Play ball – or not: Let’s learn from baseball’s labor negotiations

Dean Richard Franza’s column appeared in the Sunday, February 13, edition of the Augusta Chronicle. The post can be viewed here.

Most of us watch sports as a means of entertainment and often as a distraction from the realities of the rest of everyday life – such as inflation, COVID and our own workplace challenges.

However, as regular readers of this column know, I also try to apply lessons I learn from sports to business and the workplace. Usually, I use the lessons I learn from the games played on the fields, courses or courts, but in today’s column I will try to provide lessons from the business side of sports.

I would like to explore what we can learn from the two sides of the negotiations between Major League Baseball, which represents its franchises’ owners, and its Players’ Association, the union representing the players. By looking at the owners as equivalent to a business’ owners and/or management and the players as employees, we can take away some important lessons both as managers and employees.

Before we get into the lessons learned, it is important to make a couple of things clear. First, the MLBPA’s constituency is not like many other unions, with the exception of players’ unions of other professional sports. Its members make a minimum salary of more than $570,000/year and a number of its members make more than $10 million annually.

Second, unlike many workers, major league baseball players are often not free to move from team to team, particularly early in their careers, before reaching “free agency” (after six years in the majors), when they are finally able to offer their services to the higher bidder. Despite these unique circumstances, there is still much to learn from these negotiations.

Also, I want to make it clear that I am not going to take a side in these negotiations. Rather, I want to look more closely at the perspective of each side and understand that perspective more clearly and how it might relate to our own organizations.

First, let’s look at the players’ side of these negotiations. As in most labor negotiations, money is the No. 1 topic. The players’ big picture argument, which has always been the case in these potential work stoppages in MLB, is that they should be earning a larger share of league revenues. Players rightly argue that they are the ones who help produce more revenue by using their skills to win games, entertain fans and ultimately fill seats, which generates much of the revenue along with concessions and media rights.

While the rules are a bit tricky to review in this column, the players who have the shortest tenure in the major leagues are most restricted in how much they earn. In the current negotiations, the players are arguing that the minimum salary needs to be raised for first- and second-year players and that the owners should provide a pool of funds to reward younger players based on performance, before they are eligible for the higher salaries available through arbitration and free agency.

This employee perspective is most relevant to other businesses. We need to be aware that our younger workers want to be paid based on performance rather than on one’s length of service with the company or other experience. Young workers find it unfair when they are paid less than their more experienced counterparts, even when their contribution to the firm is greater. We need to be aware of this perspective and consider it when determining pay.

As business owners and managers, we need to understand that our employees are evaluating their pay relative to their contribution, and if they feel that they are underpaid, they will likely seek other opportunities, particularly in a tight job market like we are currently experiencing.

However, the owners’ side wants to hold the line on salaries and they have good reasons for this.

First of all, unlike the NFL and NBA, where players enter the leagues ready to play because of their development that took place in college, when major league organizations sign their players, they require significant development before they can play in the majors. MLB drafts players right out of high school and international teenagers, but even players drafted out of college require additional development before they are ready to be capable major league players. A drafted MLB prospect typically takes four to six years in the team’s organization before potentially making it to the major league.

Therefore, the team is making quite an investment in player development to get its players ready to contribute to its major league team. A significant staff of minor league and organizational coaches and support personnel play a part in enhancing player skills to reach the major leagues. So, while players are making limited salaries their first few years, part of the reason is that the teams make significant investment in their development. In addition to the salaries they make, the players have gained enhanced skills from their teams, which will increase their future earning potential.

A second factor as to why owners want to limit salaries is that they are risking their personal capital in running the franchise. When they commit higher salaries to their players, they are driving higher costs with the risk of losing money if expected revenues do not materialize. While player contracts are guaranteed, owners of MLB teams take the risk of losing money. Therefore, owners hope to control and contain costs to preserve their risk capital.

The lessons here are applicable for employees. First, they need to appreciate that, in many cases, money spent on them by their companies may not be limited to their salaries. Many companies invest in employee development that makes the employees more highly skilled. While the company hopes that such investment will help its performance, the company also runs the risk of the more developed employee taking a job with another firm.

Employees also need to appreciate that companies are taking financial risks every day and that while the company certainly needs to pay its employees fairly, it also needs to control costs to ensure company solvency and profitability.

The overall lesson that we all should take away is that we need to understand the needs of the other side when we are negotiating as management and employees. Management needs to understand that its employees expect appropriate pay for good performance, while employees need to understand the investment made in them and the financial risks taken by the firm.

While we all hope the baseball labor talks result in the season starting as planned, it will only happen if both sides understand each other’s needs.