Revenues Put Baseball Union in League by Itself
Thanks to a flood of licensing royalties, the cash-rich baseball players’ union has the financing to amass a $60-million reserve fund to battle a possible lockout by owners next spring, fight three free-agent collusion cases at once and pay its executive director $450,000, one of the highest union salaries in the country.
The union’s latest victory against owners could be viewed as a generous return on its investment: having spent $1 million to pursue the 1985 collusion case against the owners, arbitrator Thomas Roberts last month awarded $10.5 million to 139 players in that year’s free-agent class.
“Nobody ever anticipated the growth of licensing, surely not like this,” said executive director Donald Fehr. “Of course, we’d do less without money from licensing, or we’d have to go to the players for more money.”
Players still pay dues ($1.6 million last year) to cover the union’s operating expenses. Royalties are designed to go directly to the players--who got about $5,000 apiece this and last year, a small percentage of total revenues--but have been set aside for non-operating expenses like the contingency fund, the collusion cases and arbitration.
“I can’t spend the money without approval from the executive board of the union,” Fehr said. “If I want agent regulations, for instance, I can’t authorize it without direct player involvement.”
The growing financial strength makes the baseball players’ union team sports’ most powerful and wealthy labor organization.
Consider that royalties from 1989 licensing deals for trading cards, action figures and board games and other products will exceed $30 million, up from nearly $30 million in 1988, $18 million in 1987, and $8 million in 1986.
Fehr said the royalties will swell the union’s contingency fund to at least $60 million by February. At the end of 1988, $37 million had been invested in U.S. Treasury bills and certificates of deposit, according to the players’ union filings with the U.S. Department of Labor.
Under ordinary circumstances, nearly all the royalties would be rebated directly to the players. But the union has opted to keep them in reserve to prepare for the almost certain labor-management battle.
“If there’s a long siege,” said Fehr, “the union’s board will consider distributing the money in pieces during the year. If we get a settlement early, the board will most likely distribute all it’s held onto.”
The struggle to negotiate a new basic agreement to replace the one expiring on Dec. 31 could be titanic. Negotiations will take place against a backdrop of two arbitrators’ findings that the owners colluded to fix salaries in the 1985 and 1986 free-agent markets, Roberts’ $10.5-million damages award and the owners’ insertion of lockout clauses in numerous player contracts for 1990.
The owners are ready with their own emergency fund, financed by TV, licensing and marketing revenues withheld from the teams.
The fund stands at $110 million, and another $60 million will be added in October, said Barry Rona, executive director of the owners’ Player Relations Committee. The owners will complement the cash with a $110-million line of credit. Rona said the $270-million fund will not be augmented by strike insurance, which was purchased for the 1985 strike, because of its high cost. In 1985, the owners collected $40 million from its policy with Lloyd’s of London.
Despite the owners’ greater financial resources, the players’ union’s licensing efforts since the late 1960s were designed, said former union executive director Marvin Miller, “so that no matter what the owners did, the Players Assn. could no longer be broken financially.”
Indeed, it has not, and its financial success can be seen in other ways:
--Fehr’s salary makes him one of the top-paid union leaders in the country. His 1988 compensation, including expenses, was $709,282 (including $250,000 deferred from the previous year), up from $312,227, in 1987. His contract, which calls for salaries of $450,000 this year, $475,000 in 1990 and $500,000 in 1991, is designed to track the average player’s salary.
--By comparison, pro football union chief Gene Upshaw’s salary was $173,084 in 1988 and hockey union leader Alan Eagleson, $175,000 (which will double next year). Charles Grantham of the basketball union is paid $150,000.
--Fehr’s compensation compares well outside sports: Lane Kirkland, head of the 13-million-member AFL-CIO, gets $150,000; United Auto Workers president Owen Bieber, $86,800; Air Line Pilots Assn. president Henry Duffy, $243,382. Harold Friedman, a Cleveland-based Teamsters official under indictment, is believed to get the highest union salary, $590,284.
--In 1987 and 1988, the union spent $1.6 million to fight its 1985, 1986 and 1987 collusion cases, including $1.3 million last year. Fehr expects those legal expenses to flatten out this year and fall drastically in 1990. But the union will obviously shoulder considerable costs in negotiating the new collective bargaining agreement. The NFLPA, by comparison, had legal costs of $700,000 last year; the fees are expected to rise substantially this year.
--Miller, who built the union and preceded Fehr as its leader, has been aided in his retirement. Between 1978 and 1986, the union purchased three pension annuities for $836,124, which pay Miller the $90,000-a-year benefit.
--From 1986 to 1988, the players’ union spent $520,865 on arbitration, $386,627 on executive board expenses, $140,722 to study major league expansion and $29,525 on its agent certification program.
“Of course we’d do less without the licensing money,” said Fehr, “or we’d have to go back to the players for more money.”
The union is in an enviable position. Having won free agency and arbitration, it has had the resources to maintain the gains. It has gone from Miller’s trade-unionist’s style to Fehr’s no-nonsense litigating stance without losing its bite.
The other unions have had a mixed bag of success.
The National Basketball Players Assn. has brought players high salaries, an admired collective-bargaining agreement and an amicable labor-management relationship, but it has a small budget, a tiny staff, and a modest licensing deal with the NBA that allots players $5,000 apiece for every year of service, paid out fully 10 years after a player’s retirement. With the fewest members of the four unions, it has the highest yearly dues of $3,000.
“In the past we were almost entirely an economic bargaining unit,” said Grantham, who became executive director last year after the departure of general counsel Larry Fleisher, who died earlier this year. “But now we want to do more in financial management, drug counseling and tax planning. So we’re looking to raise more money by putting on exhibitions abroad and maybe renegotiate our licensing agreement.”
The National Football League Players Assn.--which has been accused of frittering away gains made in court on free agency, doesn’t have a collective-bargaining agreement with owners and whose leadership has not fully united the players--gets the most royalties after the baseball players’ union, $1.9 million in 1988, up from $1.3 million in 1987.
But the NFLPA has not rebated any cash to players because it has been needed to pay expenses and is now earmarked for its legal battles, including the upcoming free-agency case in federal court.
The NFLPA is also the only one of the four unions paying off bank debt needed to pay for operations, owing $1.69 million. To its credit, the union is no longer operating at a deficit, having reduced its payroll and cut expenses by $500,000 since 1987, said assistant executive director Doug Allen.
The National Hockey League Players Assn., which has been viewed as an uninspired negotiating unit, recently survived an outside challenge to chief Alan Eagleson, who agreed to give up client representation to devote himself full time to the union. Though it only gets $300,000 to $400,000-a-year in licensing fees, the NHLPA has a $3.5-million surplus from international hockey exhibitions. The surplus is used for bonuses and employee benefits.
“The baseball and basketball unions, despite different circumstances and having different styles, successfully got good agreements that are beneficial to players,” said Tulane University law professor Gary Roberts, a specialist in sports law. “Football suffers from a level of stridency between labor and management that keeps it from making reasonable compromises, and in hockey, there have been charges that it’s a company union.”
No union has been able to ride the licensing wave as has baseball. Already able to pay for its operations through dues, the union has been able to take advantage of the boom in trading-card sales and the overall explosion in the sales of licensed baseball goods since the mid-1980s.
The card market opened after Fleer’s antitrust suit toppled Topps’ trading card monopoly and brought Fleer and Donruss into the market in 1981. And, of course, no other sport has had as much trading-card success as baseball. One non-baseball union official said: “The baseball guys aren’t geniuses in licensing. They got lucky.”
The players’ union success was a long time coming. Just before Miller’s arrival at the union in 1966, there was only $5,400 in the union’s treasury. A decade before the advent of free agency, the union was at the mercy of owners. Its player-leaders, Robin Roberts, Harvey Kuenn and Jim Bunning, had put together a $150,000 plan with then-Commissioner William Eckert and league presidents to finance union activities with All-Star game proceeds.
When Miller took over the union, he told them the plan was untenable. “Red lights flashed,” he said, “because it was owner money and illegal under the Taft-Hartley Act.”
Miller altered union finances by changing the dues structure, creating a salary check-off system that had players paying $2 per day of service. That plan didn’t go into force until 1967, so the union still needed cash. He thought of bank loans, but decided instead to create a licensing program.
“Coca-Cola stepped forward,” he said. “We negotiated a two-year deal giving them the rights to use player pictures on the undersides of bottle caps and got $60,000 a year.” Dues eventually exceeded the licensing payments, so Coca-Cola’s cash was distributed to the players, who netted about $100 apiece.
Miller designed the union’s financing to let dues pay for the running of the union and have the royalties distributed to the players. Today, Topps is the largest royalty producer, but in 1967, Topps paid no royalties and made nominal yearly payments to the players. In 1968, the players boycotted renewals of their Topps contracts, an action that brought the players higher individual payments and the union royalty payments for the first time.
The union receives an estimated 10% royalty on Topps’ card sales, double the fee paid to Major League Baseball. Said Major League Baseball Properties president Rick White: “Nobody in baseball even asked for a royalty back then. In the early 1980s, Major League Baseball woke up and collected less than 2%. We’re trying to make gradual progress to get up to 8.5%.”
A number of licensing deals bear authorizations from the union and Major League Baseball because a company needs permission from the union to reproduce a player’s likeness and permission from MLB to use team logos and trademarks.
Over the years, the union brought in more royalty-producing deals in addition to Topps, but it wasn’t until Topps’ monopoly on the card market ended that the union began to see the full potential for licensing. Today, the card market features Topps, Fleer, Donruss, Score and Upper Deck, and will be joined by others by 1991.
The union benefits from more than trading cards, although they still provide the largest percentage of licensing revenues. Its 60 licensees (up from 30 a year ago) include makers of board games, action figures and clothing. It recently moved into posters and photographs and may create its own awards for yearly achievements and run charity golf tournaments.
“We may set up our own MVP or Cy Young Awards,” Fehr said, “where we could put a dollar value of, say, $250,000 on them. They may mean more to players when informed personnel are making the awards.”
Licensing revenues have made Fehr’s life easier, but his focus is far more on labor matters than which card companies are clamoring for licenses. The upcoming labor negotiations promise to be a donnybrook. For Fehr, who contemplated leaving after negotiating the last basic agreement and waited several months before signing a new contract, the aftermath of next year’s labor-management showdown will be a time to decide whether he wants to stay on for future battles between two sides so well off yet so intractable.