Thursday, April 9, 2015

The Disposition of Steroid Contracts

There's a big old Comments section at the bottom of this piece, and there's plenty of room for you all to weigh in on this one.  Which is probably a good idea, you see, since I don't necessarily have the answer.

The major league baseball season opened this week.  Right before it started, we had our first explosion when Ervin Santana, a pitcher signed to a large multi-year contract in the offseason by the Minnesota Twins, was hit with an 80-game suspension after testing positive for the steroid Winstrol (stanozolol).

So one could make the rather interesting assumption that Santana had been using long enough to get his performance level up to where he could earn a gargantuan, unchangeable contract under which he will be performing -- after his unpaid suspension -- at a level no longer enhanced by steroid supplements.

Either way, the Twins, who expected Santana to be for several years the anchor in their rotation that they paid for, now will never have the Ervin Santana that they signed -- by the time he is back with the team he will have retreated physically to his pre-steroid capability.  So they have a legitimate gripe, do the Twins, and rightly might be asking whether the contract can be voided (hint: it can't; see Union, Players).

Now, the Twins have said nothing publicly about voiding the contract, at least nothing that I have heard, not that I have looked.  But let's look at the parties involved. 

Santana -- he gets suspended and loses 80 games salary, sure, but he has an ironclad contract that will ensure the financial security of his family for a hundred years.  Nothing can change that.  He deserves punishment and gets it, but he ends up OK.

Minnesota -- they lose a bulwark of their rotation for 80 games (about half his projected starts) and will now need about 15 starts this season to be made by pitchers who otherwise would not even have been in the rotation, essentially having to replace their #1 starter with a #6.  That should be expected to cost the team 5-6 wins.  They get punished in the standings, even though they did nothing wrong (unless you accuse them of inadequate vetting of their pitcher).

But ... there is one other party here:

The Rest of the AL Central Division -- each one benefits at the expense of the teams that don't play Minnesota as often as they do, and don't get the advantage of opposing a #6 starter.

What should be done?  Should the contract be voided?

Here's where the complexity of the luxury tax -- yes, the luxury tax -- comes in.  As you know, there is no salary cap in MLB, but there is a tax paid per dollar when a team's payroll exceeds a fixed amount.  Maybe 2-4 teams will do so this year, Dodgers, Yankees, maybe another.  Minnesota, a small-city franchise, will not be close to doing so.

Let's suppose that, instead of the Santana contract, fresh ink and in its first year, we're talking about a player suspended for steroids in the seventh year of a ten year contract -- for a whole year.  Say the guy is a position player, 39 years old and barely able to play anymore -- but with 3-4 years left and $90 million left to pay him.  Let's call him, say, "Alex Rodriguez."  And let's say that the team he plays for is already over the luxury tax threshold.

Now let's go back to the impacts from above.  The player situation is the same -- still gets paid and all, after the suspension.  But the impact on the team is much different.  They effectively shed, at least for a year, the salary obligation of a wildly overpaid but ineffective player.  They can replace his roster spot with someone else and have a lot of payroll flexibility to do so.

And the impact on the division competitors is even more extreme.  Since the player is no longer effective, the competitors face a strengthened team because of the suspension.  So the competitors are, in effect, punished because a team that otherwise would have to have played an ineffective player is free to replace him for a year.

And even worse for the competitors, the team's obligation against the luxury threshold is benefited by the removal of the suspended salary year.  A team, oh, let's call them the "Yankees" for convenience, could really gain if the savings allowed them to spend a season under the threshold, since the payments for being over the limit get progressively higher each successive year and a single year under the limit resets the penalty.  That un-penalized season and the percentage reset could allow them to sign a huge contract in the off-season that they would not otherwise have been able to afford -- benefiting the team that issued a stupid contract.

No wonder the "actual" Yankees tried so hard to void the actual Rodriguez's contract.  And no wonder that their competitors in the AL East howled that the Yankees got luxury tax relief for Rodriguez's suspended contract for 2014 (note -- the Yankees ultimately were not able to get under the threshold for 2014, so they still pay the higher consecutive-years rate).

I present the contrasting situations and the disparate impact, because one way or the other, the Players Union is going to have to deal with pressure to allow the voiding of contracts for morals clause violations, with the clauses expanded to encompass steroid use.

Accordingly, I am intently waving around the Law of Unintended Consequences on this one.  I want to see the guilty punished, yes, but I don't want the complicit, the accomplices or the innocent either benefited or injured incorrectly.  I don't want to see the Orioles, Blue Jays, Rays and Red Sox having to face a beefed-up Yankee team who got threshold relief and were able to enhance their team -- even though they offered the stupid contract.

But I want to see the users appropriately punished with no secondary benefit or secondary punishment to another party.  I think that this situation, or these situations, need to be thought out in depth, with all impacts, before leaping into a solution regarding the voiding of contracts.  There are far too many Unintended Consequences and, as the Santana and Rodriguez situations conversely show, they're not always the same and can actually be opposite in suitability depending on the contract and the player.

I do think that it's fine if the team gets the "cash" benefit of not paying the salary during a suspension, and during a voidance if that becomes possible.  But I do think that the team should retain the suspended or voided salary amount on their books against the luxury tax ceiling -- in other words, they don't have to pay the actual dollars, but the dollars count against the luxury tax whether they're paid out or not.  That way, the team gets no secondary benefit where the luxury tax is concerned -- they lose the suspended or contract-voided player's services, but they don't have to pay them -- and they retain the obligation they signed for in the form of the luxury tax.

Can you see how many parameters would have to be worked out, and how many different situations could arise that a single labor agreement clause would have to cover and produce a reasonable result in all of them?

The Comments section is there; there's lots of room for ideas.  Maybe we can come up with a reasonable suggested outcome to pass on to the new Commissioner for the next Labor Agreement.

It won't be worse than what's there now.

Copyright 2015 by Robert Sutton
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  1. Does the agreement with the Players Union now allow the team to get a drug test prior to signing a contract? If not, what protection does an honest team (presuming one to exist) have against a player using steroids?

  2. I believe that union members drug tests are governed by their membership in the union (vice their contract status), so that a union member who is a free agent and not under contract still can only get tested as often as, and under the same governance of, the union's deal. So no, you could not get a specific pre-contract "take a test today" test done.

    Formally, the "protection" you get as a so-called "honest team" is that if the player is suspended, you don't have to pay the salary or take the luxury tax impact. My point, of course, is that the latter can actually HELP the team and encourage them to try to void contracts at the expense of their cleaner competitor teams (q.v. "Yankees, New York v. Rodriguez, A.").

  3. Once upon a time I was a baseball fan. You and I watched a lot of my second favorite Sox games when we were MIT students. I grew up watching the White Sox on WGN TV; conveniently the Cubs didn't have lights back then so WGN could broadcast both. Then before cable the owners of the White Sox and others created a paid broadcast system called Sportsvision, which broadcast a scrambled version of their games on channel 44 and you needed to pay by the month to use an unscrambler box to see it. Around the same time the players went on strike. I was making decent money for a first job out of college, but the players weren't satisfied with the huge coin they were hauling in and the owners wanted me to start paying for what I grew up watching for free. I figured if they didn't need me I didn't need them. Since then I've found other things to do with my time and haven't missed them.

    Roger Maris needed an asterisk because he didn't break The Bambino's record in 158 games, but I don't see asterisks after the drug-enhanced later records that surpassed what Ruth and Maris accomplished purely with talent and hard work. The combination of owners' greed, players' greed, and drugs has so far suppressed any restoration of my interest.

    That certainly disqualifies me as an authority on the game, but what you wrote about the luxury tax sure makes sense to me.

    1. Thanks, Tony. Ultimately, this is a case of a situation where any rule is bound to help the wrong party and hurt the wrong party. It's just the nature of Baseball and humanity to screw up regulations. Congress could write a book ... shoot, they have, over and over. Unintended consequences will ALWAYS rise to the surface.

      And by the way, watching those games with you certainly taught me that, just because a KFC is in Massachusetts and not North Carolina, it does not give them the excuse to use motor oil instead of vegetable oil to fry with.