in the year they were ignoring the soft cap far more money than a player was worth. The trainer would withhold some of that money. The next year, when the team was supposed to only be able to sign minimum contracts, that trainer would accept a minimum contract but give the held over monies to this new player.

The new hard cap eliminates such practices. Teams may not go over their cap number though they are allowed to acquire up to 70 percent additional cap room through trade.4

The actual number of the cap for each team is dependent upon which MLB club class a team belongs to and if they have lost Qualifying Offer (QO) players the year prior. The range though is between $4.75 and $5.75 million, which is far less than overall money than had been spent on these players in the past.5 The overall balance on cash range here is absolutely huge in allowing smaller market teams to compete for international talent.

Qualifying Offer remains

Another surprise of the new CBA is that the Qualifying Offer was not killed off though one big change is a player may only receive a QO once. The penalties a team receives for signing a QO player are not as high, but they are still significant.

Here is what each class loses for signing a QO player:

  • Crazy big markets forfeit second-highest and fifth-highest selections, and they have their international hard cap reduced by $1,000,000.
  • Big markets forfeit their second-highest selection, and they have their international hard cap reduced by $500,000.
  • Small markets forfeit their third-highest selection.

Here is what each class receives for losing a QO player to another team:

  • Crazy big markets receive a sandwich pick after Round 4.
  • Big markets receive a sandwich pick after Round 2 (but also after the already allocated sandwich picks).
  • Small markets receive a sandwich pick after Round 1 if the total guarantee on the contract is greater than $50 million, otherwise they receive the same as the big markets.

The QO remaining is a gigantic victory to small-market teams for three reasons. Free agency contract values for these players will be lower in money due to the necessary payment in draft assets as players have griped about it over the past several offseasons.6 Teams whose QO players sign contracts elsewhere will still receive compensation in the form of draft picks to help restock their talent pool. Also, small market teams pay less for extending the QO and receive more for losing one. A huge win here.

Luxury Tax Penalty Rises

The most obvious change to the CBA that helps small market teams is the greatly increased penalties for going into the luxury tax domain of the payroll with only a slightly increasing threshold for the luxury tax line.

First-time luxury tax payers will be hit with a 20% tax, second-time 30%, and third (or more) 50%. But, that is just the beginning of the tax system now. There is also an incredible surcharge designed to penalize the teams like the Dodgers who just blow past the luxury tax line.

  • $20-$40M above line: 12% surcharge
  • Over $40M above line: 42.5%-45% surcharge plus their highest selection in the Rule 4 Draft is moved down 10 places.

Between the lump sum fine and the percentage fine, teams such as the Dodgers with $300 million payrolls will need to reassess if they are able to continue to do so knowing the repeater tax might have them paying double that amount one the tax is assessed.

Not only can such penalties help curb high payroll spending, but it also will help highlight exactly how much the revenue gap truly is between the clubs as these decisions get made (say the Dodgers keep spending $300M anyway), which can be used at the next round of negotiations in 2021.7

Revenue Sharing slightly reduced

It is important to note that luxury taxes do not get allocated back into the player pool. Small-market clubs do not receive this money as MLB uses it elsewhere. Revenue sharing is the financial aid that the lower revenue teams receive.

Initially, the reports noted no changes to the revenue sharing in this CBA, but new reports are stating that the multiplier effect for the highest revenue clubs is gone, which will reduce the portion shared. Instead of the model moving towards a more equitable share of the financial pie, it is significant that there were increases in luxury tax (not going to small-market teams) but that revenue sharing was reduced, albeit slightly if these reports are accurate.

Last Word

The year 2021 is a long ways out, so it is impossible to know what will happen. Many are predicting a much more difficult negotiation with a lockout or strike quite possible. For now, there will be baseball. Early analysis is pointing to the players giving up much larger concessions but do not let it escape you that so did the largest market teams.

The biggest winners this round are teams like the Cleveland Indians. There may not be a salary cap like other leagues, but these changes should be making all Tribe fans smile.

  1. Stating best record when leagues barely play each other and schedules are fantastically unbalanced due to division means that there is still a large arbitrary factor in the determination. []
  2. Please note that parity has reigned in actual World Series champions in this century better than any other American professional sport. The issue lies in that the big markets are getting the most chances in the way of playoff berths. Over time, the age of parity could be snuffed out. []
  3. He has a ton more detail that will not be outlined here. If you are interested, then please visit his page. []
  4. Yes, the agreement of a hard cap was a loss for MLBPA and the international players, but it also hurts the big budget MLB teams. []
  5. And that is adding up MLB team cash available to spend, not actual cash spent. []
  6. in some cases even leading to preemptive multi-year deals with their current ballclub []
  7. The books of each club are private, so any half-measures to get a glimpse of actual revenues help add to the picture. []

  • Hopwin

    QQs:
    1) What was the old luxury tax system?
    2) Where do the luxury taxes go now…?

  • mgbode

    Luxury taxes never went to the small market teams. Here is the article with the explanation between the difference between that tax and revenue sharing:
    http://waitingfornextyear.com/2016/02/should-the-indians-spend-more-money-on-payroll/

    And, to save you a click, here is the basic info (OLD CBA):
    The tax escalates each repeated year a team goes over from 17.5% to
    30% to 40% to 50%

    Money given to MLB through tax goes to the MLB general fund, international baseball growth, and other associated activities.

  • Steve

    I’m very worried about what the international cap in spending means for talent development overseas. Puerto Rico was very upset with being included in the rule four draft, and saw a significant decrease in talent. MLB will be far worse off if other countries see the same fallout.

  • jpftribe

    Thanks Bode, never knew that. Are there any published actual figures of how much money this is? It seems like a hell of a lot of dough for other associated activities. Or could become a monster pot after these changes.

  • Steve

    “It seems like a hell of a lot of dough for other associated activities.”

    Like owners’ leisure activities. Players are drawing in about 40% of revenue these days, lower than any of the other major sports, and the lowest since at least the collusion days.

  • mgbode

    2 separate issues

    Luxury tax goes into things such as the RBI for inner city baseball and other somewhat charitable things that also help baseball. Expansion of the sport and such. If any went to “owner’s leisure activities” then the MLBPA would and should sue the hell out of them.

    The players are making less of the overall revenue and they did not even seem to broach the topic of digital media rights in this round, which is peculiar. The players lost and there will probably be a strike in 2021 because of how poorly they negotiated.

    But, I wasn’t focusing on that aspect for this article — only what it meant to us as fans of the Tribe.

  • mgbode

    MLB refuses to provide their financial data though the MLBPA has access rights to it. We could all pretty easily figure it out though & spotrac probably has a tracking system for it per team.

  • mgbode

    not sure I agree with PR’s talent dropping off…
    they are absolutely loaded in MLB right now

  • Natedawg86

    They are loaded in Little League too!

  • Steve

    You really think that all that money is going into RBI? Not a chance.

    “which is peculiar”

    Well, they were led by a former player instead of an actual labor lawyer, so I don’t find it peculiar in any way. Players negotiated harder for quality of life improvements – a chef in every locker room, but they got killed on the money and allowed a hard cap on spending for the first time ever. Part of MLBPA’s success in the past was their hardline on a hard cap. They gave in on it, and I see no reason to believe they don’t continue to get crushed in CBA negotiations from now on.

  • jpftribe

    Are MiLB pay issues governed in this agreement?

  • Steve

    Lindor, Arenado, Baez, and Springer all played High School baseball on the mainland. They’ve been very lucky to train outside the buscone system. Maybe Puerto Rico will be lucky and the best young players will continue to come from a family that can afford similar circumstances. But for those places that aren’t U.S. territories? It’s going to be significantly more difficult for the family to uproot and immigrate.

  • mgbode

    all to RBI? of course not. they are funding academies and clinics all across Latin America as well as many other ventures. the MLBPA has assessor rights on the luxury tax money, it is not going back into the owner’s pockets.

  • mgbode

    sure, that was always the reason to push PR into the draft system. their best would get recruited by FL private schools anyway – not all are from families who can “afford” it other than those schools are shuffling money to ensure they get the best talent.

    no, I don’t expect families from the DR to immigrate more. I also don’t expect the talent to dry up.

  • mgbode

    MLBPA has continued to ignore their MiLB brethren who have no voice but are governed by the rules. Dirty pool.

  • jpftribe

    To tie some threads together-
    If the Indians signed EE to say 4 years with an opt out after 1 year, they would lose a first round pick, which is 27th. And only gain a second round pick(31-?) if he signed a new deal over $50m guaranteed? Otherwise it would be a 4th rounder?

  • Steve

    But the ones going to FL private school were going to be in the draft either way. By allowing those who couldn’t afford to move to the mainland to still develop under a thriving buscone system, fewer players fall through the cracks.

    With fewer dollars to incentivize trainers and families in the DR, there will be fewer, more talent will slip through those cracks, or just never get the proper development. MLB could seriously step up their presence in the DR to cover for the trainers they are putting out of work, but they could have done that before, and didn’t bother.

  • mgbode

    “couldn’t afford to move to the mainland” = not as talented. it’s a dirty business but these schools are ensuring they get the kids that have the most talent.

    That was the plan and the MLB players from DR blocked them. They wanted to do away with the trainers and institute academies much like they have in futbol and such. The players (specifically the Dominican players) said NO quite loudly to such an idea.

    Thus, the system remains in place – yes, with a bit less money. We’ll see if what that does to the players, but I suspect the pipeline will remain intact.

  • mgbode

    Small markets forfeit their third-highest selection for signing a QO player (though I do think that 2016 QO still are the old rules, right? I think I did read that somewhere – so it could be a 1st rounder)

    The gain is considered a first-round pick, but you could certainly argue it would be a second-round selection given that it would be in the 40s (most likely). Also, there is a decent chance that EE would only sign such a deal if we had given him a guarantee we would NOT put the QO on him (or again, we might not be able to since he already has one – I’m not sure how they would count the 2016 QO).

    Clear as mud, right?

  • mgbode

    Confirming: Old rules are in effect for this class. So, the Indians would lose the 27th pick if they sign a QO player.

  • Steve

    “couldn’t afford to move to the mainland” = not as talented.

    This isn’t exactly true, and misses all the kids who don’t shine immediately. And the plan can’t work anywhere near as neatly for a foreign country as it does for a US territory.

    And teams spent over $300M on international players in 2015 that would fall under the cap rule, which now keeps that spending under $150. There is a whole heckuva lot less money, not a bit.

  • jpftribe

    But isn’t the issue the amount of money spent on player development, not the amount spent on signing players? The clubs run all the camps, to varying degrees of standards, both financially and ethically. Pay staff for developing players, not quasi-agents for signing them.

  • mgbode

    it is not perfect but are you willing to state there were more talented kids in PR than Lindor, Arenado, Baez, and Springer who wanted to come to USA (really FL) but couldn’t?

    I nowhere stated that DR would have kids come over to the US. I was referring to the PR model which you said has led to less talent coming from the country despite many of the brightest young stars in MLB right now being from PR.

    ———————–

    I do not expect DR and other Latin American countries to have talent dry up. They will continue to develop kids and it will be interesting to follow to see how much (if any more) $$$ MLB itself invests in those countries.

  • mgbode

    The trainers in many of these countries find and house these kids from 12yo to 16yo. MLB has actually started enacting more standards that do not let kids younger than 16yo onto their faciltiies or into their showcases. They were good intentions (do not exploit the young kids) but had the opposite effect so far (threw them into the open arms of these trainers – some benevolent, some notsomuch).

  • Foghorn Leghorn

    Damn! You guys can go deep into the weeds! This is why this is the best site to read about Cleveland sports. I’m admittedly lost on these developmental PR vs DR leagues, but hell if I don’t enjoy reading you guys dissect it.

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  • Norm Stansfield

    Looking at salaries as percentage of revenue is simplistic. It’s not like the revenues are being split 60-40 between owners and players. The owners are running a business that costs money to run.

    First off, teams spend a lot more money on players than just direct salaries. You should look at ALL player related costs, not just salaries: healthcare, travel, hotels, clubhouse costs, etc.

    Second, you shouldn’t be calculating player related costs as a percentage of revenues. The second figure should instead be revenues minus non-player related expenditures (as in the cost of doing business). The cost of doing business in the US has gone up exponentially over the past few decades (because of higher taxes and other employment costs). You can’t just leave that out of the equation.

    Once you do the math that way, I bet the players aren’t getting shortchanged.

  • mgbode

    Thank you for the kind words.

  • scripty

    I’m looking to chat about EE. Anybody awake today?

  • Steve

    Has the cost of doing business gone up significantly, especially in an era where municipalities are paying more and more for these stadiums? Is the cost of doing business higher in MLB than in the other sports? My basis for the players getting shortchanged is not that 40% is some randomly chosen baseline. The players had been receiving more than 40% for a long time now, and a lot more than 40% after the courts took it to the owners for cheating. 40% is the same as the days when they were colluding. Also, all the other sports, those with harder caps, guarantee the players a noticeable amount more than 40%. Once you look at the 40% in the context of the history of the sport and what other league are doing, it’s an absurdly low number.

  • Steve

    The amount spent on academies pales in comparison to what they were paying the players. And academies were all over the place before, but as mgbode says, only for the older kids. Kids under 12 need serious training too. Unless MLB plans to seriously expand their facilities, their presence isn’t going to make up close to the difference.

  • Steve

    I’m willing to state that there were kids as good as those few when they were all very young who then got significantly lesser training. I’m all in favor of giving all these young kids access to superior training on the mainland. That training helps turns these kids into stars like those you listed. There are possible stars that aren’t getting that training though.

  • Norm Stansfield

    Yes, the cost of doing business has gone up significantly. Just ask any business owner.

  • Steve

    Any business owner who doesn’t open his books, like MLB, certainly is not in a position to be believed on the rise in cost of doing business.

    Regardless, revenues have skyrocketed in MLB. Far beyond any reasonable belief of rise in cost of doing business. And again, the biggest cost of doing business – building and maintaining stadiums – is picked up by taxpayers, and not the team.

    And of course we should be looking at player-related costs as a percentage of revenue. Are players receiving compensatory raises compared to the business they bring in? You can be sure that owners are paying themselves commensurate with the increase in revenue.

  • mgbode

    I’d say we’re “WOKE” now 🙂

  • Norm Stansfield

    You’re not the one who needs to believe them, the union is. And they do…probably because they have access to a lot more information than you.

  • Steve

    Argument from authority doesn’t work here. There is ample evidence that the PA is working at a serious disadvantage, the argument is that they should not be considered an authority. Marvin Miller is spinning in his grave at the concessions they made.