How the Yankees fit in baseball’s coming labor strife

If you weren’t looking for it, you might have missed it. But rest assured, Bruce Meyer’s hiring last week as chief negotiator for the Major League Baseball Players Association may be the most consequential decision the players’ union has made since signing the 2017 Collective Bargaining Agreement.

Meyer is uniquely qualified to run a collective bargaining group, as his resume includes working for the NHLPA during hockey’s 2016 lockout, and before that he was instrumental in reshaping free agency in both the NBA and NFL. Few people can boast the experience in litigating and negotiating with professional sports leagues that Meyers can. As a possible labor stoppage looms at the expiry of the current CBA in 2021, it sure looks like the MLBPA is ready for a fight.

Now MLB is a different animal entirely than its counterparts in basketball or football. The league boasts an arguably outdated antitrust exemption that makes it harder to legally attack as a monopoly, which was the legal strategy Meyer took against both the NBA and NFL. I’m not a lawyer; I can’t speak to possible legal front the union will adopt as they approach a new CBA. Meyer, however, is a pit bull whose hiring may end up being Tony Clark’s best move as head of the MLBPA.

The Yankees, meanwhile, will certainly play a determinant role in the negotiation process, and any resulting labor stoppage. They’re the richest franchise in baseball, and among the most valuable sports organizations in the world. More importantly from a labor side, after pacing the league in spending for most of this decade, the team has taken a strident approach in reducing payroll.

Some people would look at that data and say the Yankees are trying to get below the competitive balance tax in anticipation of a loaded 2019 free agency class. But as I’ve written about before, that group isn’t what it used to be. This season also serves as a litmus test for the Yankees to see if they can cut payroll and still have a successful year. Would they use an impressive 2018 to justify continual cutting, or at least not increasing payroll in successive seasons.

More than the raw financial data, though, the Yankees case in particular hits what will likely be a central issue in the next round of CBA negotiations: the distribution of pay between young and veteran players. This is something that’s come up in macro level discussions about the game.

Players in their early twenties are better than they’ve ever been before, coming up to the bigs as more polished and prepared for the increased competition level than any other point in baseball’s history. At the same time, the value of young players has risen exponentially. The players are getting better, but the current salary structure in MLB ensures that they’re paid below market rate.

Meanwhile, veteran players are seeing the market collapse all around them, and nothing was more indicative of that then the 2018 free agency class. The struggles veteran players saw have been written about extensively, so I’m not going to rehash that here. It is important to remember that this disconnect between value and compensation within age groups and experience levels will be a central conflict in labor negotiations.

Younger players are aware of how good they are and how much value they provide; they will seek greater compensation to bring their pay back to market value. Older players, meanwhile, look to free agency as their chance to earn back money that they should have been paid in their younger years, even as their contemporary ability declines. It’s an impasse that’s quickly approaching, and the Yankees are a prime example of it.

The team, as constructed, can be broken down into three buckets. First, we have the young, pre-arbitraiton or arbitration eligible players, earning league minimum or close to it. Then there are the veteran players, signed as free agents or traded to the team. Finally, we have the players in the middle: Masahiro Tanaka, Giancarlo Stanton, Dellin Betances and Sonny Gray. The former two already have their contracts, one a deal upon leaving Japan and the other an extension offered by Stanton’s original team. Both of these guys are compensated relatively fairly; or at least there’s no point holding them up as examples of an unfair system. The latter two are in the final years of arbitration, but older than most of the typical “young” class of players, and sort of fit as outliers between the normal groups.

For the rest of the regular team, consider their ages, level of team control, and contributions to the team in 2018 against the money they’re making:

The “young” bucket is more than twice as valuable while combing to earn 11% of what the veteran group does. At an average level, the young bucket only earns 7% of their counterparts, despite being almost twice as valuable. This is the defining struggle of the players’ association: how to balance the increase in talent and reliance on young players while ensuring everyone is fairly compensated.

Further, all of the veterans save for Jacoby Ellsbury and Aroldis Chapman will get a chance to negotiate another contract before the expiration of the CBA, meaning they will get one more shot at payday before any rules around compensation change. Contrast that with only Austin Romine and Aaron Hicks becoming free agents before expiration, and you can see why so many young players are seeing this as a rigged game.

The really concerning thing is that the Yankees aren’t really doing anything that other teams aren’t. All 30 franchises are moving toward younger, cheaper players, which only further drive the wedge into the union. The Yankees are particularly notable because they have such a plethora of young, controllable talent, have slashed their payroll so dramatically, and seem philosophically opposed to contract extensions.

That last point is really key. Like I said with Tanaka and Stanton, nobody is really holding them up as examples of a rigged game. They’re paid relatively consistent to their market value, and even if you argued that Stanton deserves a bit more, his lifestyle will not dramatically be changed with a marginal $10 million more of less than the $325 milion he’ll already have.

Instead, what extensions do is ensure good faith between clubs and their players. Both sides agree on the value of a player’s arbitration and early free agency seasons. Nobody can really complain that salaries are too high or too low because a contract is jointly negotiated.

Aaron Judge, for example, is legitimately one of the five or so best players in baseball. Despite not having played in almost eight weeks, he’s still been the Yankees’ best all around player in 2018. He deserves the opportunity to negotiate a fair wage for his ability, and the Yankees should see an extension as an opportunity to lock up a player of unbelievable talent for most of his productive years. Instead, all signals are that the Yankees are content to underpay one of their best players, stringing him along year-to-year until someone has to make an inevitable decision about free agency.

This dissonance between players and their employers, and within the union itself, also has to be viewed through the lens of ever-increasing franchise value. All 30 teams are private enterprises, and so valuation based on discounted cash flow or leveraged buyout means are always going to be full of noise and variation. The only way to even approach franchise valuation is through precedent.

To that end, one of the most fascinating stories for me in 2017 was the sale of the Miami Marlins. The Marlins were very much a toxic asset, complete with terrible attendance and TV ratings, a mediocre on-field product, and a stadium financed by private debt rather than operational cash flow, and a boatload public money.

The franchise sold for $1.2 billion.

Bruce Sherman and company have leveraged themselves thin making the acquisition, and one of the reasons they had to jettison Stanton was an attempt to reduce interest owing on their debt. The point stands that a franchise that should be barely treading water is worth more than a billion dollars.

With that information, it’s not hard to imagine the Yankees, a team with robust attendance and TV ratings, a sparkling on-field product, and one of the most recognizable brands in the world, being worth three or four times that. Indeed, that’s right about where folks like Forbes value the team, somewhere around four billion dollars.

We hear about large numbers a lot, whether in payroll discussions, government budgets or lottery announcements. Sometimes I think we can grow desensitized to what a million or a billion dollars looks like. A billion dollars, sitting in a checking account earning 1% a year nets $10 million in interest income. That’s all the money CC Sabathia will earn this year.

Obviously we’re talking about enterprise valuation, not hard cash accruing interest. But when a single organization, one of 30 in a league, is worth four billion dollars, the inability to give more than fractions of a percent to the value-creating workforce doesn’t make much sense.

Baseball has a broader economic problem, and one that I think represents a brick wall the game will eventually plough headlong into. At the core of that problem, and a microcosm of it, is the Yankees’ own financial strategy. As teams continue to pump up the contributions of young players while cutting payroll, Bruce Meyer’s case for a long, hard labor fight grows stronger and stronger.