Foul Ball: Why Major League Baseball’s Current Labor Model is Flawed

This past fall, David Price, a 30-year-old free agent, signed a seven-year contract with the Boston Red Sox worth $217 million. Less than a week later, Zach Greinke, a 32-year old free agent, signed a six-year contract with the Arizona Diamondbacks worth $206 million. Despite these astronomical contracts, I argue in a forthcoming paper in the Sports Lawyers Journal that free agency in Major League Baseball (“MLB”) appears, perversely, to restrain trade more than to promote it.

Under the current collective bargaining agreement, free agents are paid for their past—rather than their future—production. In essence, age is the fundamental inefficiency of MLB’s labor market. A glance at the list of free agents in any off-season—exemplified this year by Price and Greinke—demonstrates that most players are over thirty and exiting their physical prime.

Baseball’s free agency inefficiency is a consequence of the structure that the players and the owners agreed to in 1976. Under that system, the players traded six years of Major League service time for unrestricted free agency thereafter. The market adjusts to this by permitting teams to sign younger players beyond their six-years of team control below market value. Players are willing to sign these contracts because they are risk averse and avoid the downside scenario of never reaching free agency. The current framework functions like the old reserve clause, where the owners restrained employment mobility by having the unilateral option to renew a players’ contract into the next season. 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. Free agency may come too late to be of real value to the players or the teams that nevertheless sign them to lavish contracts.

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 below market value, reflecting the risk teams assume, instead of overpaying for a known quantity that will inevitably decline. This shift implies that free agency is outdated. Importantly, in the next collective bargaining agreement, the owners and the MLB player’s association should acknowledge that fact by permitting free agency to begin earlier.

Despite being well compensated, the current trend in MLB is that players are still bound to their team until their value has peaked.

I propose that the next collective bargaining agreement 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. Additionally, allowing players to reach free agency earlier will alleviate the crippling effects of mega-contracts with aging players like Price and Greinke. If a player reaches free agency at 27 or 28—instead of 29 or 30 as they do now—it will lead to a higher probability that fewer years will count as sunk costs where the player cannot perform because of his declining physical ability.

Earlier free agency would implement the principle that labor costs should rise or decline according to its value. This is especially important in an industry such as MLB where age matters a great deal. The present system distorts the market by suppressing labor costs initially and only giving players, effectively, one shot at a significant contract.

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