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Strike Two? The Upcoming MLB Collective Bargaining Period Seeks to Address Familiar Issues

  • Writer: Villanova Sports Law Blog
    Villanova Sports Law Blog
  • 6 minutes ago
  • 7 min read

At one point, it looked as if the 2022 Major League Baseball (“MLB”) season may have not taken place.[2] In March 2022, on the cusp of opening day, a three-month long lockout was officially resolved after the MLB Players Association (“MLBPA”) and the league were able to come to an agreement on a new labor deal.[3] However, three years later, the same issues that were central to the previous round of collective bargaining agreement (“CBA”) negotiations are still making headlines throughout the league.[4] With the current CBA set to expire in December of 2026, both Commissioner Rob Manfred and MLBPA representatives are concerned about the possibility of avoiding another work stoppage.[5]


Two primary areas of contention will almost certainly be at the forefront of negotiations once again: a salary cap and salary deferrals.


A Salary Cap to Even the Playing Field


In the 2024 season, the league championship series featured three of the top four highest-spending teams in the MLB.[6]  The New York Yankees spent just under $315 million in total payroll, making them the second-highest spenders among all 30 MLB teams.[7] They defeated the Cleveland Guardians in the American League Championship Series, an organization that had a payroll of $105 million, ranking them 24th amongst all MLB teams.[8]


The vast disparities in team payrolls have resulted in a cry for a salary cap. Middle-market teams, such as Cleveland, struggle to compete financially with major-market teams like the Yankees or Dodgers. For the 2023 season, Cleveland reported an annual revenue of $315 million, less than half of the Yankee’s reported revenue of $679 million.[9]  To make matters worse, following the 2023 season, middle-market teams faced even greater uncertainty due to the collapse of regional sports networks across the country, driven by the rise of streaming options and the trend of Americans “cutting the cord.”[10]


It has been estimated that MLB teams received, on average, about 23% of their revenue from local broadcasting deals, a higher rate than any other professional sport.[11] This has led to short-term uncertainty for several middle-market teams, six of which have decided to turn their broadcasting distribution to the league for the 2025 season.[12] Meanwhile major-market teams like the Dodgers and Yankees have long-standing lucrative broadcasting deals in place and thus do not face the same uncertainty.[13]


The gross disparity in spending capabilities and subsequent payrolls has prompted owners across the league, including those of higher spending teams, to call for a salary cap.[14] Other leagues, such as the NFL, use a salary cap to establish a uniform limit on the amount a team can spend on player salaries, which accounts for financial disparities between organizations.[15]

While owners have expressed their desire for a salary cap or measures to establish a more balanced financial playing field, the players won’t concede easily.[16] MLBPA Executive Director Tony Clark has hinted that another lockout will almost certainly occur if owners push for a salary cap in the 2026 negotiations.[17]  Clark stated the MLBPA is not opposed to a salary floor, which would create a minimum amount teams must spend on player salaries. However, these negotiations often fall apart due to the owner’s insistence on a salary cap.[18] Previously, MLB players successfully resisted the implementation of a salary cap during the CBA negotiations from 1994-1995, culminating in a seven-month players’ strike and cancellation of the World Series.[19]


Clark believes the luxury tax, which imposes a tax of  20-50% on teams for spending above a predetermined set amount on player payroll, effectively serves as a de facto salary cap.[20] However, despite his statements, teams regularly spend above the luxury tax threshold, especially those controlled by wealthy and aggressive owners.[21] Last year, nine teams - nearly a third of the entire league - spent above the luxury tax threshold, a majority of whom operate in major markets.[22] Ultimately, both sides remain divided on this issue, and based off history and early commentary, the MLB could be heading for a stalemate in 2026.


Deferrals: Buy Now, Pay (Much More) Later


Another topic of debate expected to be addressed in the 2026 CBA negotiations is the issue of deferred payments on player salaries, a tactic that is being used more and more frequently across the MLB. Notably, the Los Angeles Dodgers are deferring over $1 billion in player salaries, with most of these deferred contracts being signed in the past two offseasons.[23] Most recently, the Toronto Blue Jays and Boston Red Sox followed the Dodgers gameplan by signing Anthony Santander and Alex Bregman, two of the top free agents this offseason, to heavily deferred and highly lucrative deals.[24]


Deferrals reduce the average annual value of a deal when calculating a player’s salary for luxury tax purposes.[25] This strategy allows teams to offer higher total compensation packages, while only a fraction of the contract’s total annual value ends up counting towards the luxury tax each year. Ultimately this provides teams with the means to “manipulate” the luxury tax stipulations.[26] Wealthier teams in the MLB have a distinct advantage over middle-market teams with regards to capitalizing on this loophole, as the MLB requires teams to set aside money and demonstrate they can fund the deferred payments.[27] Thus, wealthier teams are in a better position when offering higher valued contracts and managing luxury tax implications.[28]


The salary deferral rules were implemented nearly 20 years ago after the Arizona Diamondbacks deferred approximately $250 million in total player salaries to build a competitive roster that would go on to win the World Series in 2001.[29]However, this approach resulted in financial turmoil for the organization, which struggled to pay off the deferred salaries.[30] Consequently, the team was forced to trade away many players to dump their salaries, which took the organization from a World Series Championship to a 51-111 record in just three years.[31]


Manfred has voiced concerns about the “problematic” use of salary deferrals, particularly given their relative size, even with existing regulations governing salary deferrals in place.[32] Salary deferrals were addressed during the 2022 negotiations between the MLBPA and the league, but were not as controversial in the sport at that time compared to now.[33] Tony Clark does not foresee players sacrificing deferrals at the 2026 CBA negotiations, as the structure of deferred salaries provide an additional avenue for players to secure higher salaries.[34] Additionally, the deferral payment plan allows athletes to avoid income taxes in certain states, a useful strategy for players in states with high income taxes such as California or New York.[35] Ultimately, salary deferrals represent another advantage for more financially secure teams that the smaller market teams simply cannot exploit, providing the richer teams with even more spending power. The players seem to appreciate the opportunities offered by deferred payment plans and are likely to resist arguments from owners who claim that such deferrals are hindering the creation of parity within the league.



George Pla (guest writer) is a 3L at Villanova Law School from Bucks County, PA, originally born in Seattle. A passionate Seattle sports and Penn State fan, George is also a dedicated member of Villanova’s baseball arbitration team. Upon graduating in May 2025, George will be pursuing a career in M&A and private equity law.  



References:

[2] See MLB lockout: MLB, MLBPA agree on new CBA, ESPN (Mar. 10, 2022), https://www.espn.com/mlb/story/_/id/32882139/mlb-lockout-mlb-mlbpa-agree-new-cba.

[3] See id.

[5] See id.

[6] See David Brandt, Following Success Of MLB’s Big-Spenders, Smaller Market Teams Try To Counter Amid RSN Uncertainty, AP News (Nov. 7, 2024),

[7] See MLB Team Salary Payroll Tracker, 2024, https://www.spotrac.com/mlb/payroll/_/year/2024/sort/cap_total2.

[8] See id.

[9] See Dorothy Neufeld, Which MLB Teams Take Home the Most Revenue?, The Visual Capitalist (Oct. 12, 2024),

[10] See Hannah Keyser, How The Collapse Of The Regional Sports Network Is Affecting MLB Economics Now And In The Future, Yahoo Sports (Dec. 4, 2023),

[11] See id.

[13] See Russel Leung, With $1 Billion In Salary IOUs, The Dodgers Spark New Questions About MLB’s Fairness, CNBC (Mar. 1, 2025),

[14] See Rob Manfred Says Some MLB Fans Concerned Over Lack Of Salary Cap, ESPN (Feb. 6, 2025),

[15] See The NFL Salary Cap, Explained, DirecTV Insider (Oct. 29, 2024), https://www.directv.com/insider/nfl-salary-cap/.

[16] See Rob Manfred Says Some MLB Fans Concerned Over Lack Of Salary Cap.

[17] See Jerry Beach, If You Thought the 2022 MLB Lockout Was Bad, Just Wait Until 2026, Deadspin (Feb. 25, 2025),

[18] See Casselberry.

[19] See Rob Manfred Says Some MLB Fans Concerned Over Lack Of Salary Cap.

[20] See Casselberry.

[21] See Mets Topped Spending Again In '24; Total MLB Payouts Pass $5.1B, ESPN (Mar. 5, 2025), https://www.espn.com/mlb/story/_/id/44118589/mets-topped-spending-again-24-total-mlb-payouts-pass-51b.

[22] See Barry M. Bloom, MLB Union Fully Expects a Lockout in Next Contract Negotiations, Sportico (Mar. 1, 2025),

[23] See Leung.

[24] See Josh Wilson, Alex Bregman’s Contract Deferral Amount Revealed, Sports Illustrated (Feb. 15, 2025), https://www.si.com/mlb/alex-bregman-contract-deferral-amount-revealed; Anthony Franco, Anthony Santander’s Contract With Blue Jays Includes Nearly $62MM In Deferrals, MLB Trade Rumors (Jan. 23, 2025),

[25] See Jack Harris, How The Dodgers Benefit From Salary Deferrals And Signing Bonuses To Build Their Roster, Yahoo Sports (Jan. 20, 2025),https://sports.yahoo.com/dodgers-benefit-salary-deferrals-signing-110043877.html#:~:text=Nine%20times%20in%20the%20last,after%20the%20deal%20is%20complete.

[27] See id.

[28] See id.

[29] See Leung.

[30] See id.

[31] See Arizona Diamondbacks Team History & Encyclopedia, https://www.baseball-reference.com/teams/ARI/index.shtml.

[32] See Harris.

[33] See Casselberry.

[34] See id.

[35] See Leung.


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