Players from the Pittsburgh Pirates, Tampa Bay Rays, Oakland A’s, and Miami Marlins (notably currently owned by former Yankee Derek Jeter) have brought a grievance through the MLB Player’s Association–the long standing baseball players union–over teams pocketing shared revenues instead of using them to improve on field performance through payroll, free agency, equipment, and other avenues as required by the MLB’s collective bargaining agreements.
This isn’t quite the same as a lawsuit, the MLB agreements handle most everything through an extremely complicated set of internal rules and regulations. However, in terms of burden of proof and possible consequences for the teams accused, it might as well be a real legal action.
All four of these teams stand to potentially lose funds, have strict sanctions placed on them by the Commissioner, or any number of other punitive actions. Most of all, it presents–if you’ll pardon the pun–an opportunity to look into the inside baseball of the sports law surrounding the Major League Baseball Association.
An enormous amount of the inner workings of how baseball players, their clubs, and the league at large interact has long been hammered out through collective bargaining agreements between the clubs, the league, and the MLB Players Association. This agreement is frequently referred to as the “Basic Agreement.”
Not so long ago, the MLB Players Association and the league at large reached a new collective bargaining agreement recently entered for the years 2017-2021. It is a 373 page behemoth which covers everything from clubs giving players loans to rules for international play to–of course–revenue sharing. However, as with most union agreements, nothing in the collective bargaining agreement is simple. Even just the revenue sharing provisions are 18 pages long.
The new revenue sharing provisions require all clubs within the league to contribute its average net local revenue–calculated by looking at the net local revenues of the last three years with extra weight on the most recent year–to a pool to be divided equally among the clubs every year. At least theoretically it is distributed evenly.
Each club has quite different revenues so they all contribute different amounts–the more you contribute the less you’re obviously getting of your equal distribution. Sometimes this means you pay more than you receive. In these cases, you are classified as a “revenue sharing payor.”
Not surprisingly, if you make money out of the deal you are a “revenue sharing payee”. Every year the clubs keep track of their contributions and get a receipt for them, as well as keeping track of whether they are a payor or a payee. The biggest clubs in the league, such as the Yankees, are disqualified completely from receiving revenue sharing distributions. Worth noting given the recent accusations, the Oakland A’s would normally be disqualified but instead receive progressively less as a distribution over the next several years.
We’ve mentioned that the clubs keep track of whether they are payors or payees in a year. This is because the clubs you donate the most qualify for a refund on their contributions. In the first year as a payor, a club receives 100% of this refund amount. However, the amount they receive becomes less for each successive year they make above the average and are a payor.
This goes on for five years until, after five consecutive years as a payor, the club gets no refunds whatsoever. Every year, decreases the refund by a “tier” of one to five. Even if a club is a payee for one year, it doesn’t change its refund tier unless until the club is a payee for two years straight. If that happens, the club goes back to tier one for refund purposes. As the tiers go up and a club forfeits more of their refund, that extra money goes to payee clubs and funds to benefit the players themselves.
There is also something called the Commissioner’s Discretionary Fund which allows the Commissioner to give out $15M every year to clubs as they see fit–so long as no club receives more than $4M. The clubs request these funds through written applications to the Commissioner.
The idea behind this revenue sharing is that it takes two strong teams to have a good game of baseball. With that in mind, the Basic Agreement requires clubs to–as we’ve discussed a bit already–use these funds from revenue sharing and the Commissioner’s Discretionary fund to improve performance on the field through investment in players, team personnel, equipment, etc.
Where clubs don’t do this, as the grievances against these four teams allege, the Major League Constitution (yes, that is a real thing) allows the Commissioner of the MLB to impose penalties on the teams. They can also force a change in the agreement or the way clubs choose to follow the rules to further protect the players.
Every year, all the teams are required to submit a report before August 15th which covers how they put their revenue sharing funds to use to improve team performance. This report requires some discussion of strategy to improve the team going forward and a summary of expenses. The MLB has the power to audit these reports whenever they like.
How Could This Proceed?
Under the Basic Agreement, some of the teams accused such the Pirates and the Marlins–well on the smaller side of teams and perennial payees in the revenue sharing scheme–could stand to lose a substantial amount if the grievances get purchase and the Commissioner ends up coming down on them. However, as mentioned, they vehemently deny the accusations and–fortunately for the teams but unfortunately for the accusing player–the MLB has released statements saying they do not believe the accusations to be true.
Regardless, the Basic Agreement is very clear on the procedure to revenue sharing grievances. These sorts of grievances will always go to arbitration if a settlement isn’t reached. Even the arbiter himself is set as the MLB always uses the same man–Mark Ivings–as their independent arbitrator.
The arbitrator will consider the expenditures the clubs have made with the revenue sharing funds, along with the way they’ve used the funds in the past, and look to see that they are being used properly. Normally, the MLB Players Association itself has the burden of proving that they’ve been on the up and up in their use of funds. The only exception to this is when a team’s payroll is enough lower than their revenue sharing receipts. As of now, it doesn’t look like any of the four clubs accused fall into this exception.
Given the stance of the MLB on the matter, this is likely going to be an uphill battle for the MLB Player’s Association if the grievance makes its way to arbitration. If they succeed, we may see some major shakeups in some of the smaller clubs–something to keep an eye on if you’re a fan of the Pirates, the Rays, the A’s, or the Marlins.
Jonathan Lurie is a Founding Partner of The Law Offices of Lurie and Ferri (Contact Info). He primarily handles business law, employment law, and intellectual property issues, but works with all types of civil matters. He is a Vice-Chair of the Sports and Entertainment Interest Group of the California Intellectual Property Section and has won awards for his knowledge of intellectual property, start-up business issues, and California civil procedure.