MLB Lockout 2021: It’s a Monopsony
There is still no end in sight and there are speculations circling around that neither side will even come back to the table until the new year. I tend to agree since there isn’t an impetus yet for the players to succumb to this lockout by the league and owners.
Since there is no new news, let’s look at the historic roots of the MLB and why they have a legal monopsony on the game of baseball in the United States. It all started back almost 100 years ago in 1922 when the Federal Baseball Club of Baltimore sued the National League and the American League under the Sherman Antitrust Act. This Act prohibits monopolistic/monopsonistic behavior which basically means there has to be some form of competition allowed in each industry.
Let’s give a little background on what a monopoly and monopsony are so we can understand how this applies to the MLB and the sports industry more generally. A monopsony is a market condition in which there is only one buyer, the monopsonist. A monopoly condition exists when there is only one party with exclusive possession or control of the supply of or trade in a commodity or service. The MLB holds a monopolistic power over its fanbase while simultaneously holding a monopsonistic power over its players. The monopolistic control over the fanbase is somewhat mitigated due to other sports teams residing in the cities where there are MLB teams.
Bakc to the history of how this came about in baseball today. One of the clubs in the Federal League, The Federal Baseball Club of Baltimore, claimed the NL and AL were buying up all the Federal League teams to form a monopoly. The case went all the way up to the Supreme Court of the United States, the highest court in the land. The Sherman Antitrust Act prohibits any “contract, combination, or conspiracy in restraint of trade or commerce.” However, the justices found that baseball was not subject to antitrust exemptions because it was neither trade nor commerce. They also found that the players travel across state lines “is a mere incident, not the essential thing.”
This is clearly not the case today as the MLB is worth billions of dollars and travel of players across state lines is essential. This exemption was also not given to other leagues like the NFL and suits have been brought against the NFL regarding monopolistic and monopsonistic behaviors. We recently saw the NCAA lose an antitrust case when the Supreme Court ruled the NCAA violated antitrust law and didn’t have antitrust exemption anymore and thus college athletes could transfer schools and monetize their name, image, and likeness.
In the 1970s legendary baseball player Curt Flood helped pave the way for free agency in baseball, which allowed baseball players to move teams and not be forced to stay with one team for life. Then in 1998 Congress passed the Curt Flood Act.
…declare[s] that the antitrust laws apply to the conduct, acts, practices, or agreements (conduct) of persons in the business of organized professional major league baseball relating to or affecting employment of major league baseball players to play baseball at the major league level to the same extent that such laws apply to such conduct of any other professional sports business affecting interstate commerce.
The players could now sue the league under antitrust laws if the conduct in question “directly relates to or affects both employment of major league baseball players to play baseball at the major league level and any other aspect of organized professional baseball…that directly relate to or affect employment of major league baseball players to play baseball at the major league level…” However, MLB players are still bound by 6 years of service before they are allowed to become free agents. Essentially the reserve clause was shortened from life to 6 years, similar to a criminal sentence being reduced for “good behavior.”
A senior honor thesis written by Jacob C. Hyman of UC Berkeley lays out an economic history and background of the MLB and their monopsony exploitation of players.
The results of this paper indicate that MER [monopsony exploitation ratio] has remained stagnant for rookie players and significantly decreased for arbitration-eligible and free-agency-eligible players. Mean MER for free-agency-eligible players in this sample is negative, suggesting that, on average, free-agency eligible players have higher salaries than the value they generate. Considering that most players have short careers and never reach free agency, the MLBPA should focus on improving working conditions for rookie players if it hopes to mitigate monopsonistic exploitation of its players most effectively.
Additionally, it has been alleged that MLB teams have been trying to skirt the rules revolving service time for MLB players.
Teams have also been accused of manipulating service time for young players to decrease their bargaining power and of colluding among themselves to artificially deflate labor costs. Service time is 9 accrued by being on a major league 25-man roster. One year of service time is equal to 172 days out of the 183 on the MLB calendar. Thus, teams can exploit the system and gain a full extra year of control by holding down top prospects in the minors for the first 10-12 games of the season before calling them up to the major league roster (Hyman 2020).
Hyman’s paper is a fascinating read and it concludes with an interesting statement that hands out some advice to MLB players and the MLBPA alike.
The results in this paper suggest that recent trends in the MLB labor market, such as an increase in one-year contracts and an increasingly slow-to-develop market are not indicative of a greater monopsonistic exploitation of players by teams. In fact, it may suggest that teams are hesitant to dole out expensive, multi-year contracts to players who are often not worth their salary at the end of their careers. However, the results also show that rookie players have seen no improvement in their salaries relative to their on-field production in the same period, and continue to have 87% of their value expropriated by their teams, on average. Although they have been able to extract more value in their arbitration-eligible seasons in comparison to previous periods, the players and the MLBPA are understandably frustrated as recent free agents have been largely unable to make up for exploitation in their early seasons with lucrative long-term contracts once they finally reach the open market.
When the league locked out the players on December 2nd, 2021, they yet again showed they had the power and they wanted to wield it. Under the National Labor Relations Act, the league (employer) has to bargain in “good faith with employees' union representative.” It does not seem the MLB is bargaining in good faith and could be in violation of the NLRA. Section 8(a)(5) of the Act makes it an unfair labor practice for an employer "to refuse to bargain collectively with the representatives of its employees.”
Some examples of this include, but are not limited to:
Fail to meet with the union at reasonable times and reasonable intervals.
Fail to bargain in good faith concerning mandatory subjects of bargaining.
Engage in bad-faith, surface, or piecemeal bargaining.
Lock out employees in support of an impermissible objective - e.g., to pressure the union to accept an illegal bargaining proposal, a bad-faith bargaining position, or terms unilaterally implemented absent a valid impasse.
From the reports we are hearing on both sides, there might be some violations of the NLRA on the part of the league. If the new Collective Bargaining Agreement isn’t agreed upon soon, there could be a disruption of both Spring Training 2022 and the 2022 MLB season.
During the lockout, teams cannot make any MLB transactions, but minor league transactions are free game. According to the New York Yankees transaction page, they have signed veteran outfielder Ender Inciarte to a minor-league contract for 2022 along with some other players.
Stay tuned here for news as it becomes available on this developing story. You can also follow along on Twitter.