Wednesday, August 21, 2013

A-Rod: A Story of Unions, and the Sanctity of Contracts

Much has been written about MLB's investigation of the Biogenesis clinic, and the several players who have been banned pursuant to the investigation under the league's drug policy. Most that has been written has focused on the legacy of the sport itself, the ethics of the use of performance-enhancing drugs, and the appropriateness of the suspensions in light of what little is known of the evidence.

What is less talked about is the nature of baseball's employer-employee relationship and the contractual obligations of clubs to players after these suspensions have been handed down. The labor market for athletes has operated in much the same way as the market for film actors has for the last 30 years or so - which is to say, it has operated in a much different fashion than the labor markets you or I are familiar with. Individuals with such specialized skill sets, and employers which demand exactly those skill sets, would alone result in higher clearing rates in these professions. But these labor markets are also notable because of the relative stranglehold that unions have on the supply side. One cannot act in a major studio production without paying dues to the Screen Actors Guild1, and one cannot play in the major leagues without membership in the MLB Players Association

Unions are a highly politicized issue in other industries. Even setting aside the recent controversies involving public unions in Wisconsin and elsewhere, private unions have been the subject of scrutiny from the right side of the political spectrum in the automotive industry (among many others). In key political battleground states, right-to-work laws have become hot topics in recent elections. Yet, in baseball and other sports, unions seem to have produced substantially higher wages for workers without compromising the business model of the business (team) owners. The MLBPA is a shining example of success for union backers to hold up. Right?

As with any political problem, this issue does not have such a clear answer. While it's true that player salaries have increased dramatically since the 1970s, this coincides with the labor unions' primary achievement: the advent of free agency, or as most of us would call it, "business as usual." The fact that players were contractually obligated to remain with one team, essentially for as long as the team desired the player, was more akin to indentured servitude than to a proper market. This arrangement prevailed due to the effective monopoly status of the league, and not because of any condition that can be extrapolated to unions in manufacturing, teaching, and the like.

Once a market for labor was established - not only through free agency, but through ancillary benefits such as independent arbitration - salaries for players began to skyrocket. Yet, the unions, having achieved this goal, did not rest on its laurels. The balance of power in baseball continued to shift drastically towards the players through the 1980s and 1990s. One part of this shift is the guaranteed contract: unlike pretty much any line of work out there, including work as an athlete in most other professional sports leagues, players are guaranteed their contracts regardless of whether they play or not, regardless of whether the team wants them, and - here's the kicker - regardless of whether or not they've followed the rules that they agreed to as members of the MLBPA.

This last point has been made evident in the recent case of Alex Rodriguez. Despite the allegations that A-Rod wantonly violated the MLB's Joint Drug Agreement, repeatedly lied to cover it up, bought evidence to destroy in an attempt to cover it up, and perhaps used the evidence he bought to out other players in an attempt to deflect attention from himself, the New York Yankees remain on the hook for all future obligations under the contract. Further, the intent of taking these substances was to manufacture a level of performance above what otherwise could have been achieved. As a thought experiment, imagine what would happen to a financial professional who listed a professional designation on his resumé which he didn't have, then paid someone on the inside of the governing body for that designation to produce a phony certificate or to obstruct inquiries to that body about the authenticity of the designation. Not only would we expect this financial professional to be fired from the position he fraudulently obtained, we'd also expect him to be blackballed from the industry, sued by the company that hired him, and possibly investigated on criminal charges. The fact that the tens of millions of dollars left on A-Rod's contract are simply a foregone conclusion speaks to how far out of equilibrium baseball's employer/employee relationship has gone.

And yet - I will not argue that the contract should be voided after the fact. Above all, the sanctity of contracts must remain in place for society to remain lawful and orderly under any system. While the terms of this contract seem outlandish, the onus lies on the owners to negotiate more equitable terms going forward. The last decade has seen power shift back towards the owners, with more and more players favoring stiffer penalties for using banned substances.

In short: Unions are neither evil institutions which serve no purpose in a labor market, nor are they impervious to sins of their own. Collective bargaining can be useful, especially in the case of a supply-side monopoly, as was the case in the early days of the MLBPA. Ultimately, unions and ownership are responsible for their own negotiations, which should tend towards market equilibrium in the absence of external factors. Unfortunately, external factors nearly always exist in the form of legal protection or a complete lack of market alternatives. However, mistakes made in the past should not be recklessly corrected by extralegal means. Players and ownership both benefit from striving for a reasonable and fair labor market, both for salaries today and the long-term growth of the game.

1 - Recently merged into SAG-AFTRA, but I used the term most people are familiar with.

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