A Look at the Gains and Losses by Team of a Season Without Fans
On the heels of another weak offer by team owners, it’s worth re-examining their claims of losses on a per game basis in the regular season. While most of the discussions about MLB’s gains and losses in 2020 have been on a more global scale, individual teams are going to have vastly different financial outlooks this season. Those outlooks could be shaping the negotiations among the owners as they continue to present proposals to the players that try to satisfy all the owners at once.
It’s possible you’ve heard the claim that owners will lose $640,000 on every regular season game played. While there are a lot of issues with that claim given that national television money as well as other revenue from MLB’s central office like MLB.TV is not included, we can use the data from that assertion as a starting point in examining MLB’s finances. MLB’s claim of losses comes from taking a pro-rated share of local television money and then subtracting player pay based on the March agreement that dictated pro-rated pay. Then, around $55,000 is added per game for other revenue minus the cost to put on a game. For the television estimates, I used the data from this piece, added the MLB average for Toronto, and then made a 2% adjustment based on the figures in this Jeff Passan piece. That same piece also provided the salary rate of $1,674,800 per game. Based solely on that data, here’s the team-by-team look at gains and losses per game:
MLB would very much prefer we stop here and not include national television money for the regular season or the huge boon to owners playoff revenue would be. We will get to those issues in a bit, but first, I want to touch on how Passan went about looking at a possible next step in negotiations prior to the last ownership proposal. He starts with the following:
Still, a 48-games-per-team schedule would leave a 72-game season. At MLB’s self-reported loss of $640,000 per game, a 48-game season means the league would be willing to lose $460,800,000.
If we assume that the 48-game season is baseball’s failsafe and that owners would agree to pay pro-rated salaries under the March agreement in order to get fulfill some of their regular season television obligations and receive at least a portion of that money and then get that $787 million in playoff money, then the $460 million figure serves as the starting point for MLB’s preference to withstand losses. Passan notes that playing another 34 games to get to 82, a number closer to the players’ preference, would mean another $326 million in claimed losses. There are several ways to get rid of that $326 million for owners, like expanded playoffs, salary deferrals, or even a slight pay cut from pro-rated pay.
Here is the same graph from above, except instead of using pro-rated pay, I will use the 50% pay cut from the pro-rated amounts that the owners recently proposed:
Passan wondered how the owners and players might bridge that $326 million gap. The owners proposed a plan where they clawed back that $326 million entirely and then took another $665 million to ensure regular season games would be profitable for two-thirds of teams before even considering the hundreds of million of dollars in MLB regular season revenue or the significant sum that awaits in the postseason. The owners’ proposal does include around $440 million in postseason bonuses, though roughly half of that amount is likely created from the players agreeing to an additional round of playoff games. The other half represents only about a quarter to a third of MLB’s already existing rights deals, which equal $787 million. In their proposal, the owners took away a billion dollars of regular season salaries compared to an 82-game schedule with pro-rated pay, then gave back only around $200 million in postseason money that was theirs to give away.
When we started this exercise, the only revenue used was local team money. Using the pro-rated pay system from the March agreement and adding in national regular season revenue from television contracts and MLB’s central office on a pro-rated basis, this is how much each team makes or loses per game before the playoffs:
It’s worth noting that a few of the bigger losers in the above scenario, particularly the Mets and Yankees, own significant portions of their RSN, which tends to shield revenues not included above. It’s also worth mentioning that the players gave MLB latitude to adjust revenue sharing this year to accommodate for this year’s unusual revenue landscape. Running the regular season game profits at 76 games instead of 82 yields a total of $209 million instead of $225 million. What we see above shows that it is worthwhile and profitable to play regular season games, but there’s a $90 million difference between the Dodgers at the top and the Astros at the bottom. Postseason money would put nearly every team on the plus side of the ledger and an expanded postseason would put all but the Astros in the black when it comes to playing games.
The owners might not care about an $80 million difference in regular season profits and losses if every team was doing very well as in a typical season, but with a third of the league below zero per game above, there is more likely to be fighting among the owners on how to divide up revenue. An alternative to having that fight is to keep making proposals like the owners’ latest. Here’s what the last graph looks like under the owners’ current proposal:
Get every team above zero and there’s less arguing between owners, but the ask also means a decrease in player salaries by a billion dollars from what was agreed to in March. When talking about profits above, this isn’t to say these are teams’ overall profits and losses. There are considerable fixed costs that owners are dealing with at the moment. But the analysis above is useful for comparing the revenue generated beyond player salaries and whether teams are making or losing money per game depending on the plan. Under the owners’ proposal, all teams make a good chunk of money on the regular season and then split less in the postseason as some of that money goes to players. Under the March agreement, MLB still makes money beyond what they are paying the players, but the amounts vary greatly by team and some teams might not make money by playing the regular season games, instead needing to rely on postseason money to turn a profit on playing this season.
Ultimately, the owners might have lost about a billion dollars in expected revenue from a half season’ worth of games coming off the pandemic compared to what they could arguably expect in the March agreement. They’ve now made two proposals that place nearly the entirety of that burden on the players and the most recent offer asks the players to assume the risk of no postseason so that the owners can turn a billion dollar profit in the regular season. The players can continue to offer an expanded postseason or potentially more salary deferrals, but there is little compelling the players to move from the expectations of a 48-game season making pro-rated salaries. There looked to be a $325 million gap that needed closing before the last offer, but the owners took it a billion dollars in the opposite direction with this offer.
Craig Edwards can be found on twitter @craigjedwards.
Thank you! This confirms my longstanding theory that not every owner is going to make money per game, but some are, and that the differences by team could become very large.
I don’t necessarily this changes a lot about what we know about the owners–presumably, they’re unified around the idea that they don’t want anyone to lose money, and at least in one case where the team makes money (the Angels) we know the owner is a hardliner for cutting pay. But, what I do think this shows is that the league is, in fact, going to make money per game in the regular season and that there is no reason for the owners to fight the number of games except that more of them delays getting to the playoffs (where the profit margin is far higher). Some teams are probably going to take a loss no matter what happens because of their fixed costs, and more games is worse for a number of teams, but the owners collectively don’t lose money per game.
FWIW, for those of you who wonder about the numbers here–I’ve been fighting with spreadsheets ever since this started trying to make the numbers add up but I couldn’t, and the reason why is because of the $55K cost per game. I am really glad someone got it right and I can see the results.
Great write up craig.
Oh what do you know….the teams leveraged to their eyeballs have huge expenses they have to pay so now they won’t make any money. As pointed out several of those teams shown losing money will make a huge amount on the rsn they own thats tied to the game but rev not disclosed.
Also the players should be seen as individual businesses too. Trout is set to lose 25$MM in revenue give or take. That leaves him with 5-10$MM in revenue, what if he has 15$MM in yearly expenses?……hed be seen in the chart above as having -10$MM in revenue too.
Everyone cares about the Owners Ebitda, but no one cares about the players EBITDA.
Should be straight up pro ration on per game basis. I could care less about the owners high expenses. Shouldve had stronger balance sheets.
Put it this way: in the midst of the crisis, Boeing was able to raise $25B of debt. And they still can’t even sell their best (?) product!
Macy’s just raised $4.5B. Macy’s.
The owners would rather *not* raise their debt, but if I were the PA, I’d say tough sh&t. If you don’t want to sell debt, sell equity. If you don’t want to do either, thats your choice, and you better have the capital to eat that loss. You shouldn’t go to employees and claw back salary because you don’t want to give up equity.
Public companies floating bond issuance right now are very, very different than private businesses. Also, in the Boeing deal, the collateral has value. I mean, sure, less so than it did before their troubles, but the planes and the parts still have value. Macy’s has inventory. Service businesses don’t have quality collateral for bond issuances. The majority of MLB’s assets are the player contracts, and all of MLB’s revenue streams are contingent on games being played. Service businesses have to pay a very, VERY high interest rate to get debt right now.
But more importantly, loans have covenants, and security terms. No one is going to come in as a “junior lender” right now, subordinate to the other loans already in place, in a business model where the possibility of revenue seems more remote by the day, for any terms other than near-usury. In addition, virtually all debt covenants in place are going to contain a condition that if new debt is issued and that debt is graded poorly, then the existing debt might be downgraded – and, again, interest costs and payments rise, etc.
Raising debt right now is really hard.
That’s only true if you limit “the team” to the on-field part of the organization which is what the owners are arguing. If they used their stakes (or outright ownership) of their RSN, the free real estate they own/manage/develop, the tech infrastructure of MLB.tv they have plenty of assets to use. To say they don’t have any collateral is as disingenuous as the financial picture they’ve tried to paint to the public.
Very few teams own 100% of the RSN. The RSN’s have other owners who may not want to be creditors right now. Real estate often has existing debt on it, meaning new debt would be junior debt and behind the line in collateral terms. These are very, very different times. This is why the Fed had to step in to preserve lending for the economy overall. Even good businesses are having trouble getting credit on historically reasonable terms.
I can’t find the original Fangraphs post, but I think Fangraphs stated in 2016 that only 5 teams owned more than 30% of their RSN. I don’t know current data but found this post here:
https://forum.orioleshangout.com/forums/index.php?/topic/24671-estimated-tv-revenues-for-all-mlb-teams/
Here is the most recent version:
https://blogs.fangraphs.com/lets-update-the-estimated-local-tv-revenue-for-mlb-teams/
You can break it down into a few different groups.
As of last year, the Red Sox, Mariners, Orioles, Blue Jays, D-Backs, and Mets own a huge amount of their network.
The Dodgers own 50% of their network.
The Padres, Giants, Cards, Phillies, Nationals, Angels, White Sox, Yankees, and Phillies own between 20%-30%.
Cubs, D-Backs, Reds unknown, but they have at least some stake.
Its hard to raise $….but not that hard for business with revenue streams of 10 billion dollars a year. its actualy quiet the opposite, fairly easy. If mlb wanted to raise some $ they could get it done with only having to make 1 phone call. More money out there than places to park it for the right asset.
The Blue Jays don’t own their network; their network owns them.
I won’t argue in favor of more debt for really any individual or business, but the point remains there is a difference between ‘can’t raise debt’ and ‘won’t raise debt.’ Without open books we can’t know the amount of debt each team carries, but I feel comfortable saying every team is carrying some level of debt and that for some orgs it appears to be their preferred method of ops.
Until the books are open we don’t know the full picture, but remember Loria’s racket where the team paid he and his son-in-law $50M a year to ‘manage’ the organization. That was considered debt on the franchise. It seems (conjecture!) the Cubs have a similar situation for the Ricketts, but without seeing the books we can’t know.
So sell equity.
i at least understand why the owners don’t want to divide up the revenue themselves at the pro-rated deal. The Dodgers by far stand to make the most profits, and the Astros to take the biggest loss, so if the owners agreed to a more even distribution, the Dodgers would in effect by giving money to the Astros.