As I’m sure you’ve heard, Yankees owner George Steinbrenner died today at age 80. While I was not a fan of the man, I’m not much in the mood to speak ill of the dead today.
Two groups that will miss Steinbrenner in their own ways are the Major League Baseball Players’ Association and players’ agents, because Steinbrenner, more than any other baseball owner, created the conditions that resulted in today’s enormous player salaries.
Steinbrenner bought the Yankees in 1973 for the sweet-heart price of $10 million. Clearly, he saw the economic potential of the team when others did not, and he was willing to spend as much money as it took to turn the Yankees into a winner again, and make a fortune on his investment in the process.
Steinbrenner’s role as the one owner who would buck the other owners, and pay players what they were actually worth if he thought they could help the Yankees win, showed the Players’ Association just how much money the players could make in a system in which the best players could auction themselves off to the highest bidder at the peak of their careers.
It started with Catfish Hunter between the 1974 and 1975 seasons. The Players’ association had negotiated the right to binding arbitration of grievances around the time of the 1972 players’ strike or shortly before, and it came into play for Hunter when the Oakland A’s owner, noted tight-wad, petty dictator, but in his own way as shrewd and able an owner as Steinbrenner, Charlie Finley reneged on a contractual promise to purchase a $50,000 annuity for Hunter during the 1974 season.
Although the A’s were a small market team, Hunter had a relatively generous (for the time) $100,000 one-year contract to pitch for the A’s in 1974. Free agency as we know it now did not yet exist. However, the Player’s Association had much earlier negotiated the right for players to be represented by agents or attorneys in their annual contract negotiations with management.
Hunter’s attorney had negotiated a deal which called for Hunter to be paid $50,000 in salary in 1974 and for Finley to fund a $50,000 annuity over the course of the season, because since the annuity would be paid out in future years, it would reduce Hunter’s tax burden in the long run.
Well, that certainly makes sense, and Finley agreed to it. However, soon thereafter Finley learned that he and the A’s would take a bigger tax hit for this arrangement, and while Finley paid the $50,000 to Hunter in salary, he simply refused to purchase the contractually-mandated $50,000 annuity.
Hunter, of course, filed a grievance through the Players’ Association. The Players’ Association’s position was that because the contract had been explicit and Finley’s breach of it indisputable, Hunter should be declared a free agent.
In the initial steps of the dispute resolution process, the case was directed to then Commissioner Bowie Kuhn, who leaned on Finley and forced Finley to belatedly purchase the annuity. Kuhn then essentially declared “no harm, no foul” and ruled against Hunter’s grievance. This was, of course, the Commissioner’s job: to cover for and protect the owners from themselves as necessary, since the Commissioner was appointed solely by the owners and paid solely by the owners.
Now, however, the Players’ Association could take an obviously unfair ruling and have the dispute reheard by an impartial arbitrator mutually selected by the parties. At the end of the hearing, the arbitrator ruled that Finley had materially breached his contract with Hunter and Hunter was therefore declared a free agent.
This is where George Steinbrenner steps in. Hunter was then the best starting pitcher in the American League (or at the very least, one of the top five starters in baseball, along with the likes of Jim Palmer, Tom Seaver, Gaylord Perry and Fergie Jenkins). Steinbrenner wanted Hunter for his Yankees, and he was going to get Hunter to sign his name on the dotted line no matter what it cost.
Ultimately, Hunter signed a five-year $3.35 million deal. That sounds like peanuts today, but at a time when nobody got more than a one-year contract and no one was paid more than about $200,000 for that one year, the Hunter deal was earth-shaking. Most importantly, it gave everyone in baseball a much better idea of what star players at the peak of their careers were actually worth.
The next year, the Players’ Association won another grievance in which arbitrator Peter Seitz ruled that the hundred year old standard clause in the uniform player contract meant exactly what it said: if a player refused to sign a contract for the money the team offered, the team could unilaterally re-sign the player at the price it wished to pay him for one year.
The owners had been applying this provision so that the one-year unilateral extension went on forever. Since the language had been drafted by management, Seitz concluded that the language meant exactly what it said (only one unilateral extension) and that to the extent there was any ambiguity in the provision, it had to be interpreted against the drafter.
The arbitration decision theoretically meant that every player could refuse to sign a contract the year after his first major league contract (a condition of being promoted from the minors), could then be unilaterally extended for one year, and would then become a free agent. Because players have to be apprenticed in the minor leagues, at the time a money-losing venture funded by the owners to ensure a steady supply of major league talent, the owners were convinced free agency would destroy the game and threatened to lock out the players at the start of the 1976 season, unless the players would agree to something else.
However, the Players’ Association, then led by Marvin Miller, were light-years ahead of the owners in seeing the possibility of free agency and its potential outcomes. The only owner who really understood the ramifications was Charlie Finley.
Finley said, hell, let all the players become free agents every year. The best players will get huge contracts, but the majority of major league players will be competing against themselves for a limited number of major league roster spots, not to mention the young guys coming up from the minors, and they’ll have to play for what the owners are willing to pay them.
Finley was right, of course; as we see today, 35 years later, with large numbers of arbitration eligible players non-tendered and then re-signing for a fraction of what they would have received in arbitration, because these players are much more fungible than the ARods and Albert Pujols of the baseball world.
The other owners thought this was a terrible idea, and when the Players’ Association offered to let players remain under team control until after six full seasons of major league service, the owners didn’t just take the bait, they swallowed the whole trap.
What Marvin Miller saw was that if you limit the number of players who could become free agents each year based on extensive service time, many owners would be bidding on fewer free agents, and those free agents would always be among the best players in baseball because they had to stick around for six full seasons to become free agents in the first place.
It was simple supply and demand, and with a few great players on the open market every year for the two dozen or so teams to bid on, free agent contracts went through the roof.
Here’s where we come back to the ground work previously laid by the Players’ Association. It had negotiated the right to binding salary arbitration in 1972 for players with three years of major league service time. As free agents began to sign enormous contracts, usually just as they were approaching the decline phases of their careers, their big annual salaries could be used to justify enormous salary arbitration awards to younger players who were performing as well or better.
This is the reason why the owners hate salary arbitration now more than they hate free agency. Nobody forces an owner to shell out big bucks to a free agent. However, an arbitrator can force a team to pay more for an arbitration eligible player than the team wants to pay.
Once arbitration came in, Steinbrenner (along with new Braves owner Ted Turner, who was in the process of creating a media empire and developing new methods (cable TV) to massively increase a team’s revenues) was always at the forefront of signing free agents to top dollar.
There was absolutely nothing altruistic in Steinbrenner’s willingness to shell out money for top free agents. He realized the full potential for making money on a first place team playing in the country’s largest market, something previous Yankees owners had never been able to do (or at least back to Colonel Ruppert, who shelled out the green to get Babe Ruth and others away from the Red Sox and built a grand new park to house the Babe & Co. and sell his beer, Ruppert’s Knickerbocker, to the faithful) even when the Yankees won the AL pennant every year.
Spending money to get the best players meant more pennant races, pennants and World Series victories. That meant more revenues for Steinbrenner.
Now, the Yankees are valued at over $1 billion. Pretty good for a $10 million investment less than 40 years ago.