After Years of Profits, MLB Owners Ask Players to Subsidize Potential Losses

Six months ago, few people likely loved the status quo more than MLB Commissioner Rob Manfred and the group of owners who employ him. Having just completed the third year of a five-year Collective Bargaining Agreement with the players, baseball revenues continued to soar, with estimated profits during those years totaling $3.57 billion even before accounting for the $2 billion windfall from the BAMTech sale to Disney. Players saw their share of revenues shrink over those three years due to stagnant payrolls, and hoped for an opportunity to negotiate a better deal after the 2021 season. After years of huge profits under the current CBA, MLB owners are faced with the threat of potential losses, and according to reports from Evan Drellich, Ken Rosenthal, and Joel Sherman, the owners appear set to ask the players to subsidize those losses.

According to Rosenthal’s report, MLB wants to introduce revenue sharing for 2020 only:

Because games, at least initially, will be played without fans, the players would be asked to accept a further reduction in pay, most likely by agreeing to a set percentage of revenues for this season only.

The idea behind such a plan, from the league’s perspective, would be to protect the players and owners against the economic uncertainty created by the virus.

The players agreed in March to prorate their salaries in a shortened season. Those salaries cover the regular season only, while postseason shares are based upon gate receipts. If the players agreed to a set percentage of revenue, they also would share any additional national TV money generated during the postseason.

According to Bob Nightengale, the MLB is proposing to share 48% of revenue with the players. Before even getting into the very thorny issue of what constitutes the revenue that might be shared, it is worth noting that the owners on the whole might break even or potentially profit if they stick to the deal agreed to in March, and pay players on a pro-rated basis. As I wrote last month when the owners’ wishes to renegotiate became public:

Rob Manfred has indicated 40% of revenues are home stadium-related, in line with Forbes’ figure of around $4 billion. As to how that $4 billion figure might be made up, we already have the players discounting their salaries. If, for example, 100 games are played, players are giving up more than $1.6 billion in salaries. As mentioned above, players made amateur spending concessions that come close to $400 million this year. Expenses will likely go down if games are played in empty ballparks or at neutral sites (one estimate was by as much as 40%), and if teams can save even 25% of their expenses, that might mean another $1 billion dollars. Factoring in 2019 team profits of $1.5 billion per Forbes, and the league as a whole might end up turning a profit if they can keep all of their television revenue.

In a half-season scenario, if teams lost nearly all of their stadium revenue, and every other revenue and expense stream (including player payroll) were cut in half, there’s an argument that the owners might lose about $50 million per team this season. While that’s still about $2 billion shy of the profits they’ve made over the previous three seasons ($4 billion including BAMTech money), it’s a significant loss. Of course, the vast majority of those non-stadium revenues will not be cut in half. MLB is still in a very good position with its television partners, and even getting 75% of non-stadium revenue would allow the league to break even without renegotiating the deal it previously agreed to with the players. And that’s before we even get to teams taking lower annual local rights fees in exchange for ownership stakes in regional sports networks, which might send another half-billion dollars or more to teams annually. Those profits aren’t included in the revenue sharing among teams, and similar issues will make revenue sharing with players incredibly difficult to determine.

And even if we were to assume that by playing half a season without fans MLB is going to operate at a loss paying the players half their salaries, and then further decide that players should share a greater part of the burden of potential losses in the form of revenue sharing despite not having received any of the benefits of increasing profitability the last three years, what constitutes revenue in this scenario? Calculating revenues in a normal year is hard; calculating them this year will be near-impossible. We can talk about the under-market local TV deals of the Red Sox, Mets, Yankees, and Cubs, which siphon off baseball revenue in the form of network ownership, as a potential sticking point but even more difficult is determining revenue on national and local television deals and sponsorships.

If a team or the league agrees to take a discounted amount for a television deal or local sponsorship in order to make more money in future years, would such a deal require player approval? After all, the team or the league would be actively negotiating away money that might go to the players this year, but wouldn’t in future seasons when revenue sharing wasn’t in effect. The league and teams have longstanding relationships with their television partners and sponsors and they want to keep each other happy and provide each other with the biggest possible return on those relationships. The players are uniquely disadvantaged when trying to determine revenue due to these relationships and the potential for moving money around to the advantage of the parties already engaged in the deal. Involving the players will only lead to more acrimony and bigger headaches down the line.

In Rosenthal’s piece a league official indicated, “they will spend more on player salaries than they would earn in revenue for every incremental regular-season game played without fans.” The statement lacks specificity to the point of being meaningless spin in a PR war owners are trying to wage against the players. Does that count revenues from the postseason? Does it account for national TV money at all, or other revenue generated by the MLB central office? Are profits from local television networks included? What about payments received prior to the commencement of the season? And how do those incremental losses compare to not having a season at all?

If MLB on the whole is breaking even or something close to it, that means some teams are going to end up much better off in 2020 while others will probably lose money. That’s a departure from recent seasons, when nearly every team was turning a profit. It seems possible that proposing revenue sharing with the players is a way to keep more teams profitable and avoid uncomfortable inter-owner conflicts about how to split up revenue in a tough 2020 season. But it’s not the players’ job to help owners avoid discomfort among themselves. The players agreed to take a paycut back in March based on the number of games that will actually be played. The owners are now asking for further reductions in pay not because the business of baseball is about to go under, but because they might have to take a small loss after receiving more than $5 billion in profits over the last few years. The players are fully within their rights to be upset with the owners’ attempts to renegotiate a deal just weeks after it was agreed to, particularly when the players are the ones risking their health and the health of their families. As Andrew Miller told Jesse Rogers:

“We understand that this year isn’t going to be as financially rewarding for the ownership groups [but] there is higher risk this season,” Miller said. “If it’s not safe to bring fans into games, you’re still asking us to play, there’s certainly a risk there. … Travel is limited to essential, and we’re traveling, that means there is risk involved.”
…

“The way our sport works is we are not tied to revenue in any way,” Miller said. “If the owners hit a home run and make more money, we don’t go back and ask for more on our end. Ultimately this isn’t about money. We need to find a way to safely get our players on the field in a safe manner and control that. I would hope this [finances] doesn’t turn into anything regarding that stuff.”

The owners are trying to make the return of baseball about money. They want the reward without the risk because that’s what they’ve grown accustomed to after years of incredible revenue and increasing profits. The players negotiated a deal with the understanding that if it wasn’t safe to play, they wouldn’t have to. For MLB to try to use the fact that it is currently unsafe for fans to attend games as a reason for players to subsidize their potential losses reflects poorly on the owners and the Commissioner. After negotiating a CBA that turned out to be a huge win for the owners, the players knew they would have to wait five years for another crack at the bargaining table. The owners waited five weeks before crying poor.

For the most part, the players want to play. The fans want to watch. The owners are getting in the way with a shortsighted attempt to squeeze a little more money out of the players, a stance that could potentially damage the long-term health of our sport and their business.