Chapter 18

1. Labor relations in Professional Sports Chapter 18

2. Chapter Summary • Because players were historically denied the right to choose which team to play for, and to switch teams to raise their salary level, the owners were in a much more powerful position. They benefited from the new revenues radio and television brought into the game, while players’ salaries were suppressed far below the level a competitive labor market would have brought them. • In response to the reservation system, players in each sort formed players’ associations, which evolved into labor unions. This in turn led to the system of collective bargaining between players and owners, which is where labor relations in most sports stand today. • The main focus of this chapter has been how employer-employee relationships have developed in • America’s four major professional team sports – baseball, football, basketball, and hockey. • The employer in each situation is the club, or team, and in each sport individual clubs have been organized into professional sports leagues. The employee is the professional athlete who performs on the playing field.

3. Chapter Summary • Occasionally, competing leagues have come into existence to challenge established operation, and they always have a significant impact on the employment relationships of their rivals. • At present, there is only one major league operating in each of the four major sports. While there is competition among the teams in a particular sport for free-agent players, championships and revenues, it is more accurate to view individual teams within a sport as joint ventures with a common interest in the competitive balance and financial soundness of the league as a whole. • Players have gained more power in recent years through the organization of player associations into effective labor unions. They have also realized substantial income escalation through the establishment of various free agency mechanisms in each sport, allowing them to change teams under certain conditions and thereby require employers to bid among themselves for player talent. • Free agency for players and the existence of rival leagues have been the two driving forces behind rising player salaries in the modern era of professional sports. • The labor crisis that each sport faces revolves around the question of the proper balance between the rights of team owners and professional athletes.

4. Chapter Summary • The current situation raises these key questions: What role, if any should government play in regulating the employment relationship, particularly when labor negotiations between the parties reach an impasse? What rights should players and owners each have in the equation, and what is the public’s interest (especially the fans’) in the employment relationship? • These issues have moved to center stage in the last several years, as players and owners have become more adversarial and less trusting of each other’s motives during collective bargaining negotiations. • The case of baseball illustrates how destructive the breakdown of labor relations can be. Each sport must answer the critical question of the employment relationship for itself, but neglecting them jeopardizes their ability to put on the games, which constitute the economic product of professional sports. • College athletes have not been recognized as employees by their universities, nor have they organized into unions. Courts consider their status on a case-by-case basis. • Athletes in other sports, such as auto racing, extreme sports, golf, tennis, and boxing do not enjoy the benefits of the collective bargaining system. On the other hand, this class of athlete has much more latitude to negotiate his/her individual compensation package with event promoters and corporate sponsors.

5. Collective bargaining • National Labor Relations Act (NRLA) • The right to self-organization; to form, join, or assist labor organizations • The right to bargain collectively through representatives of their own choosing • The right to engage in “concerted activities” for employees’ mutual aid or protection • These provisions are administered by the National Labor Relations Board

6. Collective bargaining • Scope of collective bargaining • Individual teams negotiate collectively as a league for the purpose of reaching a contract with the sports players’ union • All active league players are bound by the actions of the bargaining unit • Negotiated agreement applies uniformly to each team • Salary caps implemented pursuant to the collective agreements for basketball and football • Sports agents • players engage the services of personal contract negotiation representative

7. Where problems occur in sports labor relations • Major sports leagues in the US and Canada • National Football League (NFL) • National Basketball Association (NBA) • National Hockey League (NHL) • Major League Baseball (MLB)

8. Where problems occur in sports labor relations • Other sports leagues • Professional soccer (indoor and outdoor) • Extreme sports (street luge, snowboarding) • Motor sports (NASCAR) • Women’s National Basketball Association (WNBA) • Minor league baseball and ice hockey • Arena league football • Women’s beach volleyball • Women’s and senior golf • Tennis • Boxing and wrestling

9. Where problems occur in sports labor relations • Basic working agreements between players and owners • Collective bargaining agreement • Standard player contract • League bylaws and rules • Team owners, general mangers, and players are not always familiar with their contracts, and operating procedures often suffer as a result

10. Components of the Labor-Management Relationship • Government • Principal issues in sports center on distribution of money and power between players and owners • Government regulates the relationship between management and labor

11. Components of the Labor-Management Relationship • Government • Principal issues in sports center on distribution of money and power between players and owners • Government regulates the relationship between management and labor

12. Components of the Labor-Management Relationship • Management • League, individual clubs, all non-player employees, make up the • management component of the labor-management relationship • Management operates through league offices in conjunction with individual team ownerships • Leagues are responsible for the negotiation of collective bargaining agreements, national television contracts, setting procedures for player drafts, and rule-making to enforce various management prerogatives • Team managements negotiate individual player contracts, but also establish rules for player movement between teams, as well as hire their own front office employees and coaches

13. Components of the Labor-Management Relationship • Labor • The labor component is made up of players, their agents, and the certified labor unions that represent the players • Unions engage in five principal functions • Organizing the membership to support union goals • Negotiating contract terms applicable to all players • Using pressure tactics, including strikes • Enforcing the terms of the collective bargaining agreement through grievance procedures • Conducting meetings, voting on collective agreements and communicating with members

14. Components of the Labor-Management Relationship • The impact of external sources • Umpires and referees • Television and radio broadcasts • Stadium and arena ownership

15. Components of the Labor-Management Relationship • Commissioner • Serves both management and labor • Spokesperson on league matters and a guardian of the public interest on questions of the integrity of the game • Selected and paid by and serve at the discretion of management

16. The Basic Elements of Management and Labor • Leagues • The establishment of a viable team in a desirable market greatly decreases the chance a new league can be formed and succeed in that market • Revenue sharing • Guarantees the league’s overall health as an economic entity • Contracts with major commercial television networks are divided equally among the member teams in each league • Some leagues split gate receipts

17. The Basic Elements of Management and Labor • Distribution of player talent to each team • Initial player allocations to new teams • Drafts of available professional and amateur players • Restrictions on player movement to new clubs • Compensation to old clubs for lost players

18. The Basic Elements of Management and Labor • Member clubs • Individual clubs are normally independent legal entities • Each team is signatory to a league agreement that governs the team’s actions as a member of the cartel • Each team is an equal partner in the league, subject to legal rules and disciplinary action for any breach

19. The Basic Elements of Management and Labor • Players • Direct producers of the industry’s product • Free agency – athletes considered independent contractors from the fan’s viewpoint • Players feel that since fans pay to see them perform, their compensation should be based on the revenues they generate • Player’s career may be cut short because of injury • Player’s career is naturally limited due to diminished performance of age

20. The Basic Elements of Management and Labor • Agents and attorneys • Regulation of agents under NFLPA collective bargaining agreement • Agent registration process requires passing of an entrance exam • Must disclose their professional and criminal histories • Must pay an annual registration fee of $1,200 • Limited to a 3 percent commission on their clients’ contracts

21. The Basic Elements of Management and Labor • Agents and attorneys • NCAA bylaws • Student-athlete or potential student athlete becomes ineligible for intercollegiate competition when he or she accepts transportation, benefits, or anything of value from an agent • If violated, athletes lose their eligibility • Universities are sanctioned if they allow ineligible athletes to participate in intercollegiate competition Sanctions include: • Liability to return revenues for participation in postseason events • The loss of scholarships • ‘Death sentence’ – termination of the particular sport from the athletic program

22. The Basic Elements of Management and Labor • Agents and attorneys • UAAA guidelines • Agents must be registered with the state prior to contacting a student-athlete • If student initiates agent contact, he may negotiate but must register within seven days • Agents are required to disclose information regarding their professional and criminal history • Prohibits agents from funneling benefits to student-athletes • All contracts must include a specific ineligibility warning to the student-athlete • Student-athlete has the right to cancel the contract within fourteen days • UAAA enforces its requirements through criminal and administrative penalties at the state level

23. The Basic Elements of Management and Labor • Agents and attorneys • Unethical actions of an agent • Misappropriation of client funds • Recommendation of investment that violate federal securities laws • Overcharging of fees for contract negotiation • Re-negotiation of a player’s contract without prior authority • Funds given to college athletes during college eligibility • Signing college athletes to contracts before their senior year of eligibility is complete • Loan money to a promising athlete to represent him later in a professional contract negotiation

24. The Basic Elements of Management and Labor • Players’ associations • Each have established a minimum player salary, pension payments, and rookie salary structures • Individual players negotiate their own contracts • Salary, contract length, guaranteed payments, bonuses • Three basic strategies players use to strengthen their position in the collective bargaining process: • Antitrust litigation • Player strikes • Arbitration of grievances

25. Contents of the collective bargaining agreement • Contract length – in general, has decreased over the past two decades • Compensation – includes wages, pensions, and fringe benefits • Utilization of labor – work practices, overtime, health and safety concerns • Individual job rights – seniority, discipline, violence, gambling, drug abuse • Rights of the parties in the bargaining process – players choosing not to join can be assessed a “service fee” by the union

26. Baseball as a model of sports labor relations • 1968 – first collective bargaining agreement between players and owners • Higher minimum salaries • Pension increases and disability and health insurance benefits • Provided for a grievance procedure for the resolution of disputes

27. Baseball’s labor relation sin the collective bargaining era • Reserve system • Named after the reserve clause • Stated that if a player failed to sign a contract for the following season, his club could unilaterally renew the contract for one additional season under the identical salary and conditions • Provided a consistent product year after year, while denying players many of the basic labor rights that were taken for granted by their fans

28. Baseball’s labor relation sin the collective bargaining era • 1973 collective bargaining agreement • Provided for final offer salary arbitration • The club submitted the highest figure it was willing to pay, and the player submitted the lowest figure he was willing to accept; an arbitrator chose one figure as a binding determination of the player’s salary for the next year

29. Arbitration: the end of the reserve clause in baseball • 1974 - Jim “Catfish” Hunter brought a grievance against the Oakland A’s • Claimed breach of contract, allowing him to become a free agent • Arbitrator ruled in his favor • Courts upheld the arbitration ruling • Hunter signed a 5-year $3.75 million contract with the Yankees • Highest salary in baseball at the time

30. Arbitration: the end of the reserve clause in baseball • 1975 – Andy Messersmith and Dave McNally • Played without renewing their contracts from the previous season • Declared themselves free agents at the end of the season • Players argued that the reserve clause in their 1074 contract only bound them for one additional year • Owners maintained the reserve clause was perpetual • Arbitrator ruled in the favor of the players • Ruling upheld on appeal in federal court • Modern era of free agency in professional sports was born

31. Baseball: Two decades of unrest • 1972 – players struck briefly over a pension dispute and 86 games were lost • 1976 – spring training shut down for seventeen days because of dispute over free agency • 1990 – lockout during spring training • 1981 – player’s strike disrupted championship baseball season • Owners announced they would unilaterally impose a compensation plan • Union filed an unfair labor practice charge, claiming the owners had refused to bargain in good faith • Players went on strike June 12, 1981

32. Collusion • 1985 – free agent market collapsed when no contract offers for new free agents were forthcoming • Owners found by the courts to have engaged in collusion, agreeing among themselves not to bid for free agents and guaranteeing no offers were made • Courts found the owners had acted wrongfully, resulting in a $280 million damage award ($10 million per team)

33. The 1994 impasse • 1993 – average player’s salary was $1.2 million per season • Owners claimed current economic condition required revenue sharing between the ‘large-market’ and ‘small-market’ teams • Owners tied the plan to acceptance of a salary cap – maintained they had to control player salaries to ensure the survival of the game • Players refused • August 12, 1994, players went on strike rather than complete the season and allow the owners to impose the new system • September 14, 1994, owners canceled the remainder of the season • First time in ninety years, there was no World Series • December 22, 1994, owners announced the would unilaterally implement a salary cap

34. The 1994 impasse • Players maintained this was in violation of federal labor law • March 31, 1995 – US District Court granted injunction which prevented the owners from implementing the salary cap system • The next week, the Second Court of Appeals denied the owners’ request for a stay, and upheld the first ruling • In response, the players’ union announced it would voluntarily end its strike and return to the field to play the 1995 championship season • After abbreviated spring training and dismissal of replacement players, 144-game schedule began • Attendance was down by 20% • 1998 – renewed popularity • Between 1972-1999, baseball had nine work stoppages, and the salary cap issue was the most divisive • 1995 collective bargaining agreement avoided a salary cap by implementing a luxury tax on teams with the highest salaries

35. The umpires’ lockout • Umpires’ union had a four year collective bargaining agreement which expired on December 31, 1994 • Locked out of spring training camps on January 1, 1995 • Replacement umpires hired • Issue – existing salary structure, severance and bonus pay, unfair labor practices charge • Regular season games began with replacement umpires • After several days, players expressed displeasure with level of umpiring – owners dismissed the replacements and reached an accord which permitted the regular union umpires to return to work

36. Recent History: the free-agent era in the other professional sports • Football • Compensation system • “Rozelle Rule” – named for Commissioner Pete Rozelle • Rozelle given the task of awarding compensation to those clubs that had lost players to free agency • This action discouraged free agent signings and held down player salaries • Brought about strikes and antitrust litigation, which let to a free agency system in the 1993 collective bargaining agreement

37. Recent History: the free-agent era in the other professional sports • Football • 1974 – NFL players strike • Strike failed to break the deadlock • Union used antitrust litigation • 1976-1993, NFL players won series of court victors against owners, which established the current free agency system in football • 1975 – trial judge held that the Rozelle Rule was an illegal conspiracy in restraint of trade; violated antitrust law

38. Recent History: the free-agent era in the other professional sports • Football • “Plan B” free agency – undermined the free-agent market and unfairly held down player salaries; successfully challenged by a 1993 antitrust suit • NFL appears to have the most stable labor-management relationship • February, 1998 – players and owners agreed to extend the current collective bargaining agreement through the end of the 2003 season • NFL is the new paradigm of positive labor relations in sport

39. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • 1994, negotiations began for new collective bargaining agreement • Primary goal was the elimination of three provisions from the expiring contract • Salary cap • College draft • Right of first refusal

40. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • 1994-95 season played with no-strike, no-lockout • Union then filed an antitrust lawsuit, alleging that the restrictions created a restraint of competition and constituted price-fixing, violating the Sherman Antitrust Act • Players’ claims were rejected in court • Tentative agreement reached

41. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • June 30, 1995 – owners declared a lockout, first in league history • Several powerful agents and players tried to have the union decertified, the goal being to nullify the proposed collective bargaining agreement • September, players voted not to decertify, lockout was lifted, season proceeded • One result, top player agents and union’s legal counsel became part of the collective bargaining process

42. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • 1998 – owners voted to reopen negotiations at the conclusion of the season • Five principle issues in 1998 negotiations • Salary cap • Free agency • Minimum salaries • Rookie pay scale • Discipline of aberrant player behavior

43. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • Most negotiating was done through the media • League’s strategy was to wait the players out • November 1, 1998 – league announced that if no agreement was reached by January 7, 1999, the season would be cancelled • Vote scheduled for January 5, 1999 • Reached a compromise agreement and the season began on February 5, 1999, with a 50-game season as opposed to the usual 82-game season

44. Recent History: the free-agent era in the other professional sports • NBA lockout of 1998-99 • Effect of new collective bargaining agreement • Average salary increased to 42.64 million • Number of players earning $1 million or more increased • Owners acquired more control over player salaries than any other sports owners

45. Recent History: the free-agent era in the other professional sports • WNBA collective bargaining agreement of 1999 • Two new professional basketball leagues created: • American Basketball League (ABL) – set-up as a summer league • Women’s National Basketball Association (WNBA) – set-up as a fall/winter league

46. Recent History: the free-agent era in the other professional sports • WNBA collective bargaining agreement of 1999 • Originally eight teams, each owned by the league itself • Organized as a joint venture of the NBA team owners • December 1998, ABL declared bankruptcy; about 90 ABL players were left to seek employment in the WNBA

47. Recent History: the free-agent era in the other professional sports • WNBA collective bargaining agreement of 1999 • WNBA operates on single entity ownership model – individual franchises owned by the league • Players not employed by the team, but by the WNBA • This is a critical difference from the men’s four major sports

48. Recent History: the free-agent era in the other professional sports • WNBA collective bargaining agreement of 1999 • After the second year, WNBA players voted to affiliate with a union • Key issue was salaries • League minimum $15,000 • Maximum $50,000 • Bonuses could be earned for MVP and other incentives • 32-game schedule • WNBA unwilling to significantly increase salaries

49. Recent History: the free-agent era in the other professional sports • WNBA collective bargaining agreement of 1999 • Current contract • Minimum pay scale remains • Each player gets 401k retirement plan • Graduate school tuition • $100,000 life insurance plan • Year-round health and dental benefits • Salaries guaranteed for players who appear in sixteen games • Union will receive $100,000 annually from WNBA licensing royalties

50. Recent History: the free-agent era in the other professional sports • Hockey • 1975 – NHL’s reserve system struck down in court; owners recognize the player’s right to become free agents • Hockey retained the compensation award for teams losing free agents • Arbitrator awarded compensation if two clubs could not agree; no compensation required for free agents aged 33 and over