Case -5: Bargaining Strategy in Major League Baseball (Book Case)

Background:
Donald Fehr was the head of the Major League Baseball Players Association and he was preparing
for the upcoming round of negotiations between his union and the owners of the 30 major league
baseball clubs known as MLB. The health of his union had hung in the balance each time a new
basic agreement was negotiated and Fehr could not help but remember past work stoppages which
hurt both side tremendously. Fehr knew that hard bargaining with the ownership group might cause
another strike or lockout, but with attendance levels at the highest they had ever been in the history
of the sport and he needed to gauge his constituent` resolve to decide how to approach the process.
Professional baseball was an old sport and it was considered as the gentlemen game but at a time
basically in the mid-1800 this sport was turned into business when the general public stated taking
interest. When the players began to realize that their unique skills could be marketed to the highest
bidders, owners developed the “reserve clause” and made contact with the players that indicates
five players and not switch from the team.
The almost 9 agreements and bargaining were negotiated throughout this case and here we try to
understand and find out the three basic concept of negotiations and these are as follows-
 BATNA (Best alternative to a N agreement)
 Reservation Price
 ZOPA (Zone of possible agreement)
BATNA (Best alternative to an N agreement): BATNA means what you will do or what will
happen if fail and it necessary to know BATNA before entering into negotiation.
Reservation price:
Reservation price (RP) is the least favorable point at which one will accept a deal. RP is also
referred to as the “Walk Away”. RP will derived from BATNA these two are not the same thing.
ZOPA (Zone of possible agreement):
Zone of Possible Agreement. It is the area range in which a deal that satisfy both parties can take
place. In other words, it is the set of agreements that potentially satisfy both parties. Each party’s
RP decides one end of ZOPA.
1st Basic Agreement:
In 1953, the Major League Baseball Players Associations (MLBPA) was formed to serve as the
player`s main bargaining body and the owners implicitly voluntarily recognized the union by
allowing it to operate the fund and by contributing to the fund. The owner formed the Major League
Players committee (PRC) to serve as their negotiating body.
3nd Basic Agreement:
MLBPA and PRC ran into trouble while negotiating the 3rd basic agreement. The major
disagreement the two sides stemmed from the amount the owners were willing to contribute to the
player`s pension fund. Marvin Miller head of players union claimed 1 billion but the PRC refused
the demand of MLBPA`s demand. As a result the players call for a strike and because of strike,
the both party reached a deal that the owners will contribute 5 lakh to the pension fund.
4th Agreement:
In 1976, the MLBPA and PRC were split on the new free agency issue. The owners wanted players
to gain free agency eligibility after 10 years of professional service but union proposed a five year
requirement. The two sides eventually agreed on an eligibility minimum 6 years of professional
service and compensation in the form of a draft pick for the team who was losing the players.
5th Basic Agreement:
Prior to the start of the 1980 season, the two sides were again far apart when negotiating the 5 th
basic agreement. The major issue of this agreement was the compensation that a team would
receive after losing a free agent and this proposal presented by the PRC seen by the Marvin Miller
as an attempt to “dismantle the free agency in tis fancy”. On April 1, players again went on strike
and on May 23, the two sides reached to a deal which provided that the free agent issue be studied
for a year after which negations regarding the issue would reopen. The selected committee could
find out nothing substantial and two sides faced a trouble regarding this issue to find common
ground. The players again went on the strike for 50 days and after that the two sides reached a deal
that would provide a compensation for losing the free agents. The team that lost a player would
get another player from the signing team.
6th Basic Agreement:
In 1985, the two sides were determined to avoid a work stoppage while negotiating the 6 th
agreement. The two main issues that divided the two sides were once again free agent
compensation and pension contribution levels. Several issues were agreed upon early but it was
not enough to avoid stoppage. As the players went on strike they reached a deal within a day.
7th Basic Agreement:
In 1990, the owners instituted another lockout while bargaining with union over 7th basic
agreement. There was a disparity between large market team and small market teams. The large
market teams could sign better players due to their ability to offer high salaries. So, the owner
proposed a “revenue sharing” program with the small market but the union opposed this proposal
and for the owners went on strike for 32 days. Finally, an agreement was reached that the revenue
sharing was put on hold.
8th Basic Agreement:
A revenue sharing program was implemented but the owners did not receive their highly salary
cap.
9th Basic Agreement:
The luxury tax and competitive balance draft was the main issue of bargaining between the
MLBPA and PRC in which the owners claimed for a luxury tax to keep competiveness to purchase
players but the union opposed this proposal.

Identifying BATNA, RP, and ZOPA:

BATNA (Best alternative to an N agreement):
BATNA option for this negotiation case for the PRC initially was the “reserve clause” that
indicates that the owners retain at least five players from the team after each season completed
according to the contract with the players. And after the abolition of “reserve clause”, the BATNA
option for the PRC was the “compensation” that indicates the team that lost a player would receive
a player from the signing team as compensation. BATNA option for the MLBPA was the “free
agent” that indicates the players can switch to the best bidders.
3nd Basic Agreement:
Reservation price (RP): RP for the MLBPA was 1 million for the pension fund and the RP of
PRC for contribution to the pension fund was nothing.
ZOPA: ZOPA for this agreement is 5 lakh contribution for the pension fund as the PRC initially
refused to contribute for the player`s fund.

PRC (owner) ZOPA MLBPA (players)

No amount 5 lakh 1 million

4th Basic Agreement:
Reservation price (RP): the reservation years (RY) of professional service claimed by PRC was
10 years and reservation years (PY) claimed by MLBPA 5 years of profession service.
ZOPA: ZOPA for this agreement is 6 years of professional service as the both sides reached to
this decision.

PRC (owner) ZOPA MLBPA (players)

10 years 6 years 5 years

Summary and Recommendation: