Pending work stoppage could have a chilling effect on MLB free agent market

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When the current collective bargaining agreement (CBA) between major league baseball’s owners and players expires at midnight on December 1, 2021, MLB could see its’ first work stoppage since 1994, when labor strife led to the cancellation of the post season. ESPN reports that a work stoppage is all but certain. LINK

It is possible that MLB will announce a moratorium on player movement, including trades and free agent signings, which would be like poking a stick into the eye of the players’ association. But even without a signing freeze, uncertainty about the terms of a new agreement could have a chilling effect on the free agent market.

Several clauses in the current agreement could change in a new CBA:

Luxury tax penalties, also known as Competitive balance taxes, could cause higher spending teams in particular to hesitate before signing any large contracts, not knowing the true cost of the deal. The New York Yankees, for example, went to great trouble to get their payroll under the tax threshold to lower their tax rate going forward.

The trouble is that we don’t know what the new threshold will be, or even if there will be an accelerator for teams that are repeat offenders. MLB actually suggested a $180 million upper threshold in a proposal to the players in September, which is lower than the current $ 215 million level. Nobody in their right mind believes that the players will accept a lower threshold, and as long as the owners are stuck there, there will be no agreement. But still, uncertainty remains.

Qualifying offers are due five days after the end of the World Series for any team hoping to receive compensation for losing their own free agent players. Under the current agreement, teams must make an offer of $ 18.4 million for one season, then have that offer rejected by the player, who then signs with a new team, resulting in compensation to the former club, depending on the amount of the new contract.

Chances are that teams will still receive compensation if they make a qualifying offer this year, but with the expiration of the agreement on December 1, the entire compensation scheme could change.

Free agent compensation payment for signing free agents is also on the table. Players want to eliminate payment of compensation, although it only applies to a select few players. Just two of ten players accepted qualifying offers last winter, and just one of seven the previous winter. If the payment of free agent compensation is eliminated, will teams be required to surrender a draft pick or two? What if they sign the player prior to the new CBA being signed?

A salary floor, which could force teams at the bottom of the payroll scale to spend more on player salaries, could be part of a new CBA. The owners proposed a floor, but only along with their ridiculous proposal for lowering the upper threshold on the competitive balance tax. Players should be pushing hard for a stiff tax on teams that fail to spend, but whether teams will have that incentive is not known.

Arbitration eligibility could also be modified in a new agreement. The eligibility requirement for arbitration has crept slowly downward, from three years, to two years and 120 to 140 days of service time. The deadline to make a qualifying offer to arbitration eligible players is also December 1st, the same day that the current CBA expires. Most likely, the 2022 arbitration class will not change, regardless of whether service time eligibility changes in the new agreement.

Free agent signings have slowed considerably in recent years, as salaries have declined and players and teams waited to see what the players at the top of the pay scale receive in free agency. If the Dodgers and Yankees are reluctant to sign Corey Seager because they don’t know the actual cost for lack of tax information, Carlos Correa and other premium shortstops may hold off until the bar has been set, just as an example.

An interim agreement to continue certain terms of the current agreement could remove much of the uncertainty in the market. MLB has offered to extend the current CBA for another season, an offer which was rejected by the players. An interim deal could provide that the current compensation scheme and competitive balance tax structure remains in place for the first year of a new agreement.

While owners are much more satisfied with the terms of the current agreement, players have seen total spending on salaries decline over recent seasons. Even though the status quo might favor owners in the short term, a robust free agent market is not something that they want to facilitate.

If the free agent market is brought to a halt, there could be a stalemate lasting into spring training, followed by a frenzy just before the 2022 season begins. Any edict from the commissioner’s office to not sign any free agent players could- and should result in legal action to ban the moratorium as an act of collusion.

A team- looking at you Tigers- could avoid the uncertainty by striking early on their free agent target(s), swallowing the fact that they will surrender a supplemental second round draft pick. Detroit doesn’t need to be concerned about the luxury tax, even if it were dropped to $180 million, and they shouldn’t be concerned about a $100 million salary floor. They might even find a player or two that also wants to jump the market and avoid the uncertainty of a possible work stoppage that leaves them in limbo all winter long.

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