16

Free Agency

If you don’t have solid, committed and supportive ownership, even the best and brightest front office will be doomed.—PETER BAVASI, baseball executive

On December 23, 1975, arbitrator Peter Seitz forever altered the balance of power between baseball players and their clubs and how a general manager could build his team. In a high-profile arbitration hearing involving Los Angeles Dodgers pitcher Andy Messersmith and Montreal Expos pitcher Dave McNally, Seitz ruled that the infamous “reserve clause” in the standard player contract did not in fact bind a player to his club endlessly and that the two players were now free agents.

Messersmith and McNally had played the 1975 season without contracts, their teams having renewed their 1974 contracts under what was commonly referred to as the reserve clause, a provision that allowed a club to re-up the player for one year. The two claimed that their clubs now had no right to them for the following year because both their contract and the option year had expired. Seitz sided with the players, ruling that the wording of the clause, which had been in every player’s contract for decades, applied only to the year following the end of their signed contract. Team building had changed forever.

The players had been striving for modifications to the reserve clause for many years without success. Most famously, in early 1970 longtime St. Louis star Curt Flood, in reaction to a late 1969 trade to Philadelphia, filed suit against baseball in an attempt to invalidate the clause and give him the right to sign with any team he wished. Flood lost his case in the U.S. Supreme Court, but his struggle, and the obvious panic it induced in the owners, helped to strengthen the players’ resolve and persuade many in the media of the merits of his case.

Besides a desire to choose their employer, the players had also become increasingly aware of how much money they might make in an open market. In August 1967 Kansas City Athletics owner Charlie Finley released outfielder Ken Harrelson in a fit of pique. Finley had fired manager Alvin Dark, and Harrelson responded by calling Finley “a menace to baseball.” When Harrelson refused to apologize, Finley set him free. Harrelson was initially shocked, fearing that he would be blacklisted from the game, but his shock abated once he started getting phone calls from general managers offering him contracts at significantly more money than he had been making. A good player but by no means a star, when Harrelson signed with the Red Sox for a reported $75,000 (Harrelson later claimed $150,000, which likely included a sizable bonus), he became one of the highest-compensated players in the game. The ramifications of Harrelson’s free agency so disturbed Major League owners that they strengthened the rules so that a released player had to pass through waivers before becoming a free agent.1

Seven years later Finley gave the players another glimpse at a possible future. On the eve of the 1974 World Series, which the A’s won for the third straight year, a story broke that star pitcher Jim “Catfish” Hunter would file a “breach of contract” grievance against the A’s because Finley had failed to pay a $50,000 annuity as stipulated by Hunter’s contract (which totaled $100,000 for the season). Soon after the A’s beat the Dodgers in the final game, Hunter followed through. Two weeks after a lengthy November 26 hearing, arbitrator Seitz found for Hunter, voiding his contract and freeing him to sign with any club. The baseball world went crazy. Never before had a player of Hunter’s caliber at the height of his career been available to the highest bidder.

A three-week battle ensued involving nearly every team in baseball. The Yankees landed him with a five-year deal totaling $3.35 million, about three times the going rate for the game’s top stars. Players union chief Marvin Miller had been telling the players for years what the free market might mean, and now they knew. “This had shown everybody,” said Lee MacPhail, now the AL president, “exactly what free agency could amount to.”2

San Diego Padres president Buzzie Bavasi, who reportedly bid higher than the Yankees for Hunter, likely spoke for many owners in expressing his fear of what had transpired. “What we saw happen here,” he said, “fully demonstrates the importance of the reserve rule. The richest clubs would offer the top players the biggest salaries and the biggest bonuses.”

Marvin Miller disagreed. “Buzzie Bavasi is a smart man,” he said, “educated and all of that, but he obviously didn’t learn anything about economics. What he is saying is economic idiocy. The Hunter case establishes zero about what would happen in a free market. Here we had a supply of one and a demand of 24. Obviously, when the supply is one and the demand is great, prices will go up dramatically.”3

A year later Seitz’s ruling in the Messersmith case meant that any player could play the upcoming 1976 season, or any future season, without signing a contract, making potentially hundreds of players free agents at the end of every season. The stunned owners and giddy players’ union spent the next several months negotiating a new collective bargaining agreement that restricted free agency to players with six or more years of Major League service. In order to give every current player at least one chance at the free market, the service-time provision did not apply for 1976. (Also, if a player had already signed his 1976 contract, he could become a free agent at the end of that contract, without regard to service time.) There would be widespread free agency for the first time after the 1976 season.

Many baseball men, understandably, were shocked and angry, notably Cincinnati general manager Bob Howsam. “Arbiters weren’t intended to rule upon baseball’s reserve clause,” he said, though Seitz had repeatedly but unsuccessfully asked the owners to negotiate the issue with the players’ union. Howsam had the best team in baseball at the time, and he feared that teams would no longer have any incentive to build the way he had built his Reds. “Why spend money developing players if you may lose them when they’re ready to produce?”4

Miller had no sympathy for the owners’ suddenly vulnerable position. “For 10 years, the owners’ view has been ‘go to hell’ when any talk of modifying the reserve clause arose. And for 10 years, I have been telling the owners, ‘That’s silly. Don’t wait until you’ve been hit on the head.’ Now they’ve been hit on the head.” To the claims that baseball teams would go broke, Miller offered that the reserve system had led to incompetent team management. “I think if owners knew that players weren’t bound to them for life, they would run more efficient operations. For example, who’s to say they can’t run player development programs just as efficiently at a lower cost?”5

Free agency dramatically changed the way baseball ran its business. For starters, it shifted the balance of power in collective bargaining. Since the Messersmith ruling most labor negotiations have hinged on the owners attempting to reduce the freedoms that Seitz had given the players—by limiting free agency to six-year veterans, by requiring some sort of compensation going to the team that lost the player (the details of which have changed many times), or by taxing team payrolls.

Not surprisingly, free agency has led to dramatically higher salaries for players—not just for the free agents, but for players who could use each new signing in their own negotiations. Chart 5 recaps the average player salary back to 1961.6 As indicated by the chart, player salaries began their dramatic rise in the late 1970s and have hardly stopped. In the 1985–87 period the owners secretly agreed not to bid on free agents, a violation for which they later had to pay the players $280 million in damages. In the mid-1990s baseball went through difficult financial times, both before and after a long player strike that lasted from August 1994 into April 1995.

At the time of the Messersmith decision, many observers predicted that salaries would skyrocket and that baseball would suffer terrible harm. “Without a reserve system,” baseball commissioner Bowie Kuhn testified in the hearing, “our vast array of minor leagues would hardly survive. It is not hard to imagine that we could even lose a major league.”7 But many also believed that the owners were little concerned with principle. “It is the price of human flesh that has scandalized the baseball establishment,” Red Smith wrote, “not the barter of human flesh.”8 And, in fact, the owners were right that the players would get a larger piece of the pie: the players’ percentage of revenue jumped from near-historic lows in the mid-1970s of roughly 20 percent (it had been around 30 percent in 1939) to 63 percent by 2003. As of 2012 it had come back down to around 42 percent.9

In the end, of course, the game did not crumble. Baseball revenues (bolstered by enormous television, stadium enhancement, merchandising, and advanced media income) have skyrocketed beyond what could have been imagined in 1975. Roughly $161 million in 1975, baseball revenues grew to $1.2 billion by 1992 and $7.5 billion in 2012,10 more than forty-six times higher than thirty-seven years earlier before free agency. Moreover, the associated massive escalation in franchise values has more than offset the jump in salaries.

Chart 5. Average MLB salaries

Source: Mike Haupert, Haupert Baseball Salary Database, private collection.

Not surprisingly, player contract status quickly became an important factor in managing a baseball roster. Chart 6 shows the percentage of WAR in the Major Leagues that was earned by players who had previously been through free agency. This includes players who signed as free agents and then later were traded to other teams. The graph is designed to distinguish players who presumably are being paid “free market” rates for their services.

Because players with fewer than six years of service, and especially those with fewer than three (who have not yet earned the right to have their salary determined through arbitration), are usually much less expensive, even the richest teams can generally not afford to have a roster filled with veterans. The Yankees of the 2001–12 period maintained the largest payroll every year, not only because they had good players but because more than half of the team’s WAR was earned by players who had been free agents. For most teams this is not a sustainable practice. In order to compete with a free-spending club like the Yankees, a team needs substantial production from pre–free agency players.

Chart 6. WAR from players who have been figcaprough free agency

Source: Database owned and maintained by the authors.

The recent downturn in the percentage of WAR attributed to former free agents can be attributed to at least two factors. First, teams are often using younger, cheaper Minor League veterans instead of aging Major Leaguers as role players. Additionally, teams often try to sign their young star players to long-term contracts before they are eligible for free agency. For example, the Minnesota Twins signed reigning MVP Joe Mauer to an eight-year, $184 million contract after the 2009 season to prevent his impending free agency a year later. According to a study by the Pittsburgh Tribune-Review, 108 players on Major League rosters in 2013 had had at least one free-agent season bought out through a multiyear contract.11

Much like the creation of the amateur draft in 1965, the advent of free agency required front offices to adapt to a new reality. If a team wanted to keep one of its players in the fold, it had to make sure that he was well treated and well compensated in accordance with the newly emerging market. In order to attract another team’s player, the team needed to persuade the player of the benefits of a new environment and be prepared to outbid other teams. As with all such changes in the game’s history, some teams adapted more quickly and effectively than others. How well they adjusted would be a key determinant of a team’s success over the next forty years.

Because the change was thrust upon them, rather than well planned, many 1976 teams suddenly had players that they could not, or at least would not, pay to retain. The first few months of the 1976 season were played while a new collective bargaining agreement was being negotiated, and many players did not sign contracts in hopes of cashing in after the season. Some clubs reacted by trading stars with expiring contracts—Reggie Jackson, Don Baylor, Bert Blyleven, Ken Holtzman (twice)—in order to salvage something before the player became free at the end of the year. Charlie Finley took this one step further, selling Vida Blue to the Yankees and Rollie Fingers and Joe Rudi to the Red Sox for a total of $3.5 million, deals that were controversially voided by baseball commissioner Kuhn.

The great Cincinnati Reds, whose consecutive World Series titles straddled the Messersmith decision, slowly deteriorated in part because they refused to participate in the annual free-agent derby. The club lost star pitcher Don Gullett after the 1976 World Series and Pete Rose and Joe Morgan within a few years. Bob Howsam, a man who had proved to be a genius at building a club in the reserve-clause era, recognized that those days were over. As the Reds celebrated their 1976 Series sweep of the Yankees, just days before the start of the first free-agent signing period, Howsam was asked in the wild clubhouse celebration to say a few words. “This may be the last time you see a club win that has been built this way,” he said. As one writer later observed, “It was a sober moment, like announcing at a birthday party that someone’s mother had died. The announcer hardly knew what to say.”

But if Bob Howsam feared the future, George Steinbrenner did not. His Yankee team had just won the AL pennant, had just opened their remodeled stadium, and was eager to compete in this new free market.