Last Tuesday, Major League Baseball (MLB) canceled its Opening Day and the first week of this season’s games. The decision, made after team owners decided to lock out players, came after nine straight days of negotiations when the players’ union rejected what the league called a “best and final offer.”

This moment marks the first time in 27 years that the MLB has canceled games over a lockout.

Among the sticking points between the league and its players are minimum player salaries, competitive balance, contract structure and "tanking."

We asked Professor Akira Motomura, chair of Stonehill's Economics Department and a well-known expert on the economics of sports, to share his insight on the ongoing dispute between the league and its players.

What is at stake?

Minimum player salaries Set at $570,500 for 2021, more than 60% of players are paid the MLB’s minimum. It is lower than the NBA ($898k), NFL ($660k), and NHL ($700k) minimums.
Competitive balance To try and minimize the gap between wealthy and less wealthy teams, the league sets a maximum amount of money (currently $210 million) that each team can spend on payroll. Teams that spend more than that amount are charged a luxury tax.
Contract structure In most cases, players are not eligible for free agency until they have been in the league for six years. Before that time, players typically earn far less than longer-tenured players.
Tanking In some cases, teams that don’t believe they can win a championship during the current season will deliberately lose games—a process known as “tanking.” Because baseball’s draft order is determined by team record, worse teams receive earlier draft picks.

What sets the MLB’s contract situation apart from other professional sports leagues like the NBA and NFL?

One of the big things is that the players are upset that they’ve been getting a declining share of overall MLB revenues, certainly since the 2016 collective bargaining agreement. We know this because salaries have stagnated, but revenues continued to rise before the pandemic and generally recovered strongly in 2021—thanks to streaming and TV contracts.

One major cause of this change has been a movement to younger and cheaper players, which allows owners to keep more money for themselves while fielding a comparably competitive team.

This shift toward less experienced rosters has a number of factors, including baseball’s ban on performance enhancing drugs, which enabled players to stay competitive into their mid and late 30s.

Another factor is the growth in analytics in the sport, which has given owners a greater understanding of the difference—or lack thereof—between paying a veteran or paying a younger player who can make a similar contribution to the team.

This is bolstered by baseball’s contract system, which makes it much more expensive to sign free agents—so any time that a team can field someone who is still on a rookie or arbitrated contract over a longer-tenured veteran, they will do so.

How did this system come about?

Funny enough, as Marvin Miller, former executive director of the Major League Baseball Players Association (MLBPA) wrote in his memoir, this six-year waiting period before players could enter free agency was something the union was happy to accept when the owners proposed it in the 1970s. They had economic models showing that by limiting the number of free agents, they would increase player salaries overall.

While that waiting period did grow salaries, it has also meant that today, some top 20 performers are being paid close to the league minimum and may be required to wait years before cashing in on a big contract.

Is the MLB’s “luxury tax” effective at maintaining competitiveness?

In isolation, it discourages the teams with the most to gain from spending too much. Arguably it’s helped recent World Series teams like Tampa Bay and Atlanta.

But it also discourages those teams from paying big salaries to the top players, which helps raise the salaries of those nearly as good.

Revenue sharing among teams can help small-market teams compete, but it can make others comfortable enough to not spend more to have a better team.

It's hard for me to believe that they're going to throw away an entire season over this type of disagreement, but we’ll have to wait and see.

Can you explain tanking, why owners might choose to tank and how effective it is as a strategy?

Well, I’ve done extensive research on tanking in the NBA—with Kelsey Roberts ’13, who began working on the topic as an undergrad in my Economics of Sports class and continued to work on our paper as she worked to earn her Ph.D. at Clemson—and the clear takeaway from the data is that tanking isn’t an effective strategy overall.

In the long run, the difference in player performance between picking fifth and picking 25th is nominal. Much more important is how well your leadership manages the organization. If you have a really good front office that believes in its ability to pick players—that is great, but teams are just as likely to succeed by building through trades and free agency.

A number of different ways to stop tanking have been proposed or are in place in other sports, like soccer. Are any other systems possible for the MLB?

Well, we know that no existing team would vote for a system where they might be relegated to a lower division, so we can count out copying soccer’s model.

Both sides have agreed to add some type of lottery element to their draft as the NBA and NHL have done. Those leagues have seen some benefit in reducing some tanking.

Some economists have also talked about splitting records entirely from the draft process—randomizing the order or making it a somewhat static rotation—or potentially doing a weighted lottery where the odds of receiving each pick change based on record. With that said, I haven't heard any leagues talk about seriously adopting these ideas, but definitely among academics and sports economists, it is under discussion as a way to eliminate tanking.

It is also important to note that baseball’s draft differs from other leagues just by the nature of the game. In the NFL or NBA, the first pick could make an impact very quickly—those high picks are usually pro-ready when they join the league. In contrast, even baseball’s highest picks usually take a few years to make an impact in the MLB. So in that sense, it is less jarring to consider the idea of a team receiving the first draft pick in a lottery right after winning the World Series.

As things stand, the owners have already accepted what the players are asking for in concept—to create a bonus pool for top rookies and second-year players—so although they’re still far apart on the numbers, at least they're talking numbers and not concepts.

Players are losing an estimated $20.5 million per game missed and owners are taking major losses as well. Why are their contract goals more important than starting the season on time?

If both sides are overestimating their chances of winning these negotiations, it could actually lead to both sides rationally thinking that the thing to do is to hold the hard line rather than compromise, because the other side's eventually going to give in.

In some sense that is what we have now, as they’ve both been playing such a hard line that you end up with games canceled and revenue that is going to be missed out on. But in the long run, those losses are small. A game is short compared to the life of the contract they’re working on, and what is decided here could have an impact on future contracts, so that weighs on their decision making in this case.

They also know that none of this is definite. There is still time to make up for missed games through scheduling changes, for example.

How long might this fight continue? Could we miss the entire baseball season?

I would be really surprised if we lost the entire season. 

The last major cancellation was in 1994, when the MLB cancelled the World Series. This was a different case, where the owners were trying to impose an entire pay-for-performance system on all pre-free agency players. It was a very big change, one which the owners and players disagreed strongly on.

Here, in contrast, my sense is that they're basically talking numbers.

There's room for compromise between them, and as dissatisfied as the players might be about the trends in revenue distribution, no one is proposing radical surgery to the system.

As things stand, the owners have already accepted what the players are asking for in concept—to create a bonus pool for top rookies and second-year players—so although they’re still far apart on the numbers, at least they're talking numbers and not concepts.

It's hard for me to believe that they're going to throw away an entire season over this type of disagreement, but we’ll have to wait and see.