With battles looming over money, free agency, expanded playoffs, rule changes, and other issues, Major League Baseball owners “locked out” the players two minutes after the current Collective Bargaining Agreement (CBA) expired on Dec. 1. After 26 years of labor peace, there will be no contact between teams and players, no trades or free agent signings, and no season until a deal is reached.
Odds are that the two sides will grind out a compromise before the regular season starts on March 31, 2022. But the raw emotions underlying these talks can escalate, damaging players, owners, fans, hot dog vendors, nearby restaurant and bar workers, as well as municipalities. And current negotiations have begun under the shadow of last year’s ugly owner-player talks during COVID, which only concluded when Commissioner Rob Manfred unilaterally imposed a 60-game season, dramatically cutting incomes.
History highlights the real risks of a continued impasse: Between 1972 and 2004, the league suffered eight strikes and lockouts. In 1972, 86 games were cancelled; in 1981, it was 713 games; and the 1994-95 strike cost 938 games, including the entire 1994 postseason and World Series. It took baseball a decade to recover.
The game was in far worse shape in 2021 than at any of those times, with game attendance and viewership sharply down. During the 1995 World Series, the average TV viewership was 29 million per game; this year the number dropped below 12 million. Baseball has been losing the battle for fan interest to other sports and forms of entertainment. While trying to make itself more appealing — faster play, more on-field action, a younger fan base — baseball can ill afford another self-inflicted wound if the current talks fail.
To avoid another bloodletting, we have a suggestion we developed with our colleagues from Harvard Business School, Michael Wheeler and the late Howard Raiffa: a “virtual lockout” (by the owners) or “virtual strike” (by the players). Either would permit the two sides to battle it out, just as in a standard lockout or strike but while still playing scheduled games. Such a mechanism would enable a financial fight between owners and players to proceed without harming the sport, the fans, or the many workers dependent on full ballparks — and would provide a potent incentive to settle sooner. The two sides should put this kind of insurance policy in place now, in case negotiations become irretrievably stuck and tempers boil.
While the season would continue as usual under this proposal, neither side would receive any more money than the minimum necessary to put on the games — no meaningful revenue from the dominant sources, including the gate and media rights. Instead, that money would be put into escrow under the control of a neutral outsider. The only outflow from this pot would be to cover the direct expenses of playing each game — lights, ballpark personnel, health and other insurance, and so on.
Once both sides agree to a new CBA, revenues and salaries could again flow to owners and players. Until then, the funds would swell the escrow pot by hundreds of millions of dollars monthly. This largesse would be distributed only after the two sides made a separate deal on how to divide the pot by negotiation, arbitration, a coin flip, or something else.
Why would owners and players put on games for nearly nothing? Under a traditional lockout or strike, the escalating pain from forgone revenues is supposed to pressure all sides to settle; whoever holds out the longest wins. But all the revenue that would have been earned during the unplayed games goes elsewhere — likely to other entertainment competitors — and is forever lost to players and owners.
By contrast, each virtual lockout combatant could inflict the same costs on the other side for as long as it pleased while holding out for its preferred deal. Yet when a contract deal is struck in the virtual version, there would be a brimming escrow pot to split — and an undamaged sport.
Surely this scenario beats the identical deal ultimately reached via the traditional process, which entails a huge pile of burned-up revenue, no bonus for settling, a critically wounded sport, unhappy fans, and collateral damage.
But is this suggestion just too reasonable? What about irrational parties who mainly want to crush the other side?
Under our virtual scheme, such vengeful souls could still punish the other side by simply refusing agreement. If players believe the owners’ unity will collapse under the pressure of withheld gate and media revenues, they can hold out, thus denying revenue to the owners. If the owners want to punish the players or believe they can outlast them, a virtual strike works too; the players will go without regular paychecks until enough owners agree to a deal.
Yet while the impasse continues, games will be still played. Revenues will augment the inaccessible pot, offering no relief to each side’s financial pain — yet serving as an increasing lure to agreement.
The virtual mechanism must be designed so that neither party can count on receiving a known share of the escrow fund. Otherwise, the penalty for not settling would merely be deferred receipt of revenues and salaries. Once the two sides agree on normal contract issues, the division of the pot must depend on their reaching a separate agreement; at will, a vindictive side could indefinitely deny any share to the other side — and itself — by just saying no.
What about the argument that during a regular lockout or strike, each warring party depends on unhappy third parties to pressure for settlement? The players’ union might bet that deprived of games, angry fans would pressure Congress to force the team owners to make concessions. Owners might calculate that the public would drive rich, greedy players to give in. Yet the fans spoke very clearly during the 1994-95 impasse and would do so again: A pox on both your houses!
A possible devilish twist: Let the pot grow as more of the season is lost, but for every month that passes with no contract agreement, distribute a meaningful percentage of the total — say, 10 to 20 percent — to a nonprofit such as Little League or the Special Olympics. As each deadline approaches and the pot threatens to shrink, settlement pressures will further ratchet up.
While we’ve only outlined this concept, its detailed design is tricky but doable: Variations on this technique have been used successfully in other realms. For example, it was used by the U.S. Navy to deal with a supplier’s threatened strike in World War II, and it settled an Italian airline dispute. A subset of the negotiators or a trusted third party should work out the specifics of such a virtual insurance provision soon, while emotions are relatively cool.
Regardless of whoever wins a traditional strike or lockout that drags into the season, both sides forfeit vast sums, bystanders suffer, and the sport itself is damaged. Everyone wants an owner-player deal before the 2022 season risks being shortened or lost. But to avoid a collectively costly war of attrition should negotiations go into a ditch, agreement on a virtual option — now! — is the right call.
David A. Lax is managing partner of Lax Sebenius LLC, a strategic negotiation advisory firm. James K. Sebenius is a partner in the firm and professor of negotiation at Harvard Business School. Sebenius directs the Harvard Negotiation Project at Harvard Law School, where Lax is a distinguished fellow.