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: The Sports Law Professor

Collusion

By Jeffrey Standen

Recently Donald Fehr, head of the Major League Baseball Players Association, worried publicly about some of the grumbling by baseball executives concerning Alex Rodriguez' stupefying salary demands. (Three hundred and fifty million dollars does seem like a lot of money, at first blush.) Major League Baseball, of course, has a history of collusion in attempting to restrict player salaries, giving the union cause to be worried. But Fehr's reputation as a combative and strident union boss seems to have led him to see hidden monsters on this one. As Time magazine today reports, no way teams would collude over just one player contract, right?

Wrong. I never quite believed the MLB owners colluded on player salaries back in the 1980's. But I do believe they could do it now, especially with respect to Alex Rodriguez.

1. First the legal issue: collusion can happen with respect to just one single contract. In other words, if one player is not offered a contract at a fair market price and that failure is the result of an agreement between bidders, even a tacit agreement, then that's collusive behavior.

2. Colluding to keep Rodriguez from maximizing his salary makes all the sense in the world from the perspective of the clubs. A-Rod is baseball's best player and will undoubtedly again set the upper benchmark for player salaries. The incentive is palpable to limit his deal. As great a player as Rodriguez is, other players are not far behind in ability. At this point, however, these other great players are far behind in salary, even though Rodriguez signed his record-breaking contract about seven years ago. At some point, soon one would expect, these other great players will be in position to catch up to Rodriguez' salary, escalating star salaries to a new level. From the perspective of the clubs and the union, a lot rides on A-Rod's next contract. The clubs have reason to cheat; the union has reason to be vigilant.

3. Colluding is easy in this case. Only one player contract is involved; only a small handful of clubs appear to have the wherewithal and revenue potential to pay Rodriguez what he wants. Communications in the digital age are simpler, quicker and potentially more secretive than ever before. A quick call from a cell phone or message from a PDA could accomplish in moments what once may have required travel, secretaries, and phone messages. I'm not saying clubs have colluded here, of course, despite some odd public statements. It is curious, however, that with baseball attendance and revenues at historic levels, Rodriguez is having trouble getting a raise from his year 2000 contract despite remarkable performance. Could his 2000 contract have so far outpaced the market that, even seven years later, he's still overpaid?

4. What's remarkable is that, in a sense, Rodriguez himself effectively induced two MLB clubs to collude with respect to his last contract. A couple of seasons after signing A-Rod as a free agent, the Texas Rangers escaped the lion's share of the obligation by trading him to the Yankees. So for the last few seasons, New York has benefited from A-Rod's services at something of a discount (not counting the players and money that went back to Texas in the trade). Two clubs, ostensibly competitors, joined together to pay the game's top performer. Now look at this the other way: assume back in off-season 2000 no single MLB club was willing to pay off the entirety of Rodriguez' contract. By signing with Texas and then departing a few seasons later, Rodriguez allowed the Rangers to split the bill. Could that arrangement ever be brought about at the outset? In other words, could A-Rod today tell the Red Sox he'll play third base for $30 million per season, with but 20 coming from the Sox and the rest from some other team(s)? No, that's absurd. But that absurdity is exactly the arrangement Rodriguez ultimately wrangled. So why couldn't a team like Boston sign Rodriguez today, giving him the money he wants, all the while planning that a few seasons down the road the team will trade Rodriguez and remain liable for only a fraction of his salary? Heck, players have been traded multiple times and had their contract paid by multiple teams. Even if no single team could (or was willing to) pay Rodriguez over the course of a 350 million dollar contract, the reality is that several teams (together) could, and that baseball has an explicit mechanism in place (trades) to make that collusive conclusion a reality. My point is: there is or should be a market for Rodriguez and that market should be a a level that is a substantial raise above his last contract because teams know they can for all practical purposes collude with other teams (via trades) to share the burden of a player's contract. So why is the market for Rodriguez not there? There are reasons consistent with non-collusion: team needs, financial limitations, concerns about the player's age and compatibility. But collusion provides a sufficient explanation too.

5. I've never bought the conventional line on the mid-1980's. Here's the story: that the entirety of the major leagues, all 28 teams, acted in concert for the better part of a decade, and with regard to not just a few but all free agent salaries; that these teams concocted, enforced and achieved a league-wide conspiracy to limit player compensation, and that this improbably successful conspiracy would have continued unabated but for the unprecedented penalties imposed by labor arbitrators at the behest of the union. It's a fairy tale, and I just don't buy it. How could baseball's owners, a bunch of loudmouth, self-made millionaires with a taste for public attention (hence the decision to purchase a baseball team) have negotiated and stuck by this secret pact and then breathed not a word of it, not even to this day? Think of the hundreds of people who would have had to have been "in the know" on this national conspiracy: not one of them has ever breathed a word? Where's the direct evidence of this conspiracy? Where are the secret documents, the smoking guns, the closed-door meeting notes, the tell-all book from somebody's assistant? The story is that, apparently, with nothing more than a wink and nod, all of baseball's owners toed the line, even though the incentive to "cheat" (by signing a free agent) and capture the riches and fame of a championship season was palpable and within easy grasp. Would all teams, even those struggling at the gate with fans starved for a winner, forgo the substantial chance to win it all? Why would these teams abide by this supposed agreement to fix salaries, especially if those teams that profited from the conspiracy got to keep their profits (the best free agent players) and never had to pay back the losers (the teams that went without improvement)? Why stick to a conspiracy that only benefited your competitors, especially when those competitors had no means of punishing cheating clubs? Conspiracies don't last without a means of keeping cheaters in line. Yet somehow this conspiracy, in an industry whose every move to subject to intense press scrutiny, managed to remain a secret right in front of our noses.

6. The arbitrator(s) who heard the union's grievance found collusion. But that collusion was not shown by "direct evidence" (such as a written agreement, or testimony of telephone calls); instead, it was shown only "circumstantially." Circumstantial proof means that certain results or conditions are proved and those results or conditions are "consistent with" illegal behavior, although they don't necessarily prove it. For instance, if a man lies dead in a room and I'm the only person who had access to that room, then my access provides circumstantial proof of my guilt. The problem with circumstantial proof is that it relies on an inference from a fact, and the reality is that other, often equally compelling inferences are also available from that fact. So in 1986 or so when Jack Morris, a star pitcher, became a free agent and failed to get a decent offer, that fact circumstantially suggests the clubs were colluding. It also circumstantially suggests the clubs couldn't afford Morris. Both inferences are available: it requires a volitional decision to pick one inference over the other. I'm not saying circumstantial proof is worthless; I'm saying circumstantial proof without more is not very convincing.

7. The arbitrator rested his decision not on the few phone calls that were made between a few clubs, but on what he termed "conscious parallels" in clubs' decision-making. It's very hard to separate illegal (but tacit) parallel behavior from legal (and even explicit) independent decision-making that takes into account competitors' behavior. Both clubs and agents use bids from other clubs to gauge contract requirements and shape their offers. The Red Sox will bid in light of what they expect the Yankees will pay; indeed, agents inadvertently facilitate price fixing by acting as the conduits of bid information from club to club. When the Red Sox decide to limit their offer in light of the Yankees' bid, that's just good business. Multiply that good business to all competitor clubs, and it provides circumstantial (but merely circumstantial) evidence of collusion. It also provides circumstantial evidence of good business sense.

8. I'm not crying for A-Rod. He'll get paid plenty. But it is odd to me that commentators seem so eager to dismiss charges of collusion in this case, where collusion would be easy to accomplish and where clubs have every reason to commit it. It's even more odd that these same commentators are happy to embrace the standard line about the miraculous collusion of the 1980's. It all seems so backward to me.

9. By the way, the only reason it's "illegal" for owners to collude is that "concert of action" is prohibited in the collective bargaining agreement. It's not illegal in any other sense, given the exemption labor agreements enjoy from antitrust scrutiny. Why is this phrase in the CBA? Because the owners insisted on it in the 1970's after Mike Schmidt and Larry Bowa of the Philadelphia Phillies tried to market themselves jointly in seeking new contracts. Why did the owners worry about that? All it would mean is that Schmidt (the better player) would have taken a bit less to give Bowa more; who cares if Schmidt wants to pay Bowa part of his salary? Who cares if Texas was willing to pay part of A-Rod's salary? He only got the market price.

Full post as published by The Sports Law Professor on November 14, 2007 (boomark / email).