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Throwback Thursday: The End of the Reserve Clause

Players like David Price and Zack Greinke have Peter Seitz, and his monumental ruling against baseball's owners in 1975, to thank for their recent record-setting contracts.

by David Berri
Dec 24 2015, 4:26pm

MLBClassics / YouTube

Each week, VICE Sports takes a look back at an important event from this week in sports history for Throwback Thursday, or #TBT for all you cool kids. You can read previous installments here.

Earlier this month, the Boston Red Sox signed David Price to a seven-year, $217 million contract, making him, with an annual salary of $31 million, the highest paid pitcher of all-time. Price's record was short-lived, however. Just two days later, the Arizona Diamondbacks signed Zack Greinke to a six-year contract worth $206.5 million.

These historic contracts represent the efforts of many people, from the players themselves to their agents and team representatives negotiating behind the scenes. They're also, in a way, the work of Peter Seitz, who forty years ago this week made one of the most important decisions in baseball history.

Seitz was not a player or coach. In 1975, Seitz was baseball's independent arbitrator. The case before Seitz in December of that year involved two players who were challenging baseball's reserve clause. A version of this clause was first introduced in 1879 by the National League, allowing each team to reserve the rights to five players. By the end of the 1880s, a reserve clause was included in every player's contract. If a player and his club could not come to an agreement on a new contract by a certain date, the clause said, "the club shall have the right to renew this contract for the period of one year on the same terms."

READ MORE: Throwback Thursday: The Shoe Brawl, Or When The Bruins Fought Everybody

Until Peter Seitz came along, Major League Baseball interpreted the reserve clause to renew itself "for the period of one year" indefinitely, since even the renewed contract contained the clause. This effectively bound a player to a team until the front office decided otherwise. Once a player signed his first professional contract, he could not negotiate with another team until his original team let him go. This system gave teams little incentive to pay competitive wages, and so they didn't. In 1930, Babe Ruth signed a two-year contract with the New York Yankees for $80,000 per season (adjusted for inflation, the contract would be worth $1.1 million today). Ruth's salary was a record at the time and, in today's dollars, would remain so for more than forty years. Yes, in today's dollars, players like Ted Williams, Mickey Mantle, Hank Aaron, and Willie Mays were all paid less than Ruth in 1930.

The Babe. Courtesy Library of Congress, Prints & Photographs Division, LC-DIG-ggbain-32385

Because the reserve clause prevented these stars from negotiating with more than one team, the bargaining power of these stars was very limited. Two players—George Toolson in the 1950s, and Curt Flood in the 1960s—did challenge this system because it seemed to clearly violate anti-trust laws. Both challenges were ultimately defeated by the Supreme Court, which insisted baseball was not subject to anti-trust laws (and even the Supreme Court acknowledged the silliness of that argument). Because the Supreme Court would not invalidate the reserve clause, baseball players were not able to claim much of baseball's revenues. A study of data from the 1950s indicated that baseball players were able to claim only 17 percent of league revenue.

In 1975, though, Andy Messersmith, of the Los Angeles Dodgers, and Dave McNally, of the Montreal Expos, came forward to challenge this clause. They simply refused to sign their contracts. Their respective teams renewed each player for one year and when that year ended, both players claimed they were free agents.

This claim, though, was not filed in court. The collective bargaining agreement reached between the owners and the Major League Baseball Player's Union in 1970 required that disputes between the union and owners had to be submitted to binding arbitration. The independent arbitrator, Seitz, had to decide between two competing claims. The union, led by Marvin Miller, argued that "one year" simply meant one year, and that meant Messersmith and McNally were free agents when the 1975 season ended. The owners, as they had always done, disagreed.

On December 23, 1975, Seitz issued his ruling, agreeing with Miller that "one year" meant one year. Messersmith and McNally were free agents. Baseball owners reacted by firing Seitz, but that did nothing to change the ruling. Unfortunately for the owners, binding arbitration is actually binding. Baseball had free agency at last.

The details of what free agency would look like still had to be worked out, though, and that required negotiation between the owners and the union. As Marvin Miller detailed years later, Charles Finley, the owner of the Oakland A's had a simple proposal. Finley wanted all players to become free agents after each season, flooding the market with talent and potentially driving down each player's price.

Not every baseball owner, though, demonstrated such a clear understanding of supply and demand. Consequently the owners and union ended up with a system where the reserve clause continued to apply to younger players. Only after a player played six years was free agency granted. This system reduced the supply of players entering the market in any given year, which in turn raised the price a free agent could demand.

Zack Greinke, so money. Photo by Mark J. Rebilas-USA TODAY Sports

And the prices for the top free agents did indeed go up. Michael Haupert notes that the highest paid player after Seitz's decision in the 1970s was Mike Schmidt, who was paid $561,000 in 1977. This is $2.2 million in today's dollars, or a value that finally surpassed what Ruth was paid in today's dollars in 1930.

Unlike Ruth, Schmidt's record in today's dollars did not last 47 years. In 1980, Nolan Ryan became the first player to earn $1 million. In today's dollars, this is actually $2.8 million. Seventeen years later, Albert Belle was paid $10 million (or $14.8 million in today's dollars). In 2001, Alex Rodriguez was paid $22 million; eight years later, Rodriguez saw his annual pay surpass the $30 million mark. The rapid growth in the salaries paid to top players is likely to continue in the future. Major League Baseball earned $9 billion in revenue last season, and league executives are now aiming for the $15 billion mark.

As revenue increases, expect top player salaries to keep rising as well. None of it would happen, though, if not for Seitz going against the owners and striking down the reserve clause 40 years ago. The ruling cost Seitz his job, but it has allowed top players like David Price and Zack Greinke to keep setting payday records.