Reserve clause

In North American professional sports, the reserve clause was part of a player contract that stated upon the contract's expiration, the rights to the player were to be retained by the team. This meant the player was not free to enter into another contract with another team. Once signed to a contract, a player could be reassigned, traded, sold, or released at the team's whim. The only negotiating leverage that most players had was to hold out at contract time, refusing to play unless their conditions were met. The player was bound to either negotiate a new contract to play another year for the same team, or ask to be released or traded. The player had no freedom to change teams unless he was given his unconditional release. In the days of the reserve clause, this was the only way a player could be a free agent.

Once common in sports, the clause was abolished in baseball in 1975. The reserve clause system has, for the most part, been replaced by free agency.

In the late 19th century, baseball in America became popular enough that its major teams began to be businesses worth considerable amounts of money, and the players began to be paid sums that were well above the wages earned by common workers. To keep player salary demands in check, team owners promulgated a standardized contract for the players, in which the major variable was salary. The players unsuccessfully tried to fight the growing reserve system by forming a union, the Brotherhood, and founding their own Players' League in 1890, but the PL lasted just one season. For the next 80 years, the reserve system ruled the game. In this era, all player contracts were for one year. There were no long-term contracts as there are today, because the reserve clause negated the need for them.

The Reserve Clause's inception was in 1879, when it was proposed as an unofficial rule known as "the Five Man Rule." It would allow teams to reserve players for each season, unless a player opted out of his contract and did not play in the league for a year. While the rule was not secret, teams started to sign other teams' "reserved players", thus encroaching the rule. These controversies caused the National League to instate the rule officially on December 6, 1879.

Teams realized that if players were free to go from team to team then 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 the rights to other players, or sold them outright for cash. 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).

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Wikipedia