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Labor negotiations may cloud MLB’s trade deadline decisions

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The luxury tax and free agent compensation costs are uncertain as we head towards MLB’s trade deadline.

Pittsburgh Pirates v New York Mets Photo by Jim McIsaac/Getty Images

It has been over 20 years since Major League Baseball’s last work stoppage, which resulted in the cancelation of the 1994 World Series. Since then, successive collective bargaining agreements (CBA) have resulted in two decades of labor peace, with the result being a $10 billion annual industry that neither side wants to disrupt for lack of a new agreement.

Yet, there are real issues which have to be resolved through negotiations, and some of those issues may impact the decisions that teams, such as the Detroit Tigers, make when deciding whether to expand their payroll heading into the 2017 season.

The current CBA expires on December 1, 2016. But before that expiration date, many players will become free agents. In previous years, clubs would be making qualifying offers, with the expectation that if the offers are turned down, those teams would be receiving a supplemental first round draft pick next June. The status of those players, and the whole qualifying offer and compensation scheme, is now less certain.

There is also the matter of the luxury tax, if there is one, and what will be the threshold that triggers payment, and what tax rates will apply. There is a “sunset” provision in the current agreement which puts an end to the luxury tax after the season. But the last two agreements contained a similar clause, and each time a new tax structure was agreed to. It is difficult to imagine most owners being happy with a system that has no penalties for the biggest spenders to buy up free agent players without any consequences.

The Tigers are presently paying a 17.5 percent luxury tax on every dollar that they spend on salaries beyond their current payroll. That is because their payroll is about $ 210 million for tax purposes, well above the $ 189 million threshold that triggers a tax payment. That level is certain to rise in 2017, or it could be eliminated altogether. What will be the new tax threshold, and what the tax rate will be have to be determined in the next CBA.

Most teams are farther down the list in payroll spending, and will not be affected, since they’re not going to have to pay a tax anyway. But if the current tax structure remains in place, a team like Detroit could have to pay a 30 percent tax on every dollar above the new threshold, even if that number increases.

As for the qualifying offers, whether a player will bring his former team a compensation pick could help that team to decide whether to trade the player at the trade deadline. The Tigers don’t have any such players due for free agency after this season, but if they were thinking about acquiring a player who might be worth the $16 million qualifying offer, the selling team may be hesitant to deal for less than the value of a first round pick.

The Tigers also can’t count on being able to get a compensatory draft pick should they lose someone like J.D. Martinez after the 2017 season. If he can walk without compensation, the club may be more inclined to get something of value for him while they can.

Other issues to be addressed in the current round of negotiations include a possible international draft, roster size, expansion, scheduling issues, service time manipulation issues, and revenue sharing. Those matters may be complex, or even contentious, but won’t affect any roster decisions for the balance of the current season.

While progress on negotiations is something that is kept very close to the vest by both players and owners, the vibe from both sides is an optimistic one that a deal will get done without interrupting games. This may result in a deal before the current one expires, or it may mean a new agreement is reached before April 2017, after a winter flurry of free agency activity. Either way, there is uncertainty at the present time, when clubs are making decisions that affect their payroll and their rosters beyond the current season.