One on One: Don Fehr
By Alan Schwarz
As executive director and general counsel, Fehr, 52, serves as the players' chief negotiator in collective bargaining with major league owners, and has general responsibility for administering the other aspects of the MLBPA's activities, including contract administration, grievance arbitration, and pension and health care matters. In 1990, he successfully negotiated the $280 million settlement of the free agency collusion cases.
Baseball America senior writer Alan Schwarz sat down to talk with Fehr on June 27 in New York.
BASEBALL AMERICA: How would you characterize the state of the negotiations now?
DON FEHR: It's slow. We've had a series of meetings. We continue to meet. Some things change, but the discussions are not moving rapidly. It's not all that unusual in labor negotiations that they don't move rapidly. But you kind of wish that they would. It would be better. But we're plodding along.
FEHR: I don't think there have been many rancorous meetings. In any bargaining remotely approaching the kind of bargaining we've had, you always have bargaining sessions in which some people get angry or they have hot tempers or tend to lecture each other a little bit. But I think for the most part the meetings have been, at least recently, sort of flat in tone--workmanlike, deliberate, if you will. I don't know whether that's a good thing or it's not a good thing. It just sort of is.
BA: How would you compare it to past negotiations, the six or so you've been involved in?
FEHR: The tone of the sessions at the table is much more even and much more flat than some of the prior negotiations I've been in. And quite frankly, more flat than it was in the spring. Now that doesn't necessarily presage the future. We'll just sort of have to see how that goes. This is not an easy process.
BA: What did Paul Beeston bring to the table when he was lead negotiator during last year's less-publicized meetings? How do you feel about his absence from the process?
FEHR: Well, I think everybody that knows Paul liked him and has a lot of respect for him. And in certain respects we had to start over a bit after last June, when his authority was effectively ended by the commissioner--about a year ago, then it was seven months or so before he eventually left. But it is what it is. I don't worry about such things because they're entitled to name their representative.
BA: What was accomplished in those three months, where at least reports have roughly 20 meetings that were productive?
FEHR: It's hard to quantify precisely what kind of progress you had. You develop sometimes a feeling in a negotiation that you're dealing with people with whom you can get a deal done. You don't know how yet, you certainly don't see an avenue yet, you certainly don't have an agreement. But there's a feeling that you get, especially when you've been doing it for awhile, that this is maybe something you're going to be able to find a way to do. I believe, although Paul can speak for himself, that was his view also.
And then back in June a year ago we made a proposal which I'm reasonably confident that Paul wanted to make a counterproposal to, and he could never get the authority from the commissioner to do that. And effectively, negotiations with Paul ended last June on that basis.
BA: Were you closer to reaching an agreement at that point than you are today?
FEHR: Oh boy, I don't know. I had a fairly positive feeling that we would be able to reach an agreement then. It's harder to have that view now. But I can't quantify it in a way that you're suggesting. It's not something that is susceptible to that kind of analysis.
Part of the problem with collective bargaining is that very often when there's a breakthrough, sort of everything happens at once. There's a tendency to say, "Why couldn't it have been done before?" If you're involved in the process, you sort of look up at the sky and think to yourself, "Well, the stars were not aligned back then." What I think is fair to say is the negotiations we are having now are far more reminiscent of the negotiations we had in successive periods over the last 20 years than the kinds of discussions we were having last summer.
BA: What role will the contraction ruling on July 15th play? Will that be any sort of turning point in any direction?
FEHR: It's impossible to say. It's conceivable, for example, that the clubs are awaiting that ruling in order to do something, and whatever it is we won't know until that ruling comes down. If that's the case, it may make a difference. I'm not one of those who thinks that it is likely to make a tremendous difference one way or another. And I say that because the whole issue of contraction has multiple effects that you have to contend with. If we prevail sort of across the board, then we still have an obligation to bargain in good faith about the issue of contraction if the clubs want to raise it. And they've indicated that they want to do that, so it's still out there.
I just think we end up talking about mostly the same things quite apart from what the arbitrator rules. Beyond that, there's another interesting development which has taken place, which is that back last winter, we were dealing with two clubs who were prepared to be contracted, and if there are two who are prepared to be contracted now, I don't know who they are. I know about Montreal, but I don't know who the other one is. So that's an issue.
BA: Do you think the other team knows?
FEHR: Oh, I don't know. If there is another team that has been so identified, we have not been advised of that. I think it's likely that if the clubs prevail, and they try to contract, you will get the kind of resistance from some other city that they had in Minnesota and elsewhere. I'm not sure the decision in the case will solve anything.
The other thing is that whatever decision is later made, it will arise in a different factual, a different contractual, and potentially a different legal environment than the last decision arose. If that's true, I'm not altogether sure how much guidance we're going to get out of this decision anyway. So I'm not one of those who thinks it's the sine qua non of trying to reach an agreement.
BA: What's your definition of the word "impasse"?
FEHR: Well, it's not a definition that I have to reach. It is a definition eventually made by the National Labor Relations Board in the context of the given case. But for lay purposes, it connotes the notion that you have had good-faith bargaining, that that's not in question, that bargaining is sort of exhausted. And that would then trigger a right by management if they so chose to impose terms and conditions of employment that were consistent with their bargaining position. Beyond that, it's impossible to describe because impasse is never discussed generically, it's discussed in the context of a particular case.
Now, merely getting the impasse doesn't tell you very much because assuming you're there, which is an open question--the clubs thought they were there in '94-'95 and it turned out they weren't--the players are not stuck with the result. The players still have economic recourse at that point, and so it's merely a step along the trail, if you will.
BA: Do they have to prove their judgment of impasse to Judge (Sonia) Sotomayor or her equivalent before implementing?
FEHR: That was in the context of the last agreement. It does not apply now. They would be separate legal procedures.
BA: I'd like to read to you a quote from an interview I did with you in the winter of '93-'94: "When we have a labor dispute, players have no choice. You can't even think about saying, 'Well, we won't go on strike this time, maybe we'll think about filing an antitrust suit.' We can't do what the football players did when the clubs went too far to try to restrain the market for players . . . they were able to file an antitrust suit and say the laws prevent you from monopolizing too greatly. We can't do that."
FEHR: Players are covered by the antitrust laws, but a Supreme Court decision after that interview, involving the NFL, makes it difficult to do that while you're still a union. And giving up the union status would be a very difficult thing to do.
BA: Why does the union oppose clubs sharing 50 percent of their local revenue, when at least on the face of it existing money is only being transferred among ownership, as opposed to payrolls being taxed, inducing teams not to pay higher salaries?
FEHR: We have a whole series of proposals from the clubs, and what we are trying to do is say not that we like luxury taxes above $98 million or do we not, or not that we like revenue-sharing at 50 percent or do we not. Although nobody, I think, except for the bargainers, understands what that means. It is to say that if we change the rules, can we reasonably predict the behavior of players and clubs under those rules? How does that affect the behavior? It's a mosaic. We're looking at lots of moving pieces. You cannot discuss revenue-sharing without understanding that there are other kinds of pieces that go in.
Let me just give you an example of the kinds of proposals that we've received. We have a proposal for 50 percent straight pool revenue-sharing. We have a proposal that was originally to take an additional $100 million out of the central fund and give it to the commissioner to do whatever he wants with; that's a proposal that subsequently has been modified down to $85 million. We have a proposal to have the clubs pay the pension plan contribution based on payroll--in other words, if you pay players more, you pay more of the pension plan contribution, even though the benefits are the same--so that's a luxury tax, a tax on payrolls. We have a proposal that would, in certain circumstances, allow the clubs essentially to establish whatever quote-unquote debt/equity ratio they thought was appropriate and enforce it. And remember that they consider for this purpose player contracts to be debt, even though accountants ordinarily don't, and other things.
We then were dealing with two proposals that would adversely affect salary arbitration, one of which would eliminate arbitration eligibility for certain players, the so-called super-twos. That was the issue in 1985 and 1990 both, so it's a real hot-button issue. And then a proposal to really radically modify the whole arbitration system in the clubs' direction by saying that once the player and the club exchange numbers, if the player doesn't like the club's number, too bad. He's stuck. But if the club doesn't like the player's number, it can just turn him loose. That turned salary arbitration into sort of a one-way street. And so we're looking at, in addition to other things, this whole wide variety of proposals.
The question we ask is, "How does this affect the behavior of the clubs? How does it affect the behavior of the players?" We're trying to predict behavior. And it's pretty bizarre--when you consider that if you apply the clubs' proposals to the top 10 revenue producers in baseball, and if you treat their profit and loss numbers as real, it takes every one of the top 10 revenue producers and throws them into the red, or much further into the red. Every single one of them. And we're sitting there saying, well, What is this likely to do? Aid the industry? Why do you want to do that to your best revenue producers? And secondly, what does that do to player salaries?
Then we say, in addition to that, when you're dealing with revenue-sharing, do the tax rates matter? In other words, if a club is going to generate revenue, and it has to pay a healthy portion of it to other people who have no risk, and it has 100 percent of the risk, at some point with your tax rates, that becomes significant. We think that a 50 percent marginal tax rate is significant. We think you have to be careful so you don't effectively say, "We will clamp down on the incentive to invest and grow the game." And that's important in baseball for a really critical reason. And it's so much different than football that it really underscores the differences between the sports.
In baseball, by contrast, approximately 84 percent of the money is generated locally. You're not selling eight games. You're selling 81. And you're selling for broadcast somewhere between 140-162 games. Certainly that's the case for most clubs. Well, what does that mean? It means what you do locally, how well you run your team, not only matters--it matters more than anything else, to the point where it may be the only thing which does matter. Quite literally.
So the question is, is the way to improve the game to effectively strip those clubs which generate significant dollars of their incentive to go out and generate dollars? People say there are some clubs that just can't make it. We do have revenue-sharing; we have proposed substantially greater revenue-sharing. We just don't think it ought to be at the level which the clubs have suggested, for these reasons. But we do know certain phenomena that are quite significant.
In 1990, if we had been talking about contraction, we likely would have heard about Cleveland and Seattle, perhaps about Atlanta, perhaps about San Francisco even. Those are now, ordinarily, four of the top seven revenue producers we have. What does that mean? It means the notion that somehow there was something wrong with a market like Seattle, such that there was nothing you could do to fix it, which was the common wisdom, is simply not supported by the evidence. So the trick is, how do we provide additional help to those franchises, while not essentially just stripping the higher income franchises of the fruits of their efforts? These are not irrelevant considerations, because they can reasonably be expected to affect the behavior of the owners of those teams.
This is a long answer, I know. But this is why it's a complicated issue. So when we look at what the effect is of revenue sharing and all these other things, we say, well, it's not just revenue-sharing: It's revenue-sharing, plus a luxury tax, plus the additional luxury tax related to the pension- and healthcare-plan contribution, the salary arbitration changes, and before they removed it from the table the information bank they wanted for free agents.
What we see is a pattern of proposals which do not appear to be neutral. They appear to be very, very aggressive on the club standpoint. And we don't think they're good for the industry. We also don't think they're good for players, but we affirmatively don't think they're good for the industry.
BA: Is it possible for the union to accept any sort of institutional disincentive for owners, presumably high-revenue owners, to invest as much as they otherwise would in players? Or does it have to be an individual restraint, the fear of going broke?
FEHR: Since 1976, when free agency came in, in every single negotiation pressure has been put on the players by the clubs to find some reason to restrain salaries. Every single bargaining round. And at every single bargaining round, the players have ended up doing something in that regard, as far as I can tell. Just take for example, you know, you can't be a free agent until you've been in the major leagues for six years. That's more than the career length of most players. Which means that for the majority of players, never in their career do they have a meaningful opportunity to go and look for a job. That's an extraordinary thing for the clubs to suggest.
The Players Association did not come in and say, "Make everybody a free agent, day one." We did not come in and say, "We want a minimum salary of some huge number beyond anybody's reasonable expectation." We didn't say, "You can't release players." We haven't said all contracts have to be guaranteed. There is a whole raft of things. We're put on the defensive, and when the clubs come in, what they end up saying is this, and this is a very difficult thing for any union to accept: We want the union to agree that we (the clubs) will not be permitted to pay an individual player as much as we would pay him if the union didn't agree.
Further, in a normal industry, somebody comes to the players and they say, "We can't afford to make this product, because our labor costs are too high. We can't sell it." That's because the labor costs are built in. They aren't here. The only thing that's built in is the minimum. It's a very small proportion of the overall salary bill. So clubs have the ability to adjust their own payrolls in a manner that they believe appropriate.
So how do we end up with all of this? We don't like luxury taxes. The whole notion of penalizing somebody for hiring someone is, in the context of the United States of America, at this point in our development, I respectfully suggest, a pretty strange thing. We nevertheless will be negotiating about these things. We believe that if revenue sharing is done right, it should obviate the need for such direct restraints. The clubs have not indicated that.
We have an obligation to bargain in good faith about their proposals. We will. I'm not going to predict the result.
BA: I think the reason that the players are put on the defensive is that in the public's mind, it isn't they're just playing a game and they should consider themselves lucky to be baseball players. I hope we're past that. It's that they appear to have it pretty good, the six-year wait to free agency notwithstanding. Whereas the clubs claim, to debated degrees of accuracy, that they're losing money hand over fist. Certainly the players don't appear to be losing money. And so maybe there is a more even ground.
FEHR: In fact, that's not the approach they're taking. The approach they're taking is that certain clubs have a more difficult time competing than other clubs do. And that's salary-related. Which raises a whole host of other questions that you get into. Look, we will be bargaining about these things. You can't look at a luxury tax in isolation. It has to be looked at in connection with everything else.
You're going to say that Club A is going to have to write huge checks to the other clubs, then you're going to say that having sacrificed substantial parts of their ability to sign players and compete, we now want to throw some more restrictions on them. That becomes a pretty difficult thing to do.
BA: What happens if it grows the industry by increasing competition, generating more dollars for everyone?
FEHR: We've always believed that the industry is likely to grow best if we leave the clubs to engage in the kinds of entrepreneurial behavior that entrepreneurs do. Each one has a local product. They're selling lots of games, and lots of games are on TV. Some are going to be better at it than others. No question about it. That's true in any industry in which people compete. It's also true that this isn't like McDonald's. Every McDonald's franchise can be successful every day, in theory. Half the baseball teams have to lose every day. And so, you've got that problem too.
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