Reserve Clause

By Wikipedia

The reserve clause is a term formerly employed in professional sports contracts.

In the late 19th century, baseball became popular enough that its major teams began to be businesses worth considerable amounts of money by the standards of the time, and the players began to be paid sums that were well above the wages earned by common workers. In order to keep player salary demands in check, team owners went to a standardized contract for the players in which the major variable was the salary. In this era, all player contracts were for one year; there were no long-term contracts as there are today. The reserve clause contained in all standard player contracts stated that upon the contract's expiration, the rights to the player were retained by the team with which he had been signed; in other words although both the player's obligation to play for the team and the team's obligation to pay the player for playing for them were terminated, the player was not free to enter into another contract to play ball for another team, but was bound either to negotiate a new contract to play another year for the same team or to ask to be released.

Teams realized that if players were free to go from team to team that salaries would escalate dramatically; therefore they seldom granted players (at least valuable ones) a release, but retained their rights, or traded them to other teams for other players or something else of value. Players thus had a choice only of signing for what their team offered them, or "holding out" (refusing to play, and therefore, not being paid). The United States Supreme Court had held in 1922 in Federal Baseball Club v. National League (259 U.S. 200) that baseball was not primarily a business but rather primarily a sport, and that merely playing games did not constitute "interstate commerce" in the sense contemplated by the Founders, and that therefore antitrust laws did not apply to it (a holding that to this point has never been overturned). This holding, although on a largely unrelated matter, essentially codified the reserve clause for many years.

When other team sports, particularly ice hockey, football, and basketball developed professional leagues, their owners essentially emulated baseball's reserve clause. This system stood almost unchallenged, other than by the occasional holdout, for many years.

In the 1960s, things began to change. St. Louis Cardinals outfielder Curt Flood learned in 1969 that he had been traded to the Philadelphia Phillies by means of a radio broadcast that he had happened to hear in his car. He decided to litigate this, ruining the rest of his career in the process, but establishing new principles. Most important were the establishment of the principles that items such as the reserve clause were a legitimate basis for negotiation in collective bargaining between players and owners, and also that the historic baseball antitrust exemption was valid for it only and not applicable to any other sport.

Removing the reserve clause from player contracts became the primary goal of negotiations between the Major League Baseball Players Association and the owners; this was eventually accomplished and has led to the modern baseball era of free agency and high player salaries. The other sports were slower to follow suit. For many years, NFL players' mobility was limited by the so-called "Rozelle Rule", named for the commissioner who first implemented it, which allowed the commissioner to "compensate" any team who lost a free agent to another team by taking something of equivalent value, usually draft picks, from the team that had signed the free agent and giving it to the team which the player had left. Fear of losing several future high draft picks greatly limited free agency as no team wanted to sign a veteran player only to learn that it would lose, for example, its next two first-round draft picks. The Rozelle Rule was eventually replaced by "Plan B", which allowed a team to name a thirty-seven man roster to which the reserve clause would apply, and all players not included on this list were to become free agents. Obviously, few top-echelon players were left off of this thirty-seven man roster unless they happened to be injured. Courts eventually ruled this plan to be an antitrust violation, and something resembling true free agency came to pro football. Now, exclusive rights to a player are only for the first three years after his selection in the college draft; in the next period of the career, a player can be a "restricted free agent", allowing his former team to match any offer made to him by another; after six years in the NFL all contracts end with the player becoming an unrestricted free agent without reserve.

NBA Basketball went through several phases of compensation and other arcane provisions before reaching almost unrestricted free agency. The highly contentious negotiations between National Hockey League owners and players that led to a lockout, wiping out the entire 2004-05 NHL season, were in part about free agency; the previous system precluded unrestricted free agency before the player reached 31 years of age. Most younger hockey free agents were restricted free agents whose teams could retain them by matching an offer from another club or making a "qualifying offer," which usually consisted of a ten percent raise above the pay in the former contract. Following the 2004-05 lockout, owners eventually agreed to phase in a much lower age for unrestricted free agency (27 years of age or 7 years in the NHL, whichever comes first) in exchange for the players meeting owners' principal demand in the new NHL Collective Bargaining Agreement — an overall salary cap.