The Evolution and Decline of Free Agency in Major League Baseball: How the 2012-16 Collective Bargaining Agreement is Restraining Trade

Abstract

Dating back to the 1870s, in professional baseball’s infancy, the relationship between the owners and players was quarrelsome. Over the years, that relationship has not materially changed. Notably, more labor disputes have emerged in Major League Baseball (“MLB”) than in any other professional sport in the United States. The tension between the players and owners is the product of almost a century of absolute owner control over the players through the use of the notorious reserve clause.

The reserve clause gave the owners the unilateral ability to renew a player’s contract into the next season. Given the restraints the reserve clause imposed on employment mobility, players continually fought for better employment conditions through the legal system. However, despite the players’ efforts, three distinct Supreme Court decisions spanning from 1922-1972 recognized that MLB and its owners were exempt from federal antitrust laws. Effectively, these decisions reinforced the reserve clause by recognizing that MLB was not a monopoly.

In the 1970s, the players were ultimately successful in overthrowing the reserve system through a determined campaign, which involved litigation, collective bargaining, and, ultimately prevailing through arbitration. The players’ ability to improve their employment conditions by eliminating the reserve clause led to a remarkable period of salary gains and employee mobility.

Since 1976, the owners and the MLB Players Association (“MLBPA”) have collectively bargained for the terms and conditions of the players’ employment. Despite the owners fight to abrogate the players’ rights to free agency, collective bargaining has galvanized MLB and benefited both the owners through increased revenue and the players through increased salaries. As a result of the 1976 collective bargaining system, MLB players had the ability to become free agents after six-years of service time in the league. The framework of that system remains in place today. However, despite the improved employment conditions for players, recent trends in baseball suggest that the current terms and conditions of free agency are restraining trade.

Under the present system, free agency is restraining trade because players reach free agency when their talent peaks. As a result, the system no longer provides an incentive for owners to bid against each other for players on the open market. This article analyzes the history of the labor market in MLB and proposes a solution to the current inefficiencies with free agency. In short, the next collective bargaining agreement should allow players to reach free agency after four years of service time in order to improve their employment rights and to insure that the owners are wisely investing their financial resources.