Labor Economics II:

Unions, Bargaining, and Strikes

Strikes: A ParadoxStrikes are irrational

Impose costs on both partiesLike war

Why not skip right to treaty?

Economics presumes rational behaviorHow to reconcile strikes & economics?

Awaiting NHL’s ritual suicide

Key to Strikes:Uncertainty or Mistrust

Again, like warWhat was true in 1861 & 1914?

Everyone thought war would end soon

Both sides expected quick victoryFew want conflict

But fear conceding too much

Conflict a mistake

Illustrating Conflict

Firm willing to accept

Union willing to accept

Contract Zone

Both Union and Firm willing to settle within Contract Zone

Illustrating Conflict

Firm willing to accept

Union willing to accept

Union’s Perceived Contract Zone

If union underestimates firm – may refuse offers in true zone Possible application to NHL?

Serfs vs MagnatesPlayers had little power early on

Recall Reserve ClauseIn NHL: Bobby Hull on “negotiation list”

“Property” of Chicago Blackhawks WHEN HE WAS 11!

Players often hostile to unionsBaseball’s origins linked to gentlemen’s clubs

Player’s League (1890) used non-union labor

That’s why they’re called “players associations”

Union Not Always Dominant

Early unions always failedLed by zealots who worked part-time on union

MLBPA formed in 1954Sole objective: secure pension

Carried to extreme in 1970s & 80s in NHLPALarry Eagleson head of NHLPA

Also agent for specific players Contracted with owners on Canada CupServed time for mail fraud

Sense of betrayal has made players mistrustful

Marvin Miller: The Man Who Changed

SportsWas economist for United Steelworkers

Lost position in mid 1960s cuz “too conciliatory” MLBPA’s first full-time director

Unlike previous union leadersNot lawyer who wanted revolutionWanted “more” & knew how to get it

Made MLBPA the most powerful union in sports

Miller Engineers a CoupCame with 2nd CBA

1st CBA of little note except for existenceRaised minimum salary from $6,000 to $10,000

Miller outmaneuvers Commissioner Bowie KuhnKuhn saw self as guardian of game’s integrity

Unique among major sportsMiller saw as owners’ lapdog

Had been lawyer for NL before becoming commissioner

Miller sees opening

A New Arbitration ProcessKuhn had been sole judge of grievancesMiller: Kuhn’s old job suggest possible bias

Asks for panel to judge “trivial” financial mattersKuhn retains authority for “big” decisions

Now have 3-member panel1 chosen by players 1 by owners1 by mutual consent

Consequences of Panel:The Case of the Catfish

Oakland A’s renege on “Catfish” Hunter’s contract

Star pitcher for championship teamIn 1974 signed one of few 2-year contracts

A’s supposed to create annuity in 1st yearOwner Charlie Finley fails to do so –violates contract!

Hunter claims contract invalidated“Financial matter” goes to 3-member panel

2 votes predictable Arbitrator only vote that matters

Peter Seitz declares Hunter free agent

The End of the Reserve Clause

Seitz’s ruling applied only to HunterBut players like what they see

$100,000 contract => $3 million contract

1975: A frontal assault on reserve clauseAndy Messersmith refuses to sign contract

Dodgers allow him to play

Recall reserve clause applies for 1 year

At end of season panel repeats performance

Reserve clause formally struck down

Results of Free AgencyMonopsony power broken

Competitive market for players

Winners curseOwners overbid for players

Multi-year contracts become the normAverage salary rose > 700%

Goes from < NFL to 2X NFL average

Why Did Football Fall Behind?

Outside events say should do betterNFL not exempt from anti-trust lawsBecame more popular than baseball

Profits higher

2 rival leagues to drive up pay

Union unable to exploitOften seemed to be part of the problem

Failed to break Rozelle rule

Challenges to Rozelle RuleJoe Kapp sues NFL

Ex-QB for Vikings (1969 MVP of NFL)Signs with Patriots after playing out option

Wants no Rozelle Rule in new contract1971: NFL insists Kapp reinsertKapp refuses

Never plays again Sues NFL

Result of Kapp’s SuitJudge calls Rozelle Rule

“patently unreasonable and illegal”

Jury Kapp had legal contractNFL wrongly disallowedRefuses to award damages!?!

Mackey Suit: 1972John Mackey: star tight-end for Colts

President of NFLPA

Filed class action suit against NFL1976: Ruling invalidates Rozelle Rule

Reason: Not result of collective bargaining

1977: college draft disallowedFound to be in restraint of trade

Stage set for massive free agency

NFLPA GoofsUses free agency as bargaining chip for

Higher payments to pension fundHigher minimum salaryCheck-off system for union dues payments

Result: Rozelle Rule modified – not ended1977-88: 125-150 free agents/yr

Only 3 sign with new team

1981: No one wants Walter Payton!?!Only offer from Bears – his old team

NFLPA’s Worst MistakeRozelle Rule enshrined in CBACourts uphold NFL

One thing to imposeAnother thing to voluntarily have in CBA

Union cannot change mind and sueMust now bargain it away

Football StrikesNFLPA decries revenue sharing

Say teams lack incentive to sign free agents

They’re right – little financial gain from doing so

Want revenue sharing to include players Want 55% of revenues

Management scoffs at ideaIronically NFL now pays ~63%

Strikes in 1982 & 1987 unsuccessful

Why Did NFL Strikes Fail?Relatively short careers in NFLMentality of players

No minor leagueLess individual sport

Unlike MLBPA - leadership split playersEd Garvey:“Union for guards & tackles – the QBs can take care of themselves.”Garvey did not solicit positions – he imposed them

Owners staged replacement games in ’87TV Contract called for games – not playersMade money on strike

Lawyers Get What NFLPA Can’t

NFLPA sues NFL unsuccessfullyCourts laud merits of case against NFLBut cite CBA

1989:Union decertifies selfNo Union => No CBA => Players can sue!

NFLPA Goofs Again NFLPA re-forms

Allows owners to install Salary Cap – Why?

Again a bargaining chipHigher pensionsBetter medical benefitsAssured that teams will collect union dues

Embarrassed when Redskins players refuse to pay dues

Introduction to the Salary Cap

Once a point of harmonyNow a bone of contention

What is a salary cap?See one at http://www.nbpa.com/cba/cba.htmlMore accurately – a band

Sets upper and lower limit to salaryTake “qualifying revenue” of leagueMultiply by players’ shareDivide by # of teamsAdd or subtract fudge factor (~20%)

The NBA and the Salary Cap

Cap credited with saving NBAEarly 1980s bad for basketball

“Bloody” war with ABA just endedLow fan interest

1980 championship not shown live in Philadelphia

Teams unstableWandering Kings: From Cincy to KC to KC/Omaha to SacBuffaloed Braves: From Buffalo to San Diego to LA

Merger with ABA challenged by playersLeague lacks power of MLB to ignoreLacks savvy of NFL to circumvent

The NBA’s Era of Good Feeling

Owners grant free agencyPlayers drop objections to merger

Owners fear bankruptcy will resultPlayers grant salary cap

Assures of % of defined revenueInitially 53% - now 48.04%What is “defined” becomes bone of contention

Credited with saving the NBA

What Saved What?$-amount of cap is endogenous

If league revenues rise – so does cap

In early 1980s league at low ebbGeneration of charismatic stars enters

Larry Bird, Magic Johnson, Michael Jordan

Adroit marketing by new commissionerGreater revenue allows cap to rise

No reason for players to complain

Hard Caps and Soft CapsThe “Bird” Rule

Boston Celtics wanted to re-sign Larry BirdFeared could not do so under cap

League gives Celtics an outRe-signing own player does not count against cap

New kind of agreement arises Sign player to low 1-year contractRe-sign at high price

Sources of TensionCap ineffective

Virtually all teams over cap

Owners sought hardeningMaximum 7-year contractHad to spend 3-years for “Bird” to apply

Players worry about cap growthWhat if revenues slow down?

Politics Takes a HandSummer 1996: Owners lock out players

Clever timing: No harm no foul

Star players object to agreementThreaten to decertify unionStars take over leadership role

Kevin Garnett $126M contract a last strawOwners exercise option to re-open contract

NBPA leadership trapped by radical rhetoric

New AgreementFall 1998: Lockout cancels ½ seasonOwners “win” what most unions crave

Team caps retained – slightly higherIndividual salaries also limited

Salary scale rises with experienceGarnett could not get ½ his old contract today

A Cap ParadoxDesigned to limit salaries BUTGreater financial pressure than everCannot offer higher contract overall

Structure becomes importantHow many ways can you pay $35 million?

The importance of signing bonusesA way to guarantee contractsPuts greater pressure on teams to raise revenue