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Friday, August 30
Four-year deal includes luxury tax, no contraction

Associated Press

NEW YORK -- Highlights of the tentative agreement reached Friday between baseball players and owners, as obtained by The Associated Press from player and management sources:

The agreement starts with the 2002 season and runs through Dec. 19, 2006.

Luxury Tax
Teams whose payrolls exceed set thresholds will be taxed on the portions above the thresholds, with the money to be used for player benefits, including player benefit plan, or the industry growth fund, or developing baseball players in countries lacking organized high school baseball. The thresholds are as follows:

  • 2002 -- No tax
  • 2003 -- $117 million
  • 2004 -- $120.5 million
  • 2005 -- $128 million
  • 2006 -- $136.5 million

    The following tax rates apply:

  • 1st time over threshold: 17.5 percent in 2003, 22.5 percent in 2004 and 2005, no tax in 2006
  • 2nd time over threshold: 30 percent
  • 3rd and 4th times over threshold: 40 percent

    Luxury taxes expire on the final day of the 2006 season, meaning that if the sides play under the status quo in 2007, there would be no tax

    Payrolls are for 40-man rosters and include averages of multiyear contracts; health and pension benefits; clubs medical costs; insurance; workman's compensation, payroll, unemployment and Social Security taxes; spring training allowances; meal and tip money; All-Star game expenses; travel and moving expenses; postseason pay; and college scholarships.

    Revenue Sharing
    Base plan -- Each team contributes 34 percent of its net local revenue, after deductions for ballpark expenses, to a pool that is redistributed equally to all 30 teams.

    Central fund component -- $72.2 million annually, taken from those teams that are net payers in base plan and redistributed to teams that are net receivers in base plan. The central fund component phases in at 60 percent in 2003, 80 percent in 2004, and 100 percent in 2005 and 2006. It is collected by taking a figure in which the numerator is $72.2 million and the denominator is total net local revenue after ballpark expenses of all payer clubs, and multiplying the figure by a payer club's total net local revenue after ballpark expenses. It is redistributed on a split-pool basis based on distance from the average.

    Commissioner's Discretionary Fund
    A total of $10 million -- $333,333 from each team -- is taken from the central fund and may be redistributed by the commissioner.

    Drug Testing
    All players will be randomly tested for illegal steroids in 2003 as a survey. If 5 percent or more test positive in any survey year, mandatory random testing for illegal steroids shall take place during the following two years. If 2.5 percent or fewer test positive in consecutive years, mandatory random testing shall cease. In any year in which there is not mandatory random testing, there shall be survey testing. The first time a player tests positive during mandatory random testing, he is placed in a treatment program. For subsequent positive tests, penalties range from a 30-day suspension to a two-year suspension.

    Amateur Draft
    The sides shall establish a committee to establish rules for a worldwide amateur draft, which it will try to have in place for June 2003. Clubs have proposed 38 rounds, players 20. The committee will make the determination. The committee will consider, among other issue, whether teams should be allowed to trade draft picks and the negotiating rights to selected players. If a team fails to sign a first-round draft pick, it will receive a corresponding pick in the first round of the following year's amateur draft (example: if a team fails to sign the No. 2 overall pick, it would be awarded an extra pick immediately following the No. 2 pick in the following draft). If a team fails to sign a second-round draft selection, it will receive a pick in the sandwich round between the second and third rounds of the following year's amateur draft. Order of selection for the sandwich round shall be determined by inverse standings.

    Teams may not be eliminated through the 2006 season. The clubs may elect to eliminate two teams for the 2007 season, but must notify players by July 1, 2006. If the clubs elect to contract for 2007, the union wound not contest before the National Labor Relations Board that contraction is a mandatory subject of bargaining. If clubs elect to eliminate teams they do not have to identify at that time.

    Minimum Salary
    First figure is for major leagues, second is minor league rate for players with split contracts appearing on a 40-man roster for two or more years:

  • 2002 -- $200,000/$40,500
  • 2003 -- $300,000/$50,000
  • 2004 -- $300,000/$50,000
  • 2005 -- $300,000/$50,000 plus two-year cost-of-living adjustment
  • 2006 -- 2005 minimums, plus one-year cost-of-living adjustment

    A team may not have more debt than 10 times EBIDTA (earnings before interest, depreciation, taxes and amortization), except that a team that has moved into a newly constructed ballpark within the past 10 years may not have more debt than 15 times EBIDTA. There will be a three-year grace period, during which the commissioner has the right to retain the debt service rule, fully implemented. If he so elects, the commissioner must revoke the 60-40 assets-to-debt ratio rule. If he doesn't want to revoke the 60-40 rule, the debt-service rule becomes fully implemented.

    Interleague Play
    Interleague play, which had been agreed to on a test basis in the 1997-2001 agreement, is agreed to for the length of the contract.

    Free Agent Draft Pick Compensation
    Draft-pick compensation for losing Type A and Type B free agents is eliminated.

    Benefits Plan
    The clubs' contribution will be $114 million to $115 million annually, up from $70 million in 2002.

    Spring training and in-season allowances will be increased at the rate of the Consumer Price Index.

    Each year will be divided into four waiver periods instead of three. The current periods are Nov. 11 to day 30 of the season, day 31 to July 31, and Aug. 1 to Nov. 10. The first period will be divided into Nov. 11 to Feb. 15, and Feb. 16 to day 30.

    Injury Rehabilitation
    Players with less than five years of major league service can be directed for no more than 20 days to undergo baseball-related rehabilitation at a team's spring training facility. However, starting with the 11th day, each day at the spring training site would be deducted from the limit on a rehabilitation assignment to the minor leagues for the player, currently a maximum of 30 days for pitchers and 20 days for others.

    Second Medical Opinions
    A provision that divided the United States into three regions, and required a player to pay for his transportation if he went out of his region, is eliminated.

    All contract tenders to unsigned players on 40-man rosters will be made by the commissioner's office instead of individual teams.

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