The Evolution and Decline of Free Agency in Major League Baseball: How the 2012-2016

Collective Bargaining Agreement Is Restraining Trade

Noah Goodman*

I. INTRODUCTION ..................................................................................... 2 II. OVERVIEW ............................................................................................ 4

A. The Beginning of Professional Baseball .............................. 4 B. Lajoie v. Philadelphia Ball Club: Legally Enforcing

the Reserve Clause ............................................................... 6 C. Paving the Road to Baseball’s Exemption to the

Sherman Act ......................................................................... 8 D. Baseball’s Supreme Court Trilogy: The Aberration

of the Sherman Act ............................................................. 10 E. Arbitration and the Road to Free Agency........................... 15 F. The Effects of Free Agency in MLB .................................. 20 G. 1994-2004: The Free Agent Bubble and the

Dramatic Effect of the Steroid Era ..................................... 21 H. The 2012-2016 Collective Bargaining Agreement:

The Current Terms and Conditions of Free Agency .......... 24 III. DISCUSSION: THE DECLINE OF FREE AGENCY IN MLB.................... 25

A. Too Long and Too Old: How Six Years of Service Time Has Restrained Trade ................................................ 26

B. Dragging Down the Market: The Adverse Effects of Qualifying Offers................................................................ 28

C. Failed Contracts: Rapid Player Decline After the Steroid Era .......................................................................... 28

D. Reevaluating the Market: How Analytics Are Depreciating Free Agency .................................................. 30

E. Foreign Affairs: How International Free Agents Are a Better Alternative to Domestic Free Agents .................... 32

F. Avoiding Free Agency by Extending Players’ Beyond Their Prime Years ................................................. 33

* © 2015 Noah Goodman. {author bio}

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G. Free Agent Reform: Why Starting Free Agency Sooner Will Benefit Both the Players and the Owners in the Next CBA .................................................... 35

IV. CONCLUSION ...................................................................................... 37

I. INTRODUCTION Dating back to the 1870s, in professional baseball’s infancy, the relationship between the owners and players was quarrelsome.1 Over the years, that relationship has not materially changed. Notably, more labor disputes have emerged in Major League Baseball (MLB) than in any other professional sport in the United States.2 The tension between the players and owners is the product of almost a century of absolute owner control over the players through the use of the notorious reserve clause.3 The reserve clause gave the owners the unilateral ability to renew a player’s contract into the next season.4 Given the restraints the reserve clause imposed on employment mobility, players continually fought for better employment conditions through the legal system.5 However, despite the players’ efforts, three distinct Supreme Court decisions spanning from 1922-1972 held that MLB and its owners were exempt from federal antitrust laws.6 Effectively, these decisions reinforced the reserve clause by recognizing that MLB was not a monopoly.7 In the 1970s, the players were ultimately successful in overthrowing the reserve system through a determined campaign that involved litigation, collective bargaining, and ultimately prevailing through arbitration.8 The players’ ability to improve their employment conditions

1. See Richard L. Irwin, A Historical Review of Litigation in Baseball, 1 MARQ. SPORTS L.J. 283, 284 (1991). 2. Jeffrey S. Moorad, MLB’s Labor Turmoil: The Failure of the Counter-Revolution, 4 VILL. SPORTS & ENT. L.J. 53, 53-54 (1997). 3. Id. at 54. 4. JAMES DWORKIN, OWNERS VERSUS PLAYERS: BASEBALL AND COLLECTIVE BARGAINING 41-44 (1981). 5. See Irwin, supra note 1, at 284-97 (discussing the history of disputes in MLB regarding its reserve clause from the late 1800s through 1976). 6. See, e.g., Fed. Baseball Club of Balt., Inc. v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 208 (1922); Toolson v. N.Y. Yankees, Inc., 346 U.S. 356, 357 (1953); Flood v. Kuhn, 407 U.S. 258, 285 (1972). 7. See Fed. Baseball, 259 U.S. at 209 (holding that MLB was not interstate commerce and was not regulated by federal antitrust laws); see also Toolson 346 U.S. at 357 (affirming the precedent established in Federal Baseball); see also Kuhn, 407 U.S. at 285 (indicating that professional baseball was interstate commerce but holding that MLB was exempt from federal antitrust laws). 8. See Irwin, supra note 1, at 293-97.

2015] FREE AGENCY IN MLB 3 by eliminating the reserve clause led to a remarkable period of salary gains and employee mobility.9 Since 1976, the owners and the MLB Players Association (MLBPA) have collectively bargained for the terms and conditions of the players’ employment.10 Despite the owners’ fight to abrogate the players’ rights to free agency, collective bargaining has galvanized MLB and benefited both the owners, through increased revenue, and the players, through increased salaries.11 As a result of the 1976 collective bargaining system, MLB players had the ability to become free agents after six years of service time in the league.12 The framework of that system remains in place today.13 However, despite the improved employment conditions for players, recent trends in baseball suggest that the current terms and conditions of free agency are restraining trade.14 Under the present system, free agency is restraining trade because players reach free agency when their talent peaks. As a result, the system no longer provides an incentive for owners to bid against each other for players on the open market. This Article analyzes the history of the labor market in professional baseball and proposes a solution to the current inefficiencies of free agency. In short, the next collective bargaining agreement (CBA) should allow players to reach free agency after four years of service time in order to improve their employment rights and to ensure that the owners are wisely investing their financial resources. The Overview of this Comment is split into eight parts and discusses the history of the labor market in professional baseball. Part II.A analyzes the history of the reserve clause. Part II.B focuses on the players’ initial—and largely unsuccessful—attempt to challenge the reserve clause through the legal system. Part II.C discusses the players’ novel argument that the owners operated a monopoly over the players, which violated federal antitrust laws. Significantly, Part II.D discusses how the Supreme Court, in three separate opinions spanning from 1922-1972, rejected the players’ argument that the MLB owners operated a monopoly over professional baseball in violation of federal antitrust laws. Part II.E analyzes how the players were able to improve their employment rights in the 1970s

9. See Moorad, supra note 2, at 66-67. 10. MARVIN MILLER, A WHOLE DIFFERENT BALL GAME: THE SPORT AND BUSINESS OF BASEBALL 264-67 (1991). 11. See Moorad, supra note 2, at 59-60. 12. See id. at 66-67; see also Susan H. Seabury, Comment, The Development and Role of Free Agency in MLB, 15 GA. ST. U. L. REV. 335, 355-56 (1998). 13. See Moorad, supra note 2, at 66. 14. See infra Part III.

4 SPORTS LAWYERS JOURNAL [Vol. 23 through arbitration. Part II.F considers the effects that free agency has had on MLB and how that system improved the employment conditions for players. Part II.G focuses on how MLB inadvertently created a free agent bubble because of the pervasive and widespread use of performance enhancing drugs between 1994-2004. Part II.H analyzes the 2012-2016 CBA governing MLB and outlines the current terms and conditions of free agency. Part III explores the flaws, inefficiencies, and decline of free agency in MLB since 2004. Significantly, Part III.A explains how age is the fundamental flaw in free agency because players reach the open market after their physical ability peaks. Part III.B describes how teams have the right to extend a “qualifying offer” to a pending free agent and explains how this practice restrains trade. Part III.C focuses on the players’ physical and statistical decline as they reach thirty. Moreover, it argues that since the end of the steroid era, the players’ physical ability has declined earlier as a result of MLB regulating and enforcing testing for performance enhancing drugs. Part III.D analyzes the effect that advanced statistics has had on evaluating the labor market—particularly by explaining that teams have a better understanding of quantifying talent by determining a player’s worth. Part III.E indicates that the CBA does not govern international players that have professional experience outside of the United States. In turn, teams have more incentive to invest in international free agents because they tend to be younger. Part III.F analyzes how teams are signing their younger players to long-term contract extensions in order to keep them from reaching free agency at their peak. Part III.G argues that starting free agency sooner will benefit both the players and the owners. Finally, the Conclusion in Part IV proposes a solution to these issues by suggesting that players should reach free agency after four years of service time in order to improve their employment rights and to ensure that the owners’ are wisely investing their financial resources.

II. OVERVIEW A. The Beginning of Professional Baseball In the early 1870s, professional baseball began with the formation of the National Association of Professional Baseball Players.15 This league consisted of different teams from around the country playing

15. GERALD W. SCULLY, THE BUSINESS OF MAJOR LEAGUE BASEBALL 1 (1989).

2015] FREE AGENCY IN MLB 5 against each other.16 Individual teams and their owners rarely profited financially.17 To improve their financial position, in 1876, a group of owners formed the National League.18 In doing so, they included a secret agreement designed to restrict player mobility and limit their compensation.19 As a result, the owners increased their revenues by engaging in preventive practices designed to produce large profit margins at the players’ expense.20 Prior to the formation of the National League, professional baseball players had the ability to bargain freely for their compensation and to choose which team to play for.21 However, the National League owners colluded to establish a reserve clause—one that gave them the ability to unilaterally renew a player’s contract into the next season.22 In effect, the reserve clause not only bound the player to a team for that year but also the next.23 By 1887, every National League player’s contract contained a reserve clause.24 Additionally, by 1889, the owners implemented a league-wide salary cap establishing $2,500 as the maximum player salary per season.25 As a result of the owners’ collusion and desire to profit from professional baseball, the National League quickly became a monopoly.26

16. See id. 17. See id. at 2 (indicating that the National Association of Professional Baseball Players did not produce significant revenue and the owners believed the only way they could obtain greater financial stability was by engaging in collusive practices, including territorial franchises, limiting franchises to only cities meeting minimum size requirements, and splitting gate receipts). 18. See id. (explaining that the owners of the National Association of Professional Baseball Players formed the National League primarily because they were seeking financial stability). 19. See id. (identifying that the owners secretly agreed to implement a system to reduce player salaries by reserving the rights to five star players per team; in essence, this allowed owners to unilaterally restrain certain players to their team into the next season). 20. Id. 21. See DWORKIN, supra note 4, at 41-44 (explaining that players previously enjoyed a “revolving” system, in which each player was able to sign a contract prior to each season with the owner who offered him the most money; this resulted in a competitive bidding process for players). 22. See id. (describing that the reserve clause gave the owners the ability to unilaterally renew the player’s contract; in effect, the reserve clause bound the player to his team perpetually or until the owner no longer wished for the player’s service). 23. Id. at 10. 24. See id. at 45. 25. Seabury, supra note 12, at 338. 26. See id. (indicating that alternative employment opportunities did not exist for professional baseball players at the end of the nineteenth century and that they were bound by the reserve clause and the owners’ implementation of a maximum salary cap); see also DWORKIN, supra note 4, at 45 (suggesting that the National League owners’ collusive practices created a monopoly, and the players did not have any alternative employment options because there were no competitive leagues).

6 SPORTS LAWYERS JOURNAL [Vol. 23 At the turn of the twentieth century, the American League was formed.27 The American League posed a threat to the monopolistic control exercised by the owners of the National League.28 The formation of the American League attracted star players from the National League, including Napoleon Lajoie, Jimmy Collins, and Cy Young.29 These players, greatly dissatisfied with the maximum salary system and the reserve clause, sought to leverage their bargaining power by seeking different employment opportunities.30 In turn, the American legal system faced a daunting question that would haunt it until the 1970s: should the courts limit player mobility and employment rights by enforcing the owners’ perpetual contractual control over the players?31

B. Lajoie v. Philadelphia Ball Club: Legally Enforcing the Reserve Clause

The legal quest for player mobility and increased bargaining power began in 1902 when Napoleon Lajoie decided to switch leagues after agreeing to join the Philadelphia Athletics of the American League.32 Lajoie had an existing contract with the Philadelphia Nationals that was renewable annually by the team and its owner.33 However, Lajoie decided to breach his contract with the Philadelphia Nationals and join the Philadelphia Athletics so he could bargain for his compensation.34 The Philadelphia Nationals sued Lajoie, seeking a negative injunction prohibiting him from playing in the American League.35

27. Seabury, supra note 12, at 338. 28. See id. (indicating that the emergence of the American League “posed the first real competition to the monopolistic control exercised by the owners of National League teams”). 29. Id. 30. See id. 31. See, e.g., Flood v. Kuhn, 407 U.S. 258, 285, 368 (1972) (deciding whether baseball was exempt from federal antitrust laws); see also Toolson v. N.Y. Yankees, Inc., 346 U.S. 356, 362 (1953) (presenting the issue whether professional baseball was within the scope of federal antitrust laws); Fed. Baseball Club of Balt., Inc. v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 209 (1922) (determining whether professional baseball was interstate commerce and was subject to federal antitrust regulation). 32. See Irwin, supra note 1, at 287 (describing how Napoleon Lajoie was the “highest regarded player who made an attempt” to switch from the National League to the American League and play for a different team despite having an existing contract and being bound by the reserve clause). 33. Phila. Ball Club v. Lajoie, 51 A. 973, 974 (Pa. 1902). 34. Id. at 973; see Irwin, supra note 1, at 287 (indicating that the Philadelphia Nationals filed suit seeking an injunction to restrain Lajoie from breaching his contract). 35. Irwin, supra note 1, at 287.

2015] FREE AGENCY IN MLB 7 Lajoie argued that the reserve clause violated his employment rights.36 In response, the Philadelphia Nationals argued the reserve clause was an essential element of professional baseball and Lajoie agreed to render his services by playing for the team.37 In Lajoie, the Pennsylvania Supreme Court approved the injunction, holding that Lajoie’s talent on the baseball field was unique.38 The Court determined that

the services of the defendant are of such a unique character, and display such a special knowledge, skill, and ability, as renders them of peculiar value to the plaintiff, and so difficult of substitution that their loss will produce ‘irreparable injury,’ in their legal significance of that term, to the plaintiff.39

Moreover, the Court characterized Lajoie as a popular and distinguished player who would financially burden the Philadelphia Athletics if he were able to switch teams.40 By determining that Lajoie’s talent was unique, the Pennsylvania Supreme Court approved the use of the reserve clause to limit his mobility and bargaining power.41 Even though the court could not compel Lajoie to play for the Nationals, it could prohibit him from playing for any other professional team.42 In 1903, after the Lajoie decision was issued, the National and American Leagues merged to form MLB, deciding that the champions from each league would play each other in the World Series. 43

36. See id. (describing how Lajoie argued that the reserve clause lacked mutuality and limited his employment rights). 37. See Lajoie, 51 A. at 975 (suggesting that Lajoie initially had the freedom to contract, and it was the court’s obligation to enforce all of the terms of that contract). 38. See id. at 973-74 (indicating that negative injunctions for specific performance are routinely granted when an individual’s services are unique and extraordinary and “require and presuppose a special knowledge, skill, and ability in the employ[ee], so that in case of a default the same service could not easily be obtained”). 39. Id. at 974. 40. See id. (holding that Lajoie would cause irreparable harm to the Philadelphia Athletics because Lajoie is “well known, and has great reputation among the patrons of the sport”); see also Irwin, supra note 1, at 287 (arguing that Lajoie’s status as a highly regarded baseball player made him a “draw for the public,” which would financially hinder the Philadelphia Athletics because fans would be dissuaded from attending games if he were able to switch teams). 41. See Lajoie, 51 A. at 974; see also Irwin, supra note 1, at 287. 42. See Lajoie, 51 A. at 975 (“The court cannot compel the defendant to play for the plaintiff, but it can restrain him from playing for another club . . . .”). 43. See ANDREW ZIMBALIST, BASEBALL AND BILLIONS: A PROBING LOOK INSIDE THE BIG BUSINESS OF OUR NATIONAL PASTIME 7 (1992) (describing the formation of MLB and explaining how the league developed financially after the inception of the World Series in 1903); see also 1903 World Series, BASEBALL ALMANAC, http://www.baseball-almanac.com/ws/yr1903ws.shtml (last visited Oct. 15, 2015).

8 SPORTS LAWYERS JOURNAL [Vol. 23 Importantly, the owners of both leagues agreed to respect a common reserve system.44 The development of MLB and the World Series had a profound effect on the economics of baseball, as fan interest and league profitability soared. 45 Although the owners were profiting from baseball’s success, the employment rights of MLB players were stuck in quicksand; the reserve clause continued to restrain player mobility by denying players the freedom to contract.46

C. Paving the Road to Baseball’s Exemption to the Sherman Act The Federal League, which was formed in 1913, served as the final threat to the monopoly that MLB owners held over players.47 The risk of players signing with a team in the Federal League helped increase the average player salary in MLB from 1913-1915.48 However, the owners of teams in the Federal League could not compete to sign established players because MLB owners threatened to blacklist players who switched leagues.49 In March of 1914, Hal Chase, a first baseman for the Chicago White Sox in the American League, signed a one-year contract with the team for the upcoming season.50 Chase’s contract contained a reserve clause, which gave the White Sox the legal right to unilaterally renew his contract.51 Despite his reserve clause, Chase later notified the White Sox he was voiding his contract in order to sign a more lucrative contract with

44. See Seabury, supra note 12, at 338-39 (finding that owners of both leagues agreed to implement a structure that would be run by a National Commission, made up of presidents of each of the leagues and a neutral party agreed upon by the two league presidents, and to respect a common reserve system; that system continued to allow owners to unilaterally extend players contracts into the next season). As a result of merging the two leagues and respecting a common reserve system, fan interest in MLB soared—primarily because of the creation of the World Series—which made the league very profitable for owners. Id. 45. Id. at 339. 46. Id. at 337-39. 47. See ZIMBALIST, supra note 43, at 8-10 (suggesting that the Federal League was a rival league to MLB, and its formation threatened the reserve clause, players switching leagues, and a diversion in fan interest). 48. See JOHN HELYAR, LORDS OF THE REALM: THE REAL HISTORY OF BASEBALL 5 (1994) (explaining that MLB owners were forced to increase player salaries out of fear that players would switch teams and join the Federal League). 49. See American League Baseball Club v. Chase, 149 N.Y.S. 6, 13 (1914) (“A National Agreement player, adjudged to have violated his contract, shall be declared and promulgated to be ineligible to play with or against any club in organized baseball . . . .” (quoting MLB National Commission, rule 19)). In effect, by declaring players ineligible within the National Agreement, players were blacklisted and could not play for any MLB team. 50. Id. at 7-8. 51. See id. at 13 (identifying that the reserve clause gave the White Sox owner “absolute title” and control and analogizing that Chase was simply a “chattel” who was permanently bound by the reserve clause).

2015] FREE AGENCY IN MLB 9 Buffalo in the Federal league.52 The White Sox filed suit for breach of contract and sought an immediate injunction prohibiting Chase from switching leagues.53 Although it was a strikingly similar case to Lajoie, American League Baseball Club of Chicago v. Chase provided a different result.54 Chase alleged that the reserve clause constituted an illegal restraint of trade, and therefore, was a violation of federal antitrust laws.55 The court ruled for Chase and overturned the lower court’s injunction.56 The court held that even though baseball was an “amusement,” and not commerce, it would not enforce an injunction which promoted a monopoly in contravention of common law that also limited personal liberty.57 Historically, Chase served as the legal driving force behind the players’ quest to limit MLB owners’ monopoly over the next seventy-five years.58 Though the Chase court did not enforce the injunction, it still determined that the rules of MLB grant each team “absolute title” to its players. 59 As a result, Section 1, Article VI, of MLB’s National Agreement stated, “All parties to this agreement pledge themselves to recognize the right of reservation and respect contracts between players and clubs under its protection.”60 In addition, Section 2 of Article VI “recognizes the property of the club in the player as existing under two conditions. First, under a contract; and, second, under a reserve without a contract.”61 Therefore, the National Agreement regulating MLB bound

52. Id. at 7-8. 53. See Irwin, supra note 1, at 290 (explaining that the Chicago Cubs sought to enjoin Chase from jumping leagues). 54. Irwin, supra note 1, at 290; see Chase, 149 N.Y.S. at 15-17. 55. See Chase, 149 N.Y.S. at 15-17 (indicating that Chase raised “[t]he novel” defense that the reserve clause placed a restraint on trade and that MLB had created a monopoly, which was in violation of federal antitrust laws); see also Irwin, supra note 1, at 290 (explaining that Hal Chase was the first professional baseball player to argue that a monopoly existed in MLB, which was a violation of federal antitrust laws). 56. Chase, 149 N.Y.S. at 20. 57. See id. (“The court will not assist in enforcing an agreement which is a part of a general plan having for its object the maintenance of a monopoly, interference with the personal liberty of a citizen, and the control of his free right to labor wherever and for whom he pleases . . . .”). 58. See Irwin, supra note 1, at 290 (explaining that Chase “served as the impetus” for antitrust litigation against MLB and its owners). 59. See Chase, 149 N.Y.S. at 10-13, 17-20 (describing how the reserve clause creates a system of servitude because players are bound to their team without any right to solicit employment; in turn, the reserve clause limits the players’ ability to earn, to choose their employer, and to choose their home). 60. Id. (quoting MLB National Agreement art. VI, § 1). 61. Id. at 12 (citing MLB National Agreement art. VI, § 2).

10 SPORTS LAWYERS JOURNAL [Vol. 23 players to their teams perpetually and shackled their ability to play for a different team within MLB or for a team in a different league.62 Chase presented the idea that, under the rules and regulations of the National Agreement, the reserve clause was an unlawful restraint on trade.63 As a result, the players argued that a monopoly existed in professional baseball, which denied player movement, limited compensation, and violated free market rights—a clear violation of the Sherman Antitrust Act.64 However, the holding in Chase suggested that baseball could not violate the Sherman Act because it did not fit a traditional business model.65

D. Baseball’s Supreme Court Trilogy: The Aberration of the Sherman Act

Shortly after Chase, in 1915, the owners of MLB and the Federal League signed a “peace treaty.”66 The agreement was reached because the Federal League was floundering financially and MLB owners were fearful that Chase would pave the way for player mobility.67 Shortly after signing the peace treaty, the Baltimore Federals became disgruntled when MLB prohibited the team from buying the St. Louis Cardinals and moving the team to Baltimore.68 As a result, the Baltimore Federals sued representatives of MLB and the Federal League, alleging that a

62. See id. (finding that if the player does not wish to be bound by the reserve clause, their only opportunity for alternative employment options is to enter “some other trade, calling, or profession”). 63. Id. at 16. 64. See Irwin, supra note 1, at 290 (explaining that a monopoly existed in MLB even though the court in Chase did not recognize that federal antitrust laws apply to professional baseball); see also Seabury, supra note 12, at 340-41 (explaining that Congress passed the Sherman Antitrust Act in order to make any restraint of trade or monopoly unlawful if it affected interstate commerce). 65. See Chase, 149 N.Y.S. at 17 (determining that baseball does not fit a normal business model because it is “a sport, a game that comes clearly within the civil and criminal law of the state, and it is not a commodity or an article of merchandise subject to the regulation of Congress on the theory that it is interstate commerce”). 66. See Seabury, supra note 12, at 339-40 (indicating that the effects of this treaty resulted in several Federal League owners being bought out and other Federal League teams folding, which resulted in many owners of the Federal League selling their players to MLB teams). 67. See id. (explaining that the Federal League owners were bought out by MLB owners and allowed to sell their players to other teams because the Federal League was struggling financially); see also Irwin, supra note 1, at 291 (indicating that the Federal League was enduring financial difficulty in 1914). 68. See Seabury, supra note 12, at 340 (arguing that the Baltimore Federals were dissatisfied after signing the peace treaty—particularly when the Baltimore Federals were prohibited by the other owners in MLB from buying the St. Louis Cardinals and moving the team to Baltimore).

2015] FREE AGENCY IN MLB 11 monopoly existed in professional baseball, which was in violation of federal antitrust laws, specifically the Sherman Act.69 In 1922, the United States Supreme Court analyzed whether a monopoly existed in MLB and whether a sport could be recognized as interstate commerce.70 In Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, the Baltimore Federals alleged that MLB colluded to destroy the Federal League by buying up teams in the league in order to monopolize professional baseball. 71 Although Chase indicated that professional baseball was “big business,” 72 Federal Baseball held that the game was made entirely of state affairs.73 In turn, the Supreme Court held that professional baseball was a local business, which was not involved in interstate commerce.74 Although the Supreme Court recognized that professional games required teams to cross state lines, it noted that travel was merely incidental and could not be governed by federal antitrust laws. 75 Furthermore, the Court held that baseball did not involve production and therefore could not be subject to antitrust regulation.76 Because Federal Baseball determined that baseball was not interstate commerce, the Court allowed MLB and its owners to restrain trade through the reserve clause.77 Despite the Supreme Court’s holding in Federal Baseball, MLB players continued to challenge the reserve clause.78 George Toolson, a minor league player for the New York Yankees, refused to accept an

69. Id. 70. Fed. Baseball Club of Balt., Inc. v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 207 (1922). 71. See id. (explaining that the Baltimore Federals argued that MLB owners colluded in order to buy teams in the Federal League in order to exhibit unlimited control over professional baseball). 72. See Am. League Baseball Club v. Chase, 149 N.Y.S. 6, 7 (1914) (describing how the game of baseball “has been commercialized and organized as professional baseball and developed into a big business conducted for profit”). 73. See Fed. Baseball, 259 U.S. at 208 (holding that the business of baseball is made up of “purely state affairs”—meaning federal antitrust law does not apply—even though teams have to travel across state lines to play games). 74. Id. at 208-09. 75. See id. at 209 (“[T]he transport is a mere incident, not the essential thing. That to which it is incident, the exhibition, although made for money would not be called trade of commerce in the commonly accepted use of those words.”). 76. See Irwin, supra note 1, at 292 (suggesting that Federal Baseball allowed a monopoly to exist in MLB but, it did not preclude parties from challenging baseball’s exemption from federal antitrust laws in the future). 77. DWORKIN, supra note 4, at 55. 78. See Moorad, supra note 2, at 59-60 (describing how Danny Gardella, an outfielder, also challenged the reserve clause after being blacklisted for playing in the Mexican League).

12 SPORTS LAWYERS JOURNAL [Vol. 23 assignment from the Newark International Baseball Club to the Yankees’ Binghamton farm team.79 As a result, the Yankees placed Toolson on the ineligible list, which in turn blacklisted him from playing for any other MLB team.80 Frustrated with his employment restrictions, Toolson sued the Yankees in 1951, alleging a violation of the Sherman Act.81 The district court dismissed the case, and the Ninth Circuit Court of Appeals upheld the decision based on Federal Baseball.82 The Supreme Court granted certiorari to reexamine whether baseball was within the scope of federal antitrust laws.83 Relying on stare decisis, the Supreme Court held that the decision in Federal Baseball had been precedential for thirty years.84 Moreover, the Court reasoned that if Congress was displeased with the ruling, it would have brought the business of baseball under federal antitrust regulation.85 Despite reinforcing the reserve clause, Toolson v. New York Yankees did not completely close the door on antitrust litigation in MLB.86 Shortly after Toolson, during the 1954 MLB All-Star break,87 team player representatives formed a players’ association. 88 The players involved in the formation of the MLBPA insisted they were not a union.89 Upon its formation, the MLBPA functioned to negotiate small labor

79. Seabury, supra note 12, at 341-42. 80. See Moorad, supra note 2, at 60 (indicating that Toolson became blacklisted from professional baseball after he refused to accept his assignment to the Newark International Baseball Club and was placed on the Yankees “ineligible list,” which gave the Yankees the right to decide when and where he played). 81. See Toolson v. N.Y. Yankees, Inc., 101 F. Supp. 93, 93-94 (S.D. Cal. 1951) (indicating that Toolson argued that the structure of MLB and the reserve clause was a restraint on trade that deprived him of his “livelihood”). 82. See Seabury, supra note 12, at 342 (explaining that the district court dismissed Toolson’s case, and the court of appeals upheld the decision, based on stare decisis as they relied on Federal Baseball). 83. Toolson, 346 U.S. at 357. 84. See id. (affirming the precedent from Federal Baseball and indicating that Congress did not intend to include baseball within the contours of federal antitrust laws). 85. Id. 86. See id. at 358 (Burton, J., dissenting) (indicating that a monopoly existed and professional baseball was interstate commerce because “[i]nherently, professional baseball is intercity, intersectional, and interstate”). 87. Since the 1930s, MLB has hosted an annual All-Star Break at the beginning of July where the best players from the National League play one game against the best players from the American League. See All-Star Results, MLB, http://mlb.mlb.com/mlb/history/all_star.jsp (last visited Nov. 15, 2015). 88. DWORKIN, supra note 4, at 27. 89. See id. (explaining that the MLBPA was simply an association of players—not a union); see also Seabury, supra note 12, at 345 (indicating that Bob Feller, the first president of the players association, did not want the players to unionize because the organization would likely violate the Taft-Hartley Act because the MLBPA was formed from All-Star Game proceeds).

2015] FREE AGENCY IN MLB 13 issues.90 However, the power and influence of the MLBPA increased in 1965 when the players hired Marvin Miller to negotiate a new pension plan.91 Miller was an experienced negotiator who had previously worked for the Steelworkers Union.92 The owners were upset when the MLBPA hired Miller because of his shrewd negotiating skills and his previous experience representing a union.93 As a result, the owners cut off funding with the expectation that the MLBPA would cease to exist.94 Nonetheless, because the players agreed to pay yearly fees to support the union and its activities, the MLBPA remained in existence through the 1967 season.95 In 1966, the MLBPA agreed to a new pension funding agreement with the owners,96 who unilaterally decided its terms.97 However, just before the owners announced the agreement to the public, Miller informed them that their actions violated various provisions of the National Labor Relations Act.98 Historically, even though the owners solely shaped the 1966 pension funding agreement, it is considered the first CBA in professional sports.99 During the 1968 and 1969 seasons, the MLBPA and the owners mutually agreed to the terms of a new CBA.100 Those terms included compensation for rewards; uniform player contracts, which prohibited unilateral changes in the terms of an individual player’s contract; and an established grievance procedure.101 Unfortunately for the players, the MLBPA was unable to eliminate the reserve clause from MLB’s Basic

90. See SCULLY, supra note 15, at 34. 91. See id. 92. See id. (explaining that Miller represented the Steelworkers Union and was able to negotiate improved employment conditions for its members). 93. See MILLER, supra note 10, at 8 (indicating that MLB owners hoped that the executive director would be more “owner friendly” by caring more about the economic health of MLB). 94. See id. at 68 (explaining that the owners originally funded the MLBPA; however, the owners withdrew funding from the MLBPA citing the Taft-Hartley prohibition against management funded unions). 95. See id. at 67-69 (suggesting that the MLBPA became an official union once the players began funding the association through annual fees). 96. Seabury, supra note 12, at 346. 97. Id. at 346-47. 98. See id. at 347 (indicating that Miller informed Commissioner William Eckert that announcing the terms of the pension plan without bargaining with the players’ representatives violated federal labor laws because employers cannot unilaterally decide the terms and conditions of a CBA). 99. See MILLER, supra note 10, at 95 (explaining that the pension agreement has been viewed as the first CBA in sports even though it only covered a benefit plan and its terms were unilaterally determined by MLB’s owners). 100. Seabury, supra note 12, at 347. 101. Id.

14 SPORTS LAWYERS JOURNAL [Vol. 23 Agreement.102 Though the MLBPA was unable to improve employment mobility, the growth of a union advanced the working conditions for the players by providing an improved pension plan and a power in numbers.103 In October 1969, shortly after the formation of the MLBPA, the St. Louis Cardinals traded Curt Flood to the Philadelphia Phillies in a multiplayer transaction.104 Flood—who was not consulted about the trade and wished to remain a member of the Cardinals—was informed via telephone that the trade was consummated and he was being sent to Philadelphia.105 Frustrated with his employment restraint, Flood asked the Commissioner of Baseball, Bowie Kuhn, if he could become a free agent in order to negotiate and “strike his own bargain” with any other team.106 The Commissioner rejected Flood’s request.107 Subsequently, after consulting with Miller and the MLBPA, Flood decided to institute an antitrust suit against Kuhn and MLB, arguing that the reserve clause was unlawful.108 Flood and the MLBPA had reason to believe the outcome of this case would be different than the outcomes of Federal Baseball and Toolson.109 Notably, in his dissent in Toolson, Justice Burton argued that MLB distributed capital investments, made large expenditures, conducted radio broadcasts, and operated minor league baseball teams across interstate lines.110 Furthermore, Flood and the MLBPA recognized that baseball’s involvement in interstate commerce increased substantially during the 1960s and 1970s, which emanated hope that the players could finally overcome MLB’s antitrust

102. See id. (indicating that eliminating the reserve clause was an important issue for the MLBPA, but the owners were unyielding and required the reserve clause to remain in the 1968-1969 CBA); see also MILLER, supra note 10, at 98 (explaining that the owners had decided prior to negotiating with the players over the 1968-1969 CBA that they would not make any changes to the reserve clause). 103. See MILLER supra note 10, at 105 (indicating that union association provides a forum in which players can discuss and formulate their concerns and exert considerable influence by banding together in the pursuit of common employment goals). 104. Flood v. Kuhn, 407 U.S. 258, 265 (1972). 105. Id. 106. Id. 107. Id.; see Flood v. Kuhn, 316 F. Supp. 271, 275 (S.D.N.Y. 1970) (indicating that refusing to recognize Kuhn as a free agent was “reasonable and necessary to preserve the integrity of the game” because the reserve clause was essential to MLB). 108. Flood, 316 F. Supp. at 273. 109. See Toolson v. N.Y. Yankees, Inc., 346 U.S. 356, 357 (1953) (Burton, J., dissenting) (suggesting that the majority decision did not close the door on MLB being exempt of the Sherman Act because MLB was clearly interstate commerce and a monopoly existed over players’ employment rights). 110. Id. at 357-58.

2015] FREE AGENCY IN MLB 15 immunity.111 Additionally, between the time Toolson was decided and Flood v. Kuhn commenced,112 the Supreme Court recognized that other professional sports were subject to federal antitrust regulation.113 However, the Court again ruled in favor of MLB.114 In its analysis, the Court implied that Federal Baseball and Toolson were wrongfully decided, but congressional action would be necessary to overrule these decisions.115 The Court admitted that baseball was interstate commerce and, as such, should be covered by the Sherman Act.116 The Court indicated that since Federal Baseball, several pieces of legislation aimed at overriding baseball’s exemption had been proposed in Congress, although none had been passed into law.117 As a result, despite landmark changes in the environment of professional sports regarding antitrust immunity, Flood led to the preservation of baseball’s antitrust exemption.118

E. Arbitration and the Road to Free Agency Disgruntled with the Supreme Court’s decision in Flood, the MLBPA agreed to go on strike in 1972 after the owners refused to offer any increase in the players’ new pension plan.119 Lasting thirteen days,

111. See Irwin, supra note 1, at 296 (explaining how Curt Flood, Marvin Miller, and the MLBPA had reason to believe that the courts would finally recognize baseball as interstate commerce because of baseball’s increased involvement across state lines and because the Supreme Court recognized that professional basketball and boxing were subject to federal antitrust regulation). 112. 407 U.S. 258, 265 (1972). 113. See, e.g., United States v. Int’l Boxing Club of N.Y., 348 U.S. 236, 240-41 (1955) (holding that the promotion of professional boxing exists over a multistate basis and is subjected to federal antitrust regulation); see also Haywood v. Nat’l Basketball Ass’n, 401 U.S. 1204, 1205 (1971) (determining that basketball “does not enjoy exemption from the antitrust laws”). 114. See Flood, 407 U.S. 258, 284 (holding that the Court will “adhere once again to Federal Baseball and Toolson and to their application to professional baseball”). 115. See id. at 282-85 (indicating that Federal Baseball and Toolson were wrongly decided because baseball is interstate commerce). Moreover, the Court suggested that baseball’s exemption to federal antitrust laws was “an aberration that has been with us now for half a century” but Congress has been silent on the “applicability or nonapplicability of the antitrust laws to baseball” despite legislative proposals being “numerous and persistent.” Id. 116. See id. at 282-83 (finding that MLB’s exemption to the Sherman Act is inconsistent because other professional sports have been recognized as interstate commerce and are subjected to federal antitrust regulation). 117. Id. at 283. 118. See Seabury, supra note 12, at 349 (suggesting that the Supreme Court in Flood was inconsistent with other Supreme Court decisions regarding antitrust regulation in professional sports). 119. See id.

16 SPORTS LAWYERS JOURNAL [Vol. 23 the MLBPA’s strike was the first in professional sports history.120 The MLBPA’s ability to collectively bargain and stand up to the owners represented a drastic change in professional baseball; even if the Supreme Court could not legally protect their employment rights, the players were no longer willing to accept the severe restrictions that had been in place for nearly a century.121 Arguably the most significant change in the aftermath of Flood occurred when the owners proposed final-offer salary arbitration during negotiations for the 1973-1975 Basic Agreement.122 The arbitration proposal gave players with the requisite number of service time in the Major Leagues the right to have their salary decided by a neutral third party.123 The plan that was adopted provided that if an eligible player and his team could not reach a salary agreement, the player and the team each “tender[ed] their final offers to an arbitrator who, within twenty-four hours of hearing the case, [would] select[] one proposal.”124 The owner’s motivation to offer salary arbitration to the players was twofold: they wanted to limit Marvin Miller’s power, and they believed that arbitration would reinforce the reserve clause without causing a surge in player salaries.125 However, as the owners quickly learned, this system enabled the players to effectively challenge the reserve clause.126 In 1974, Jim “Catfish” Hunter became the first modern free agent in professional baseball after his team’s owner, Charley Finley, breached

120. HELYAR, supra note 48, at 116-17 (explaining how the owners refused to increase the players’ pension plan and were willing to let the players go on strike); see also Seabury, supra note 12, at 349-50 (indicating that the 1972 players strike was the first in professional sports history and it resulted in the players getting an increase in their pension plan). 121. See MILLER, supra note 10, at 220-22 (indicating that the players were no longer willing to have the terms and conditions of their employment dictated by the owners). 122. See SCULLY, supra note 15, at 36 (suggesting that the owners understood they were losing their control and dominion over the labor market and wanted an arbitration system in which they would hire and appoint an independent arbitrator to ensure that the reserve clause would remain and player salaries would not increase dramatically). 123. See id. (indicating that a player renders “service” to his team based on his longevity in the MLB; once a player has reached six years of service time he is eligible for arbitration). 124. See id. (describing final-offer arbitration as a process in which a player with the requisite number of service time in MLB has the right to negotiate his salary for the next season exclusively with his team; both the player and the team submit their final offer for the player’s salary and the arbitrator selects one proposal); see also Seabury, supra note 12, at 350 (describing the format for arbitration in the 1973-1975 Basic Agreement and indicating a strikingly similar system is still in place in MLB today). 125. See Seabury, supra note 12, at 350. 126. See Irwin, supra note 1, at 296 (explaining that within the contours of MLB’s Basic Agreement, the players and owners agreed to arbitrate all legal disputes, which deprived the court system of jurisdiction).

2015] FREE AGENCY IN MLB 17 his contract.127 Hunter’s contract with the Oakland Athletics stipulated that Finley was to pay half of his salary in cash and the other half in any way Hunter chose.128 Hunter elected for the money to be used to purchase an annuity.129 After agreeing to Hunter’s selected payment method, Finley realized the payments to the insurance company were not tax deductible, which voided the contract. 130 The Uniform Players Contract specified a straightforward remedy when an owner breached a contract with a player—the owner must be notified of the breach and given ten days to resolve the contractual dispute.131 However, if an owner failed to remedy the contract breach after ten days, the team was “deemed to have defaulted on the contract and the player was no longer bound” to play for that team.132 The MLBPA immediately notified Finley of his violation, but he was unwilling to cure his breach.133 As a result, the MLBPA notified Commissioner Kuhn of Hunter’s free agent status and asked that he inform the other teams in the league of his availability.134 Kuhn rejected this request.135 In turn, the MLBPA filed a grievance on Hunter’s behalf.136 On December 13, 1974, after hearing both the MLBPA and Kuhn’s arguments to determine Hunter’s status, arbitrator Peter Seitz, who was hired by the owners, declared Hunter a free agent.137 Hunter’s ability to choose his employer had significant implications on the labor market, as he was able to pick his employer based on compensation,

127. See MILLER, supra note 10, at 228-29 (indicating that Catfish Hunter was the first modern free agent in MLB); see also Seabury, supra note 12, at 351-52 (explaining the irony that the first free agent in MLB obtained his status through breach of contract—not by means of successfully arguing that professional baseball violated federal antitrust laws). 128. Seabury, supra note 12, at 351. 129. Id. 130. Id.; see also DWORKIN, supra note 4, at 71 (elaborating on Finley’s breach of contract by explaining that he voided the contract because purchasing an annuity was not tax deductible). After Finley was notified that he breached Hunter’s contract, he refused to cure the breach, which led to the dispute going to arbitration. Id. 131. See MILLER, supra note 10, at 228-29 (describing how Catfish Hunter was able to become a free agent); see also Seabury, supra note 12, at 351 (explaining the terms of Paragraph 7(a) of the Uniform Players Contract, which outlined the process when an owner breaches a player contract). 132. Seabury, supra note 12, at 351. 133. Id.; see also MILLER, supra note 10, at 229-30 (suggesting that Finley did not understand the consequences his breach of contract would have on the player’s employment rights). 134. MILLER, supra note 10, at 229. 135. See id. (suggesting that restraining player mobility and employment rights had been an integral part of the business of professional baseball dating back to the nineteenth century). 136. Id. at 230. 137. See id. at 233 (stating that “the contract with Hunter was terminated and that Hunter was a free agent who could negotiate with any major league team”).

18 SPORTS LAWYERS JOURNAL [Vol. 23 geographic location, length of contract, or any other reason.138 Ultimately, Hunter decided to sign a five-year contract with the New York Yankees for roughly $3.5 million.139 Hunter’s status as a free agent enabled him to make significantly more money because it meant that any team could bid for his services.140 After gaining momentum from Hunter’s declaration as a free agent, the MBLPA again moved to invalidate the reserve clause through arbitration.141 In 1975, a panel of arbitrators headed by Peter Seitz heard a three-day case involving the statuses of Andy Messersmith of the Los Angeles Dodgers and Dave McNally of the Montreal Expos.142 Both Messersmith and McNally had played the 1974 season without a new contract and felt that upon the completion of the season, they had fulfilled their contractual obligations with their respective teams.143 In essence, the arbitration panel decided the enforceability and meaning of the reserve clause.144 The owners believed the reserve clause gave them the perpetual control over the players.145 In contrast, the MLBPA believed if a player played one season under his old contract, then after such contract expired, he had played out his “reserve year.”146 Effectively, the MLBPA argued that once a player had played out his “reserve year,” he was free to choose the team he wanted to play for and bargain for the conditions of his employment.147 The panel ruled in favor of the players and declared them free agents for the 1975 season.148 Notably, arbitration, not the courts, established a means by which the

138. See Seabury, note 12, at 352 (suggesting that Hunter was available to the highest bidder and could choose his employer). 139. HELYAR, supra note 48, at 147-48. 140. See MILLER, supra note 10, at 237 (indicating that the Oakland Athletics only offered $200,000 to Hunter in arbitration); see also Seabury, supra note 12, at 352 (highlighting that Hunter’s status as a free agent allowed him to obtain a five-year contract valued around $3.75 million in comparison to the $200,000 he would have made if the Oakland Athletics retained his rights without competition from other teams). 141. Moorad, supra note 2, at 64-65. 142. Irwin, supra note 1, at 296. 143. See Seabury, supra note 12, at 353 (arguing that Dave McNally was an ideal candidate to test the meaning of the reserve clause through arbitration because he played out the previous season without his contract being renewed into the next season; additionally, McNally’s career was nearing an end and he “had no downside risk” of challenging the owners); see also R. BERRY & G. WONG, LAW AND BUSINESS OF THE SPORTS INDUSTRIES 407 (1986) (explaining that both Messersmith and McNally had effectively played out their option year without a new contract and had the intent to become free agents). 144. BERRY & WONG, supra note 143, at 414-15. 145. See MILLER, supra note 10, at 41. 146. Id. 147. Id. 148. BERRY & WONG, supra note 143, at 297.

2015] FREE AGENCY IN MLB 19 players could break away from the employment restrictions of the reserve clause.149 Fearing the end of MLB’s antitrust exemption, the owners decided to “fight the arbitration decision in Messersmith [and] McNally by filing suit in federal court alleging the arbitration panel exceeded the scope of its authority.”150 In Kansas City Royals Baseball Corp. v. MLB Player’s Ass’n,151 the owners were unsuccessful in seeking to have the arbitration panel’s decision overturned for lack of jurisdiction.152 The court held that because the owners and players collectively bargained to establish an arbitration panel, MLB derived its jurisdictional authority from the agreement.153 In turn, the owners had approved the arbitration panels’ authority by supporting its formation.154 The court also relied upon United Steelworkers of America v. Enterprise Wheel & Car Corp.,155 which held that courts have no power to overturn an arbitrator’s decision in labor cases.156 In turn, Kansas City Royals Baseball Corp. determined that the 1973 CBA between the owners and the MLBPA did not establish a reserve clause that “enabled a club to perpetually control a player.”157 As a result of Kansas City Royals Baseball Corp., free agency was established in MLB.158 Once the legal system no longer recognized baseball’s exemption to federal antitrust regulation and enforced the reserve clause, the owners were forced to negotiate with the MLBPA regarding the terms and conditions of free agency.159 Initially, the owners proposed that free agency only be available to players with nine years of major league service time.160 The players rejected this offer.161 Further, the number of

149. See Irwin, supra note 1, at 297 (arguing that the Messersmith and McNally arbitration hearing offered an alternative and optimistic way for the players to try and eliminate the reserve clause). 150. Seabury, supra note 12, at 353. 151. 532 F.2d 615 (8th Cir. 1976). 152. See Kan. City Royals Baseball Corp., 532 F.2d at 629 (“The 1968 agreement clearly permitted the arbitration of grievances relating to the reserve system. It, therefore, cannot be said that the Club Owners never consented to the arbitration of such grievances.”). 153. Id. at 632. 154. See Irwin, supra note 1, at 297 (“The owners had, in effect, granted the panel authority by agreeing to its establishment” and collectively bargaining to utilize independent arbitrators instead of the court system). 155. 363 U.S. 593 (1960). 156. Id. at 597. 157. Kan. City Royals Baseball Corp., 532 F.2d at 631. 158. See Seabury, supra note 12, at 345-55 (suggesting that “[f]ree agency had come to baseball” after the decision in Kan. City Royals Baseball Corp.). 159. See generally MILLER, supra note 10, at 256. 160. See id. (indicating that the owners only wanted players to reach free agency once they had played in the majors for nine seasons and were no longer under contract).

20 SPORTS LAWYERS JOURNAL [Vol. 23 free agents during any given year was an important issue to both parties.162 Prior to the 1976 season, after the owners had locked out the players for seventeen days over spring training, both parties began negotiating the terms of free agency into their CBA.163 The successful agreement determined that players who signed contracts before August 9, 1976, and played out their reserve year, were eligible for free agency.164 Additionally, a new procedure was developed for players who had a contract signed on or after August 9, 1976, whereby “any Player with 6 or more years of Major League service who has not executed a contract for the next succeeding season shall become a free agent.”165 The MLBPA and the owners collectively bargained for and negotiated the terms and conditions of free agency in MLB.166

F. The Effects of Free Agency in MLB The Messersmith and McNally arbitration decision served as the liberation of free agency and the elimination of baseball’s exemption from the Sherman Antitrust Act.167 From its outset, free agency realigned the employment conditions of players and forced teams to compete against each other for players’ contracts.168 As a result, free agency significantly increased player salaries while also affording players the opportunity to choose their employer instead of being bound by the reserve clause.169 Despite the improved employment conditions, recent

161. See id. 162. See id. at 259 (explaining that the owners wanted to limit the number of free agents in a given year in order to have stability on their roster while the players knew that if too many players were free agents, it would drive down demand and reduce player salaries). 163. Id. at 264-67. 164. See Basic Agreement Between the American and National League Professional Baseball Clubs and MLB Players Association, Effective Jan. 1, 1976, Art. XVII-Reserve System, sec. B., para. 1, Player Contracts Executed Prior to Aug. 9, 1976, reprinted in DWORKIN, supra note 4, at 105). 165. Id., sec. B., para. 2, Player Contracts Executed on or After Aug. 9, 1976, reprinted in DWORKIN, supra note 4, at 105-06. 166. Seabury, supra note 12, at 355. 167. See BERRY & WONG, supra note 143, at 407 (identifying that the Messersmith and McNally arbitration decision has been referred to as the players “[E]mancipation [P]rocla-mation”). 168. See Daniel C. Glazer, Can’t Anybody Here Run This Game? The Past, Present and Future of MLB, 9 SETON HALL J. SPORT L. 339, 380 (1999) (describing how Bernie Williams was able to leverage his pending status as a free agent by informing his employer, the New York Yankees, that other teams were willing to offer him contracts similar to those of Gary Sheffield, Sammy Sosa, and Albert Bell if they could bid for his services on the open market). 169. See Moorad, supra note 2, at 66-67 (explaining that immediately after free agency commenced in 1976, the owners’ aggressive nature and willingness to compete against each other for free agents caused them to spend rampantly on the open market, which caused player salaries

2015] FREE AGENCY IN MLB 21 trends in baseball suggest the current CBA provides disincentives for teams to spend money on free agents, and teams have new methods for allocating their financial resources.170 In turn, free agency in MLB is on the wane, and—similar to the Supreme Court’s 1922-1972 antitrust trilogy—the current CBA’s system for free agency is actually restraining trade.

G. 1994-2004: The Free Agent Bubble and the Dramatic Effect of the Steroid Era

In 1994, as a result of another long-standing labor dispute, the players went on strike in the middle of August.171 The major point of contention was the owners’ imposition of a cap to limit player salaries.172 The owners were unable to impose their will on the players, and the subsequent strike was harsh on both parties because revenue and player salaries decreased during the 1994-1995 seasons.173 After the strike ended, however, MLB was able to rebound quickly; league revenue increased by nearly 20% each year between 1996 and 1999.174 Baseball’s financial growth during the late 1990s is attributed largely to heightened fan interest because the players’ offensive production—particularly batting average, home runs, and slugging

to increase dramatically). Specifically, “the average salary jumped from $51,501 in 1975 to $76,066 in 1976, and on to $143,756 by 1980.” Id. 170. See generally MICHAEL LEWIS, MONEYBALL 64-97 (2003) (describing the intellectual underpinnings of professional baseball and arguing that teams use advanced statistical analysis to find traits or statistical measurements that are undervalued on the market in order to try and gain a competitive advantage against their opponents). 171. See Seabury, supra note 12, at 368 (indicating that the labor dispute reached a boiling point on August 12, 1994, when the players went on strike and the season ended without the playoffs or World Series). 172. See Moorad, supra note 2, at 75-79 (explaining that the owners wanted to implement a salary cap to limit the total amount of money that teams could spend annually in player salaries in order to keep their operating budget low). 173. See Seabury, supra note 12, at 370-71 (indicating that the strike ended after Judge Sonia Sotomayor—then a Second Circuit Court of Appeals judge—issued an injunction putting the players back to work; however, the injunction did not solve the labor disputes). 174. See RICHARD C. LEVIN, GEORGE J. MITCHELL, PAUL A. VOLCKER & GEORGE F. WILL, THE REPORT OF THE INDEPENDENT MEMBERS OF THE COMMISSIONER’S BLUE RIBBON PANEL ON BASEBALL ECONOMICS 15 (2000) (explaining that “[t]he years following the 1994-1995 players’ strike have seen substantially increased revenue to the industry” as MLB’s annual revenue increased by 28.2% in 1996, 16.5% in 1997, 19.9% in 1998, and 12.4% in 1999); see also MITCHELL GROSSMAN, TIMOTHY KIMSEY, JOSHUA MOREEN & MATTHEW OWINGS, STEROIDS AND MLB 7 (2006) (indicating that the average value for a MLB franchise was just $140 million in 1994 and had more than doubled by 2004, up to $322 million).

22 SPORTS LAWYERS JOURNAL [Vol. 23 percentage—increased dramatically.175 For example, fans were enthralled in the 1998 season when Mark McGuire and Sammy Sosa chased Roger Maris’s homerun record.176 With league revenue increasing substantially because of player production, free agency at the turn of the twenty-first century caused the prices of contracts to soar.177 This was epitomized in the 2000 off-season when Manny Ramirez signed an eight-year, $160 million contract with the Boston Red Sox and Alex Rodriguez signed a ten-year, $252 million contract with the Texas Rangers.178 With players signing unparalleled contracts due to the explosion in offensive production, many questions were raised about how those offensive statistics were being achieved.179 During Mark McGuire and Sammy Sosa’s homerun chase, rumors began to circulate that many players were taking performance-enhancing drugs (PEDs) to increase their productivity.180 PEDs were not a banned substance in MLB until 1991, and the league did not begin testing players until the 2003 season.181 Moreover, when MLB initially began testing players for PEDs, it was done infrequently and with minimal punishment.182 Evidence of PED use was both widespread and apparent; offensive statistics such as homeruns and slugging percentage increased dramatically between 1994-2004.183 Specifically, in 1996, the Baltimore Orioles, Seattle Mariners, and Oakland Athletics all broke their single-season home run records.184 Additionally, Mark McGuire surpassed

175. See GROSSMAN, KIMSEY, MOREEN & OWINGS, supra note 174, at 2 (indicating that players’ impressive offensive statistics—particularly a league-wide increase in home runs—attracted greater fan interest). 176. Id. 177. See Seabury, supra note 12, at 372 (indicating that Albert Belle signed the largest contract in MLB history in 1996 when he signed a five-year contract worth $55 million); see also Jason Reid, Dodgers Sign Kevin Brown for $105 Million, L.A. TIMES (Dec. 13, 1998), http://articles.latimes.com/1998/dec/13/news/mn-53726 (describing the free-agent boom in the late 1990s, which resulted in Mo Vaughn, Randy Johnson, Albert Bell, Pedro Martinez, Greg Madduz, Barry Bonds, Gary Sheffield, and Sammy Sosa all signing contracts worth over $10 million per year because “[t]eams [were] enjoying unprecedented financial success”). 178. See Murray Chass, Ramirez Agrees to $160 Million Deal with the Red Sox, N.Y. TIMES (Dec. 12, 2000), http://www.nytimes.com/2000/12/12/sports/baseball-ramirez-agrees-to-160-million-deal-with-the-red-sox.html; see also Murray Chass, Rodriguez Throws $252 Million Bat at the Mets, N.Y. TIMES (Dec. 13, 2000), http://www.nytimes.com/2000/12/13/sports/base ball-rodriguez-throws-252-million-bat-at-the-mets.html. 179. See GROSSMAN, KIMSEY, MOREEN & OWINGS, supra note 174, at 2-3 (suggesting that there was league-wide speculation that many players were taking performance enhancing drugs to improve their production). 180. See id. 181. See id. 182. Id. 183. Id. at 5. 184. Id. at 2.

2015] FREE AGENCY IN MLB 23 Roger Maris’s single-season homerun record in 1998, only to be surpassed by Barry Bonds three years later in 2001.185 PED use was also apparent in the nature of injuries; many players were put on the injured list due to ailments resulting in “oversized muscles ripping away from bones that could no longer support them.”186 The rampant use of PEDs added value to the players’ performance because their subsequent strength allowed them to produce greater offensive numbers.187 Notably, between 2001-2004, offensive players’ on-base plus slugging percentage (OPS)188 increased by .104.189 The increase in offensive production had a significant effect on player salaries because a .100 increase in OPS led to an increase in salary of $2 million during the 2004 season.190 Importantly, in addition to improving player performance, PEDs were used as an antiaging stimulus.191 Simply put, steroid use enabled aging players to remain productive despite the natural tendency for their athletic ability to diminish as their careers waned.192 In effect, PEDs allowed players to remain productive as they aged and to physically regress at a much slower rate.193 From 1994-2004, both teams and players benefited from free agency because increased revenues allowed teams to justify skyrocketing salaries—especially because players were performing at a level that warranted large contracts.194

185. Id. 186. Id. 187. See id. at 4 (indicating that baseball players derive utility from steroid use because it allows them to build muscle mass and recover from injuries at a much faster rate). 188. OPS is a statistical measurement that considers both a player’s ability to get on-base (on-base percentage) and their ability to hit for power (slugging percentage). OPS is popular in measuring the offensive contribution of a player because it has a strong correlation to runs generated per game. OPS and OPS+, FANGRAPHS (Oct. 8, 2014, 4:32 AM), http://www.fan graphs.com/library/offense/ops/. 189. See GROSSMAN, KIMSEY, MOREEN & OWINGS, supra note 174, at 4-6 (determining the increase in offensive production as a result of PED use by comparing OPS between 1994-2004 and 1985-93). 190. See id. at 5-6 (performing a regression analysis of OPS to determine the financial value of an OPS of .100). 191. See GEORGE J. MITCHELL, REPORT TO THE COMMISSIONER OF BASEBALL OF AN INDEPENDENT INVESTIGATION INTO THE ILLEGAL USE OF STEROIDS AND OTHER PERFORMANCE ENHANCING SUBSTANCES BY PLAYERS IN MLB 10, SR2-3 (2007) (explaining that PED use can prolong player careers by artificially sustaining athleticism and reducing the chance of injuries). 192. See generally id. at 5-15. 193. Id. 194. See id. (analyzing the economic effects that steroid use had on MLB between 1994-2004 and concluding that steroid use increased league revenue and player salaries).

24 SPORTS LAWYERS JOURNAL [Vol. 23 H. The 2012-2016 Collective Bargaining Agreement: The Current

Terms and Conditions of Free Agency Under the current CBA, players are contractually bound to their teams for six seasons before becoming free agents.195 Eligibility for free agency is based on service time.196 As outlined by MLB’s 2012-2016 Basic Agreement, “Major League service will be credited for each day . . . a Player is on a Major League Club’s Active List.197 If a player is promoted to an MLB team and remains on their active roster for the entire season, they will have one full year of credited service at the conclusion of that season.198 During a player’s first three seasons, he is paid the league’s minimum salary, plus a cost-of-living arrangement.199 Once a player has been on a roster for three successive seasons, he becomes eligible for salary arbitration.200 A player with at least two years of experience is also eligible, provided he is among the top 22% in cumulative playing time in the league of players who have between two and three years of experience and accumulated at least eighty-six days of service during the immediately preceding season.201 During arbitration, both the team and player each present a dollar figure to an independent arbitrator, who then decides for the player or the team based on comparable players’ salary.202

195. See 2012-2016 Basic Agreement art. XX—Reserve System, sec. B, para. 1, at 86 (“Following the completion of the term of his Uniform Player’s Contract, any Player with 6 or more years of Major League service who has not executed a contract for the next succeeding season shall become a free agent . . . .”). 196. Id. 197. Id. art. XXI—Credited Major League Service, para. 1, at 96. 198. See id. (“A total of 172 days of Major League credited service will constitute one full year of credited service.”). 199. Id. art. VI—Salaries, sec. A, para. 1, at 10-11 (indicating that players make the minimum annual salary until they are arbitration-eligible after they have three years of service time). 200. Id. sec. E, para. 1(a), at 17-18. 201. See id. para. 1(b), at 18. A “Super Two” player is eligible for salary arbitration when they have at least two but fewer than three years of service time. Id. A player is eligible for arbitration as a “Super Two”

if: (a) he has accumulated at least 86 days of service during the immediately preceding season; and (b) he ranks in the top 22% (rounded to the nearest whole number) in total service in the class of Players who have at least two but less than three years of Major League service, however accumulated, but with at least 86 days of service accumulated during the immediately preceding season.

Id. 202. See id. para. 13, at 17-22 (indicating that the independent arbitrator must choose either the player’s salary proposal or the team’s salary proposal because he “shall be limited to awarding only one or the other of the two figures submitted”).

2015] FREE AGENCY IN MLB 25 Frequently, the arbitration process leads to a compromise salary before the ruling.203 After three years of arbitration, any player with six or more years of service time who has not executed a contract for the following season can become a free agent.204 However, before a player can become a free agent, his former team has the ability to extend a qualifying offer to the player.205 A qualifying offer is “a one-year Uniform Player’s Contract for the next succeeding season with a guaranteed salary that is equal to the average salary of the 125 highest-paid Players each year.”206 If the player accepts the qualifying offer, he is signed for the next season.207 However, if the player rejects his former teams’ qualifying offer and elects to become a free agent, his former club is entitled to compensation for his loss and receives a draft choice in MLB’s amateur draft.208

III. DISCUSSION: THE DECLINE OF FREE AGENCY IN MLB Once a player reaches the open market, he is eligible to negotiate and contract with any team without any restrictions or qualification.209 Under the present terms and conditions of MLB’s Basic Agreement, free agency is restraining trade because it no longer provides an incentive for teams to bid against each other for players on the open market. In effect, the next CBA should allow players to reach free agency after four years of service time in order to improve the players’ employment rights and ensure that the owners are wisely investing their financial resources. This Part explores the flaws, inefficiencies, and decline of free agency in MLB since 2004. Significantly, Part III.A argues how age is the fundamental flaw in free agency because players reach the open market after their physical ability peaks. Part III.B contends how teams

203. See SPENCER B. GORDON, FINAL OFFER ARBITRATION IN THE NEW ERA OF MLB 13 (2006) (indicating that settlement is likely in arbitration because both teams and players like the fact that they can bargain with each other amicably because the player is still bound to the team). Moreover, teams try to avoid arbitration because they are “forced to defend their proposals by insulting players and presenting arguments that emphasize a player’s mental and physical shortcomings.” Id. 204. 2012-2016 Basic Agreement art. XX—Reserve System, sec. B, para. 1, at 86. 205. Id. para. 3, at 87-88. 206. Id. 207. Id. 208. Id. para. 4, at 88-90; see also Keith Law, Explaining Type A, B Free Agents, ESPN (Nov. 29, 2006), http://insider.espn.go.com/espn/print?id=2678840&type=blogEntry (indicating that under the previous CBA, requiring teams to forfeit draft picks when signing free agents was “designed to give clubs some kind of compensation for losing good players, especially lower-payroll clubs who couldn’t or wouldn’t retain those top free agents, it was also put in place to produce a slight drag on free-agent salaries”). 209. 2012-2016 Basic Agreement art. XX—Reserve System, sec. B, para. 1, at 86.

26 SPORTS LAWYERS JOURNAL [Vol. 23 have the right to extend a “qualifying offer” to a pending free agent and explains how this right restrains trade. Part III.C focuses on the players’ physical and statistical decline as they reach thirty, arguing that since the end of the steroid era, players’ physical ability has declined earlier as a result of MLB regulating and enforcing testing for performance enhancing drugs. Part III.D analyzes the effect that advanced statistics have had on evaluating the labor market—particularly by arguing that teams have a better understanding of quantifying talent by determining a player’s worth. Part III.E indicates that the CBA does not govern international players who have professional experience outside of the United States. In turn, Part III.E argues that teams have more incentive to invest in international free agents because they tend to be younger. Part III.F analyzes how teams are extending their younger players to long-term contracts in order to avoid them reaching free agency. Part III.G argues that starting free agency sooner will benefit both the players and the owners.

A. Too Long and Too Old: How Six Years of Service Time Has Restrained Trade

The primary issue with the current system of free agency is the requirement that players must have six years of service time before reaching the open market.210 As players reach their late twenties, their performance peaks.211 Moreover, as players age beyond thirty years, their physical abilities deteriorate and their performance declines.212 Notably, between 2005-2009, the average player making his MLB debut was over twenty-four years old.213 Therefore, because players are contractually restricted to a team for six years of service time, most players do not reach free agency until after their thirtieth birthday.214 In effect, the

210. Id. 211. See LEWIS, supra note 170, at 150 (“A baseball player typically ripens in his late twenties; as he enters his mid-thirties, he’s treated as guilty until he proves his innocence.”). 212. See J.C. Bradbury, How Do Baseball Players Age? Investigating the Age-27 Theory, BASEBALL PROSPECTUS (Jan. 11, 2010), http://www.baseballprospectus.com/article.php?articleid= 9933 (“[T]he peak age of baseball players appears to be around 29, and possibly 30 for hitters in modern times. Of course, some players will peak earlier and others later, but this is a general benchmark.”). 213. Ben Lindberg, Overthinking It: Promoting Prospects, BASEBALL PROSPECTUS (Feb. 22, 2011), http://www.baseballprospectus.com/article.php?articleid=13018. 214. See id. (explaining that the average age for players to reach the MLB is 24.4 years); see also 2012-2016 Basic Agreement, effective Dec. 12, 2012, art. XX—Reserve System, sec. B, para. 1, at 86 (outlining the rules of free agency, which indicates that a player is bound to a team for six years of service time before becoming a free agent).

2015] FREE AGENCY IN MLB 27 current system of free agency only allows a player to choose his employer and bargain for his salary once his ability is declining. Aware that most players reach free agency as their talent peaks, teams have a disincentive to spend money on the open market because the current and future abilities of players are on the decline.215 Financially, teams have realized it is more efficient to invest their resources in younger and more cost-efficient players, as opposed to competing on the open market for an aging player.216 For example, Theo Epstein, the President of Baseball Operations for the Chicago Cubs stated:

I think baseball players have a prime age, there’s an age range, starting somewhere around 26-27 and ending somewhere around 31-32, in which you get the best bang for your buck with the player. If we do our jobs the right way, we’ll have as many players in their primes . . . . That’s the best formula to building a winning baseball club.217

Significantly, after a player has completed six years of service time, teams are aware his talent has peaked.218 As a result, management and owners have a disincentive to allocate their resources on declining free agents. Instead, teams are choosing to invest their resources through the MLB amateur draft, on international free agents, and by signing their young players to long-term contract extensions through their prime years.219 Therefore, six years of service time serves as a significant restraint on players’ employment rights.

215. See Tim Reuter, The Economics of MLB Free Agency: Start It Earlier To Achieve Fiscal Sanity, FORBES (Jan. 10, 2014, 8:00 AM), http://www.forbes.com/sites/timreuter/2014/01/ 10/mlb-should-start-free-agency-earlier-if-it-wants-fiscal-sanity/ (“[A]ge is the central, and acknowledged, inefficiency of MLB’s labor system. A glance at the list of free agents in any winter will show that most are over thirty-years old and exiting their physical prime.”). 216. See id. (indicating that teams are hesitant to spend money on free agents; instead, they are opting to invest in youth by “buying out their best players’ prime years with long-term extensions”). 217. See Ricky Doyle, Theo Epstein Faces Tough Decision as Cubs Weigh Merits of Pursuing Albert Pujols in Free Agency, NESN (Nov. 2, 2011, 11:00 PM), http://nesn.com/ 2011/11/theo-epstein-in-sticky-situation-when-it-comes-to-going-after-albert-pujols-in-free-agency/ (suggesting that the Cubs would not be interested in signing Albert Pujols, a thirty-two-year-old free agent, because his talent was on the decline and they were focused on investing in younger, more cost-effective players). 218. See Tom Verducci, New Trend of Locking Up Young Players Changing MLB’s Landscape, SPORTS ILLUSTRATED (Feb. 25, 2014), http://www.si.com/mlb/2014/02/25/young-players-extensions-free-agency-mike-trout. 219. See id.; see also See Shawn McFarland, Are International Free Agents Changing the Future of MLB?, CALL TO THE PEN (2014), http://calltothepen.com/2014/04/29/are-international-free-agents-changing-future-mlb/.

28 SPORTS LAWYERS JOURNAL [Vol. 23 B. Dragging Down the Market: The Adverse Effects of Qualifying

Offers Free agency has restricted players’ employment opportunities because of its compensation system, which can award teams a draft pick for losing a free agent. Under the current CBA, a team that signs a free agent who rejected his former team’s qualifying offer “shall forfeit its highest available selection” in MLB’s amateur draft.220 In turn, if a player has rejected a qualifying offer, teams face a conundrum: should they invest their resources by refraining from signing free agents and building their team through the draft, or should they spend money on the open market for a more expensive player with declining ability?221 This challenge was illuminated in the 2014 off-season when Stephen Drew—despite winning the World Series with the Red Sox and having an impressive season in 2013—was unable to sign with a team prior to the start of the season because teams were unwilling to sacrifice a draft pick.222 Effectively, qualifying offers harshly impact the value for free agents because several teams are unwilling to surrender a draft pick for a player they otherwise might have interest in. Moreover, the team that extends a rejected qualifying offer is rewarded with a high draft choice. As a result, the free agent’s former team and the twenty-nine other teams all have a strong justification for refusing to bid against each other for the player’s service.

C. Failed Contracts: Rapid Player Decline After the Steroid Era Another aspect of free agency that contributes to inefficiency is the prevalence of failed contracts. Failed contracts are a direct result of the steroid era and are actively deterring teams from signing players.223 A

220. 2012-2016 Basic Agreement, effective Dec. 12, 2012, art. XX—Reserve System, sec. B, para. 4(c)(i), at 89. 221. See Jon Heyman, Thanks to Free-Agency Surprises and a Bad Rule, Drew Begins Own Camp, CBS SPORTS (Feb. 21, 2014, 4:31 PM), http://www.cbssports.com/mlb/writer/jon-heyman/24451364/thanks-to-free-agency-surprises-and-a-bad-rule-drew-begins-own-camp (explaining how draft pick compensation has limited the bargaining power and employment options for Stephen Drew, Kendry Morales, Ervin Santana, and Nelson Cruz because teams were unwilling to part with draft picks in order to sign free agents). 222. See id. (indicating that even with a World Championship in 2013, an impressive .777 OPS, and ultrareliable defense at shortstop, Drew was unable to sign as a free agent because the compensation system was “quite the drag . . . as teams are suddenly coming to more value the first-round pick”). 223. Compare GROSSMAN, KIMSEY, MOREEN & OWINGS, supra note 174, at 14 (indicating that players signing contracts during the steroid era were largely performing to their contract because “open markets nevertheless show a tendency to optimize economic outcome[]”), with

2015] FREE AGENCY IN MLB 29 failed contract occurs when players have signed lucrative free agent contracts and, largely due to the age at which they sign, vastly underperform.224 When PED use was rampant in baseball between 1994-2004, teams could justify signing aging players to long-term contracts because they were performing well into their thirties.225 However, since 2005, which is considered the end of the steroid era, many teams have poorly invested in declining players on the open market.226 Currently, this is causing many teams to reevaluate how they allocate their resources.227 To make matters worse, when players sign long-term free agent contracts, it is common for their annual earnings to increase until their contract expires.228 In essence, unlike any other profession, the current system of free agency is designed to pay employees their highest salary when they are no longer at their best.229 Aware of their past mistakes, teams are increasingly unwilling to sign aging players to long-term contracts.230

Joe Posnanski, The Worst Contracts in Baseball, JOE POSNANSKI (Oct. 11, 2011), http://joe posnanski.com/joeblogs/the-worst-contracts-in-baseball/ (arguing that baseball players regress quickly once they hit their thirties and teams can no longer justify signing declining players to long-term extensions). 224. See Posnanski, supra note 223 (suggesting the ten worst contracts in MLB are all players that are past the peak of their careers and are declining). 225. See Tom Farrey, HGH: Performance Enhancer or Healer?, ESPN (Sept. 7, 2006), http://sports.espn.go.com/espn/news/story?id=2574291 (explaining that PED use allows players to recover faster and play longer). 226. See Posnanski, supra note 223. 227. See Ryan Fagan & Jesse Spector, Money for Nothing: Pujols, Fielder Top Our List of MLB’s Worst Contracts, SPORTINGNEWS (Aug. 15, 2014), http://www.sportingnews.com/ mlb/story/2014-08-13/mlbs-worst-contracts-albert-pujols-prince-fielder-arod-ryan-howard-upton (explaining that teams are aware of the risk of signing free agents to long-term contracts and massively overpaying them in the final few seasons of their deal because they can no longer perform to the best of their ability). 228. See Jayson Stark, Phillies, Howard Have Come a Long Way, ESPN (Apr. 27, 2010, 12:02 PM), http://sports.espn.go.com/mlb/columns/story?columnist=stark_jayson&id=5138129 (indicating that Ryan Howard will make less money annually in the first two years of his five-year extension than in his last three years); see also Ted Berg, Report: Giancarlo Stanton’s $325-Million Deal Is Heavily Backloaded, USA TODAY (Nov. 19, 2014, 6:04 PM), http://ftw.usatoday. com/2014/11/giancarlo-stanton-contract-marlins-backloaded-325-million-mlb (explaining that the Miami Marlins heavily backloaded Giancarlo Stanton’s contract in order to have greater financial flexibility and to help them contend in the upcoming season); see also Matt Sullivan, Cardinals Flash More Genius with Peralta’s Front-Loaded Contract, SB NATION (Nov. 30, 2013, 10:00 AM), http://www.mlbdailydish.com/2013/11/30/5154748/cardinals-jhonny-peralta-front-loaded-contract-mlb (indicating that teams backload contracts because of inflation and a desire to allocate financial resources into other areas in the teams’ immediate future). 229. See Fagan & Spector, supra note 227 (describing how several major league players are paid their largest annual salary as their performance declines). 230. See id. (explaining that teams are avoiding the risk of signing aging free agents to long-term deals because of the inevitability that their ability diminishes).

30 SPORTS LAWYERS JOURNAL [Vol. 23 This system is at odds with the way players produce value. When teams sign free agents to long-term contracts, they are aware that they are buying assets that will depreciate. Moreover, because it is common to backload contracts by increasing a player’s annual salary, the final years of a contract are almost certain to represent a significant overpay of the player’s worth. This structure can turn players into pariahs while fans and management grow frustrated by underperforming and depreciating players that are grossly overpaid. Therefore, in order to improve upon their past mistakes with failed contracts, teams are choosing to sign international free agents or to sign their younger players to long-term contract extensions instead of signing aging, proven players on the open market.231

D. Reevaluating the Market: How Analytics Are Depreciating Free Agency

Another impediment to the current model of free agency has been the influence of “sabermetrics” in evaluating players.232 In 2003, Michael Lewis published Moneyball, a book that analyzed how a small market baseball team can successfully win a financially unfair game by relying on objective statistical analysis to determine undervalued measures within the player market.233 As a result of the Oakland Athletics’ innovation regarding player evaluation, front office executives throughout the league have a more objective and analytical understanding of a player’s value.234 Quite simply, statistical advancements have allowed teams to rethink the allocation of their resources, efficiently invest in

231. See infra Part III.E and Part III.F for a discussion on how teams are abstaining from signing free agents and are allocating their resources towards international free agents and signing their younger players to long-term contract extensions. 232. See A Guide to Sabermetric Research, SABR (2015), http://www.sabr.org/saber metrics. As originally defined by Bill James in 1980, sabermetrics is “the search for objective knowledge about baseball.” Id. Sabermetrics is a method for baseball executives and mathematicians to question traditional methods of player evaluation, such as batting average and wins for pitchers. Id. 233. LEWIS, supra note 170, at 119-20. 234. See Peter Gammons, Judging Defense Becoming Key, ESPN (Sept. 17, 2005), http://www.motownsports.com/forums/major-league-baseball/21116_defensive-analysis-becoming-key-gammons.html (explaining that the effect of Moneyball throughout MLB has teams “trying to find the next new thing, which in this case is quantifying what heretofore was considered incalculable–defense”); see also Jonathan Mahler, Smaller Markets and Smarter Thinking, N.Y. TIMES (Oct, 14, 2011), http://www.nytimes.com/2011/10/15/sports/baseball/look-around-base ball-its-all-moneyball-now.html?_r=0 (indicating that teams that focus their player evaluations and front office management around innovative thinking and statistical analysis have triumphed over teams with deep pockets that still invest in declining free agents).

2015] FREE AGENCY IN MLB 31 players, and find cost-cutting methods to produce a winning baseball team.235 The statistical creation of wins above replacement (WAR) exemplifies baseballs understanding of why free agency is ineffective.236 WAR is an attempt by statisticians to summarize a player’s total contribution to his team in one statistic.237 WAR looks at a player and asks the question: if this player was injured and his team had to replace him with an average player, how much value would the team be losing?238 This value is in a win format.239 Therefore, it determines Player X’s value simply based on wins.240 Based on existing contracts and market value, executives can place a monetary value on each individual win.241 When a player reaches free agency, many teams use this metric (or similar metrics) to determine if they are paying market value for a player.242 Today, few teams (only the biggest markets) are willing to overpay for players in free agency—especially if they have to give up compensation draft picks and are contractually bound to a declining player.243 Moreover, statistical advancements allow teams to project a player’s performance each year.244 Since Moneyball was published, MLB teams have tried to mirror other businesses by objectively evaluating the performance of their employees (the players).245 As a result, with predictive models of player performance, an understanding of player value in a wins format, and a proper understanding of how players age,

235. See Mahler, supra note 234 (explaining that sabermetrics and the Moneyball philosophy had proliferated around baseball to the point that the Oakland Athletics had lost their competitive advantage because “the league had stolen” the playbook). 236. See Tom Van Riper, Baseball’s Most Overpaid Players, FORBES (July 10, 2014, 7:33 AM), http://www.forbes.com/sites/tomvanriper/2014/07/10/baseballs-most-overpaid-players-2/ (indicating that WAR is now a widely accepted statistic that analyzes both offensive and defensive metrics to determine the number of wins a player contributes to his club and outlining the most overpaid players in MLB based on their WAR). 237. What Is War?, FANGRAPHS, http://www.fangraphs.com/library/misc/war/ (last visited Sept. 24, 2015). 238. Id. 239. Id. 240. Id. 241. See Jonah Keri, Is Albert Pujols Really Worth $250 Million?, GRANTLAND (Dec. 8, 2011), http://grantland.com/the-triangle/is-albert-pujols-really-worth-250-million/ (indicating that teams can place a monetary value on wins to determine if a player is properly paid his worth and explaining that Albert Pujols’ ten-year, $250 million contract will likely cause him to be significantly overpaid). 242. See id. 243. See McFarland, supra note 219. 244. BRENT CULLEN ESTES, SLUGGER OR SLACKER: A SABERMETRIC ASSESSMENT OF FREE AGENCY ON MAJOR LEAGUE BASEBALL PLAYER PERFORMANCE 3-4 (2006). 245. See id.

32 SPORTS LAWYERS JOURNAL [Vol. 23 teams refrain from the economic waste of signing free agents because of its inefficiencies.

E. Foreign Affairs: How International Free Agents Are a Better Alternative to Domestic Free Agents

Another issue with the current system of free agency is the rules and regulations for international players that come to America with previous professional experience playing abroad.246 Although the current CBA provides regulations for amateur international players, professional players are not bound to an MLB team; rather, they have greater flexibility to establish their availability on the open market.247 As a result, there has been an influx of both Cuban and Asian players.248 Despite increasing the talent pool in MLB, international free agency has hurt the annual crop of MLB free agents.249 In August 2014, the Boston Red Sox made Rusney Castillo—a twenty-seven-year-old outfielder—the highest paid Cuban free agent of all time when he signed a seven-year contract worth more than $72 million.250 Castillo’s contract was spurred by the overwhelming success of several other international free agents including: Jose Abreu, Yasiel

246. See Matthew Piehl, Double Play: How MLB Can Fix the Amateur Draft and International Player Acquisition with One Swing, 8 WILLAMETTE SPORTS L.J. 13, 15 (2010) (describing how foreign professional players are not eligible for MLB’s amateur draft, which is desirable because they have the freedom to establish their free agent eligibility and negotiate and bargain with all thirty MLB teams). 247. See Andrea Kupfer Schneider, Baseball Diplomacy, 12 MARQ. SPORTS L. REV. 473, 477-78 (2001). Cuban free agents that deport to America are eligible for MLB’s amateur draft, but there is a loophole in the Basic Agreement that allows Cuban players to defect and establish residency in another nation. Id. at 480-81. Once they establish residency in another country, they can be declared an international free agent, which gives them the freedom to bargain and negotiate with any MLB team; see also Rick J. Lopez, Comment, Signing Bonus Skimming And a Premature Call for a Global Draft In MLB, 41 ARIZ. ST. L.J. 349, 368-71 (2009). Japanese free agents are contractually bound to their team for eight years, but MLB and the Japanese professional league have established a “posting agreement,” which enables MLB teams to bid for players that are posted by Japanese teams. Id. Based on the posting system, the MLB team with the highest bid has the sole ability to negotiate with the player. Id. at 371-72. If the MLB team and the Japanese player agree to a contract, the bid is paid directly to the Japanese team. Id. 248. See Piehl, supra note 246, at 17-22. 249. See McFarland, supra note 219 (explaining that Japanese and Cuban free agents have become a staple in MLB’s labor market and suggesting their influx has taken over the MLB free agent market and hurt veteran Major League free agents who are drawing less interest because they are competing with younger international free agents). 250. Steve Silva, Cuban Free Agent Rusney Castillo Will Sign $72 Million Deal with Red Sox, BOSTON.COM (Aug. 22, 2014, 11:04 AM), http://www.boston.com/sports/baseball/redsox/ extras/extra_bases/2014/08/reports_cuban_free_agent_rusney_castillo_will_sign.html.

2015] FREE AGENCY IN MLB 33 Puig, Yoenis Cespedes, and Masahiro Tanaka.251 Because international players face fewer restrictions regulating their free agent statuses, they have become the new market efficiency because they are choosing to reach the open market in their mid-twenties.252 As a result of this influx, and the age and success of international free agents, MLB teams have a strong incentive to invest in younger international free agents—even if they are paid substantial salaries—because they are getting a greater return on their investment.253 Therefore, because the CBA only restricts the employment conditions of domestic free agents, international free agents are a better and more efficient alternative for MLB teams.

F. Avoiding Free Agency by Extending Players’ Beyond Their Prime Years

Since the end of the steroid era, teams have become aware of the inefficiency of signing players to long-term contracts that last until their mid-to-late thirties.254 As a result, signing young players to extensions has become the new market efficiency.255 Recently, this trend has become baseball’s equivalent of a land rush.256 Teams are now moving to sign their players to contract extensions in order to keep them away from the open market and having the ability to choose their employers.257 Instead of signing veteran free agents, teams are choosing to sign their own players with fewer than six years of service time in their early-to-mid twenties to long-term contract extensions.258 In effect, teams are

251. See Jasper Scherer, Are International Free Agents the New Market Efficiency?, SB NATION (Aug. 23, 2014, 8:00 AM), http://www.mlbdailydish.com/2014/8/23/6059321/are-inter national-free-agents-the-new-market-efficiency (arguing that every team “now realizes” the importance of signing international talent and indicating that the frequency of international signings will increase as a result of the success of recent Cuban and Japanese players that signed free agent contracts with MLB teams). 252. See Verducci, supra note 218 (indicating international free agency “has been a much more efficient market for prime talent” and explaining that Masahiro Tanaka, Yasiel Puig, Yoenis Cespedes, Yu Darvish, and Aroldis Chapman were all signed well before the age of thirty so that their respective teams would not be paying them to decline). 253. Id. 254. See id. (indicating that “[t]eams know that, in the drug-testing era, you no longer want players aging through their mid- to late-30s” because they are likely to physically decline without steroid use). 255. Id. 256. See id. (explaining that teams are looking to extend their players’ contracts in order to keep them away from free agency, which has transformed the annual free agent market from a “Rolls Royce market segment into one more akin to a Chrysler Cordoba” because free agents come with the mileage of having played in MLB for at least six years and their physical abilities are waning). 257. Id. 258. Id.

34 SPORTS LAWYERS JOURNAL [Vol. 23 avoiding the contours of free agency in the CBA by signing players beyond their three years of arbitration and into the first few years in which they would be free agents.259 This has led to the erosion of the free agent market.260 For example, Mike Trout, Andrew McCutchen, Buster Posey, Evan Longaria, Freddie Freeman, and Clayton Kershaw have all signed contracts that have bought out their arbitration years and reach into the first few years of when they would reach free agency.261 This recent trend has been mutually beneficial to players and teams; players are guaranteed large salaries even if they are injured, and teams are avoiding their past mistakes of overpaying declining players.262 In June of 2014, MLB’s labor market was shell-shocked when Jonathon Singleton, a twenty-two-year-old, highly touted prospect for the Houston Astros, signed a five-year contract, immediately after the team promoted him to the Majors.263 Instead of choosing to control Singleton’s rights for six years, the Astros guaranteed him at least $10 million dollars before he had any Major League service time.264 Significantly, the contract includes a three-year club option, which could result in Singleton earning more than $30 million.265 In essence, the Astros assumed the risk of guaranteeing Singleton money he might have never earned but limited his potential earnings through arbitration and his first year of free agency.266 Importantly, this

259. Id. 260. See id. (suggesting that the free agent market is eroding because teams understand that they have been signing players to contracts for too many years and too much money and are now choosing to extend players in their mid to late twenties). 261. See id. (demonstrating that these players have avoided their first few years of free agency by signing contract extensions with the teams who owned their employment rights for six years under the CBA); see also Ramona Shelburne, Dodgers, Clayton Kershaw Have Deal, ESPN (Jan. 16, 2014), http://espn.go.com/mlb/story/_/id/10298436/clayton-kershaw-los-ageles-dodgers-agree-seven-year-deal-worth-215-million (explaining that the Dodgers elected to re-sign Clayton Kershaw beyond his arbitration years and into the first few seasons he would be a free agent). 262. See Bill Brink & Michael Sanserino, Pirates, McCutchen Agree on New Contract, PITTSBURGH POST-GAZETTE (Mar. 5, 2012, 5:30 AM), http://www.post-gazette.com/sports/pirates/ 2012/03/05/Pirates-McCutchen-agree-on-new-contract/stories/201203050213, (quoting Pirates general manager Neal Huntington as he explains the analysis and deliberation both players and teams go through during a negotiation for a contract extension as “[t]here has to be a shared risk on both sides” in order to reach an agreement). 263. See Jim Bowden, Singleton Deal a Win for Houston, ESPN (June 2, 2014), http:// insider.espn.go.com/blog/the-gms-office/post?id=9548 (explaining that Jonathon Singleton’s contract extension “is the first deal of its kind” as a player with zero days of service time has never signed an extension before being promoted to the Major Leagues). 264. Id. 265. Id. 266. See id. (indicating that the Astros assumed some risk by guaranteeing Singleton at least $10 million, but if Singleton “fulfills his promise,” he will be significantly underpaid).

2015] FREE AGENCY IN MLB 35 deal could become a new trend for players and a bargain for teams.267 Although completely avoiding the downside scenario of not reaching arbitration or free agency, many players might be willing to accept the security of guaranteed money.268 Moreover, teams will jump at the opportunity to control players through their prime years in an economically efficient manner.269 Based on the current CBA and teams’ tendencies to shirk the inefficiencies of free agency, MLB’s labor market is in need of massive reform. Since Arbitrator Seitz legally authorized free agency in baseball, it has improved labor rights, drastically increased salaries, eliminated the reserve clause, and given players the opportunity to choose their employer.270 However, even though the effects are not as severe, the recent trajectory of free agency is restraining the labor market just as Federal Baseball, Toolson, and Flood did throughout the majority of the twentieth century.271 As a result, the owners and the MLBPA should look for innovative ways to restore the efficiency of free agency in order to give players greater employment rights while also allowing teams to redistribute their financial resources ably. By doing this, teams, players, and fans will all benefit.

G. Free Agent Reform: Why Starting Free Agency Sooner Will Benefit Both the Players and the Owners in the Next CBA

Under the current CBA, free agents are invariably paid for their past—rather than their future—production.272 In essence, age is the fundamental inefficiency of MLB’s labor market.273 A glance at the list

267. See id. (suggesting that many people in baseball believe that similar contract extensions will occur for players that have yet to reach the Major Leagues but predicting that it will not become as popular as signing players with a few years of service time). 268. See Jeff Todd, Contextualizing The Jon Singleton Extension, MLBTRADERUMORS (June 17, 2014), http://www.mlbtraderumors.com/2014/06/contextualizing-the-jon-singleton-extension.html (arguing that Singleton’s contract extension ensures him at least $10 million even if he never establishes himself as an MLB player). 269. Bowden, supra note 263. 270. See Seabury, supra note 12, at 377-78 (describing the improved labor conditions that free agency has provided MLB players); see also Verducci, supra note 218. 271. See Reuter, supra note 215 (indicating that even though owners can no longer perpetually control players through the reserve clause, the current system allows owners to “control their players’ most productive years at a discount”). 272. See supra Part III.A-D for an analysis of the flaws, inefficiencies, and decline in free agency in MLB. 273. See supra Part III.A-D for an analysis of the flaws, inefficiencies, and decline in free agency in MLB.

36 SPORTS LAWYERS JOURNAL [Vol. 23 of free agents in any off-season demonstrates that most players are over thirty and exiting their physical primes.274 However, baseball’s free agency inefficiency is a consequence of the structure that the MLBPA and the owners originally bargained for and agreed to in 1976.275 In effect, the MLBPA traded six years of Major League service time for unrestricted free agency. Under the current CBA, the owners still control their players’ most productive years during their first six years of service time.276 Moreover, the current trend of extending players before they reach arbitration has served as a greater limitation on players’ employment mobility because team control has extended beyond six years for the game’s best players.277 In turn, the proclivity for teams to extend players beyond their six years under team control is functioning similarly to the reserve clause. Stated differently, despite being well compensated, the current trend in MLB is that players are still bound to their team until their value has peaked.278 Indisputably, the present labor model is flawed. The trend in the labor market indicates how teams are assessing risk. There is a greater willingness for teams to gamble on young players by signing them to long-term extensions instead of paying for a known quantity that will certainly decline. This shift implies that free agency is outdated. Importantly, in the next CBA, the owners and the MLBPA should acknowledge that fact by starting free agency earlier. The next CBA should allow players to reach free agency after four years of service time. Such a system would place the burden on the owners to invest their money back into the labor market and give the players greater opportunity to choose their employer and bargain for their compensation. In turn, teams that are unwilling to sign free agents or are willing to let their best players leave will risk losing fan interest. Additionally, allowing players to reach free agency earlier will alleviate the crippling effects of awarding mega-contracts to declining players.279 If a player reaches free agency at age twenty-seven or twenty-eight, it will lead to a higher probability that fewer years will count as

274. Reuter, supra note 215. 275. See supra Part II.E for a discussion on MLB’s original CBA, in which the terms and conditions of free agency have been largely unchanged. 276. Reuter, supra note 215. 277. See supra Part III.F for an analysis on teams extending players through their first years of arbitration. 278. See discussion supra Part III.A-F for an analysis of the flaws, inefficiencies, and decline in free agency in MLB. 279. See supra Part III.C for a discussion on how teams are deterring from signing free agents to long-term contracts because of their inevitable decline once they reach thirty years old.

2015] FREE AGENCY IN MLB 37 sunk costs where the player cannot perform because of his declining physical ability. Early free agency would formalize the logical idea of labor costs rising or declining according to its value. This is essential in an industry where age matters a great deal. The present system distorts the market by suppressing labor costs initially and then giving players effectively one shot at a significant contract.280 A lot has changed since 1976. Baseball is a global sport, rich in popularity and revenue.281 Archaic ideas, such as the restraint of players to their original teams in perpetuity, are in the distant past.282 If MLB does not adapt and accept new economic realities by overhauling free agency, it will continue to unreasonably restrain trade—just as decisions by the Supreme Court did throughout the twentieth century.283

IV. CONCLUSION Since professional baseball began in the early 1870s, its players have been fighting for greater employment rights. Although the Court repeatedly found the players’ argument that MLB served as a restraint on trade in violation of federal antitrust laws unpersuasive, the players ultimately found refuge through arbitration. Today, nearly a half century since Flood and the Messersmith and McNally decision, the players are still restrained by free agency. Even though the players collectively bargained for the current terms and conditions of free agency, the system is antiquated and in need of reform. Under the current CBA, free agents are consistently paid for their past, as opposed to their future, production. In effect, age is the essential issue with the labor market. Importantly, in the next CBA, the owners and the MLBPA should acknowledge that fact by starting free agency earlier. By implementing a system that allows players to reach free agency after four years of service time, the owners would be encouraged to invest their money back into the labor market and give players a greater opportunity to choose their employer and bargain for their compensation.

280. See supra Part III.A-F for an analysis of the flaws, inefficiencies, and decline in free agency in MLB. 281. See McFarland, supra note 219. 282. See supra Part II.A for a discussion on the history of the reserve clause. 283. See supra Part II.D for a discussion on three separate Supreme Court decisions spanning from 1922-1972, which rejected the players’ argument that MLB violated federal antitrust laws.