This Week In Transactions History: Messersmith-McNally Decision

The game of baseball changed forever this week in 1975. No, not how the game was played on the field, but how the game was played off the field. Thirty seven years ago this week, arbitrator Peter Seitz issued his historic decision making pitchers Andy Messersmith and Dave McNally true free agents. Federal district and appeals courts both upheld Seitz's opinion, effectively voiding baseball's reserve clause.

The reserve clause allowed teams to renew a player's contract "for the period of one year on the same terms," except that the salary could be cut by as much as 20%. Players generally signed new contracts, so the process had the effect of holding the player to the team with which he first signed indefinitely. This eliminated competition and suppressed salaries to the benefit of the owners and to the dissatisfaction of the players.

In 1975, Messersmith and McNally were the only two players bound to their teams, the Dodgers and Expos respectively, on the basis of the reserve clause. Since neither signed a contract during that option year, both insisted that they were free to sign with other teams the following season. The owners disagreed.

The grievance was submitted to arbitration with MLBPA executive director Marvin Miller and players Joe Torre and Jim Bouton testifying for the players. Meanwhile, commissioner Bowie Kuhn, NL president Chub Feeney, and AL president Lee MacPhail testified for the owners. The hearing lasted three days and produced an 842-page transcript with 97 exhibits. Seitz sided with the players, ruling owners could not maintain a player's services indefinitely. Messersmith went on to sign a three-year deal with the Braves worth $1MM while McNally, who quit baseball in June 1975, remained retired. 

The decision created a true free agent market and salaries skyrocketed. According to Baseball Almanac, the average salary in 1975 was $44,676. Today, the Associated Press (via ESPN.com) reports the average salary is over $3.2MM, an increase of nearly 7,100%.

The free agency windfall has continued this offseason with the top five richest free agent contracts, based on MLBTR's Free Agent Tracker, totaling nearly $500MM. This includes the richest contract ever given to a right-handed pitcher (Zack Greinke's $147MM), a record average annual value (AAV) for any pitcher on a multiyear contract (also Greinke at $24.5MM), and the fifth player in MLB history to receive a contract with an AAV of at least $25MM (Josh Hamilton at $25MM). The Indians recently agreed to sign Nick Swisher to a four-year, $56MM contract, but Swisher's AAV of $14MM doesn't even crack the top 50 list of the highest-paid players in baseball history (based on AAV), as compiled by Cot's Baseball Contracts.

In his opinion, Seitz summarized the owners' argument that eliminating the reserve clause "would encourage many other players to elect to become free agents at the end of their renewal years, that this would encourage clubs with the largest monetary resources to engage free agents, thus unsettling the competitive balance between the clubs, so essential to the sport…that driven by the compulsion to win, owners of franchises would overextend themselves financially in improvident bidding for players."

It could be argued that the owners weren't far off the mark. The George Steinbrenner reign of the Yankees featured some lavish spending and the next few Dodgers teams are poised to set National League payroll records under the ownership of Guggenheim Baseball Management. 

What was Seitz's reward for changing the game of baseball? He was fired the same day he issued his opinion by the owner's representative in labor matters and asked to refrain from writing or discussing the historic decision. However, on the day of his ruling, Seitz put his decision in context saying, "I am not Abraham Lincoln signing the Emancipation Proclamation."  

Seitz may have downplayed the effect his ruling would have on baseball, but no decision in the last half century has had such a profound impact on the business side of the sport.

Thanks to Sports Illustrated for some historical information.