Over the last several decades, revenues for Major League Baseball have soared, nearing $11 billion last season. The league’s unprecedented prosperity has turned MLB franchises into cash cows in ways not seen in prior generations. It will likely take some time to gauge the extent of the revenue teams will lose due to COVID-19-related delays, but given that some or perhaps all of the 2020 season will be lost, baseball isn’t likely to be a great moneymaker for owners this year. And while league expansion has been talked about for quite some time, it’s possible the losses suffered this season due might actually be the precipitating factor in MLB moving beyond 30 teams.

For the last few decades, owners haven’t felt compelled to expand because they were making plenty of money without the need for a cash grab. The dirty truth about expansion is that it isn’t about growing the sport. It’s about injecting cash into ownership pockets now, with those same owners willing to share a slice of their pie with a couple more teams in the future. If the owners don’t feel the need for that expansion money, they aren’t going to welcome more teams to take a share of overall MLB revenues. In addition, the threat of relocation from teams looking for new stadium deals serves to slow expansion; MLB likes to have potential expansion cities available to threaten municipalities into providing new ballparks.

Modern expansion isn’t about the talent levels available or growing to meet the needs of an increasing population. If it were, we would have seen expansion at some point in the last decade. The talent pool has gotten incredibly good, with fastball velocities and strikeout levels rising to the point that diluting the talent pool could have a positive impact on the game, resulting in more action and balls in play. And in terms of population, the number of people per team is approaching levels last seen in 1960 when baseball had just 16 teams. The graph below shows the U.S. population and the number of major league teams in five-year intervals, to show how the number of people per team in the U.S. has changed since 1960:

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As consumers have been given more and more entertainment options, their choices have become more fragmented when choosing what to watch and how to spend their time. Cable television took away the absolute dominance of network television, and due to its ubiquity, viewing options for most Americans were readily available and universal. Whether someone preferred to watch sports, home and garden shows, Mad Men, cable news, or Friends re-runs, all were available, and the customers of one preference subsidized the viewing habits of the others in a cable bundle. (This is the third piece in this series with first one covering MLB’s prior reliance on national television money, and the second one on MLB’s massive rise in revenues since the strike).

That bundled philosophy is still strong, and even newer streaming entrants to the market like Sling, Hulu, and YouTubeTV stuck with the bundle. However, as HBO, Disney+, Netflix, and Amazon Prime begin to siphon off customers, and with NBC joining the fray as well, the bundle is threatened. While the solution to the slow dwindling of cable subscribers is not readily apparent for content producers and providers, it’s representative of the difficult decisions Major League Baseball faces with their television contracts, their attendance, and their ability to bring in new fans. Unfortunately, MLB seems to be focused on short-term gains at the potential expense of the long-term health of the sport.

As streaming services grow in popularity, MLB is well-positioned with their technology and their reach. In 2017, MLB.TV was the fourth-biggest OTT service, behind only Netflix, Amazon, and Hulu, and ahead of HBO Now, which reportedly had close to five million subscribers at the time. MLB has the ability to serve fans with a streaming-only option and keep or maintain revenue levels even if every team were to lose their cable television contracts tomorrow. If we assume there are around five million customers paying $120 per year for MLB.TV, and teams receive $1.8 billion under their local RSN contracts, they would need just 12 million customers nationally who were willing to pay $200 a year to sustain revenues before considering advertising that mostly goes to cable companies right now. The problem with that plan is that it denies access to close to 100 million potential or actual fans who were able to watch the teams on their standard cable package. Long-term, that’s an awful idea if the goal is to create new fans. Read the rest of this entry »

Generally speaking, exactly how much money baseball teams make on an annual basis isn’t public knowledge. We can take a look at the sale of MLB franchises and know that when they are sold, teams generally make 8% annually after accounting for inflation. Profits are more difficult to decipher because owners don’t want to disclose just how much money they make, though they are sometimes quick to trumpet an operating loss. The absence of many owners claiming losses is arguably deafening, but in addition to that silence, the publicly traded Braves report their revenues every year. Over the last two seasons, they have provided Liberty Media with nearly $150 million in profits.

Baseball ownership hasn’t traditionally been an avenue for massive yearly profits. In 2001, MLB self-reported unaudited numbers to Congress after MLB’s antitrust exemption was threatened. They had announced that two franchises might be contracted, and that drew the ire of the elected representatives in Washington. It’s fair to take these numbers with a grain of salt, but on average, teams lost around $5 million per year from 1996-2001. MLB did not have a great television contract during that time, but revenues have skyrocketed since then, with significantly better TV deals (both locally and nationally) along with increases in attendance and ticket prices.

Even so, when Liberty Media purchased the Braves in 2007, it wasn’t necessarily an expectation that the club would turn a profit every year, at least according to Liberty Media CEO Greg Maffei a year ago. It was that lack of profits that made many speculate that Liberty wouldn’t be holding on to the Braves for a long period of time, but they’ve had a change in philosophy, with huge profits affecting their previous strategy. Read the rest of this entry »

Television money draws a lot of attention when it comes to MLB’s finances, in part because the national revenues are easily identifiable. But the big driver of baseball revenue since the strike hasn’t been national television. Instead, local television deals and brand new stadiums with capacity for significantly more fans (and many highly priced tickets) have helped MLB revenues soar. Baseball’s national television deals have certainly gotten bigger, but getting fans to the ballpark has been more important to the bottom line over the last few decades. Baseball’s increasingly diverse streams of revenue have even reached to land deals surrounding ballparks, and helped create a financially strong industry in which one bad television deal won’t topple the sport and lead to a strike and lockout, as it did in 1994 (covered in Part I). However, MLB must be careful not to head back in that direction, and current trends are less than promising. In the second part of this series, we’ll look at how MLB has grown into an industry that generates nearly $11 billion per year in revenue, with a valuation above $50 billion.

While the 60s, 70s, or 80s (or whichever era you grew up in) were probably the halcyon days of the sport, you wouldn’t know by looking at attendance figures. In the 1980s, average attendance was roughly 22,000 fans per game and tickets were about six bucks a piece (around $14 after inflation). In today’s dollars, that’s roughly $25 million per team per year. Over the last decade, attendance is up to 30,000 per game, one-third more what it was in the 80s (a topic that is often overlooked when examining the health of the sport), and ticket prices have averaged around $29 per ticket in that time. For an average team, that’s $70 million per year, an 180% increase over the 1980s even after accounting for inflation. Even with that increase, gate receipts account for somewhere between 20% and 45% of revenue, depending on the team. Helping to fuel those increases, almost every major league team has received a brand new, publicly funded stadium to bring more fans to games at considerably higher prices. In the last 30 years, national television money has doubled after inflation, but gate money has grown nearly twice as fast.

Local television revenue has grown just as fast as gate revenues and provided teams with a windfall of cash over the past 20 years, necessitating revenue sharing as the disparity between the biggest and smallest baseball markets have grown. The massive cable television deals, coupled with notable failures in Houston and Los Angeles, have caused speculation about a cable bubble as carriers lose subscribers and become reticent to pay big per subscriber fees for niche channels. Read the rest of this entry »

When massive television dollars from broadcast giants ABC, CBS, and NBC stopped flowing directly into baseball owners’ pockets 25 years ago, the downturn in revenue helped to cause a strike that the sport took years to recover from. In the earlier part of this decade, a similar specter loomed in the form of a cable bubble, the bursting of which threatened to take away the millions that teams receive to broadcast local games on Regional Sports Networks (RSNs) like the Yankees’ YES Network or the Cardinals’ Fox Sports Midwest. Due to a diversification of revenue, an emphasis on developing streaming technology with a impact felt beyond the sport, and an increasing number of bidders, both traditional and non-traditional, that want to broadcast baseball games, Major League Baseball has been able to avoid a bubble similar to the one that severely damaged the sport 25 years ago. But, as exemplified by the recent Sinclair acquisitions of RSNs and the Blue Jays’ decision to remove Canadian access to their games on MLB.TV, a short-sighted approach could undo their victory in the long-term.

First, how we got here.

In 1988, CBS won the right to broadcast Major League Baseball’s marquee events, including the All-Star Game and World Series, beginning in the 1990 season. The network would spend $1.08 billion over the following four years for those games, reportedly beating the offers of rival networks ABC and NBC by as much as $400 million. While the deal was massive in its size, its importance was outweighed by a smaller but more significant deal signed the same year.

One concern with CBS’ new deal was the dramatic decrease in the number of regular season games broadcast nationally, moving from more than 30 games per season down to just 12 beginning in 1990. Commissioner Peter Ueberoth laughed off those concerns, noting teams’ ability to sell local broadcast rights. Around the same time as the CBS deal, the New York Yankees announced one such deal:

The prime example was the recent sale of television rights by the Yankees, who will collect $500 million over a 12-year period from the Madison Square Garden cable network for as many as 150 games a season by 1991. The 12 others are reserved for the national television package, now owned by CBS. The Yankees thereby became the first baseball team to award its local broadcast package entirely to cable television, which could set the pattern for other teams in the future.

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Yesterday I took a look at team payrolls, offseason spending, and the outlook for MLB spending on players as a whole compared to the last few years. Today we’ll take a look at one portion of team payrolls most teams would rather avoid. No organization wants to be paying players to play for other teams or to sit in the minors or to simply be out of the game, at least in the abstract. At some point though, teams will kick in money for a trade because the overall savings can be utilized elsewhere, the prospect return is slightly better, or because there is better use of a roster spot. Those payments become dead money.

As in past years, I’ve defined dead money as generally any money a team is paying out to a player who no longer appears on their 40-man roster. There are three types of dead money:

1. Money paid to players who have been released. Those players are free to sign with other teams, but the team releasing the player still owes the money remaining on the contract.
2. Money paid to other teams as compensation for players who have been traded. Generally, we see teams cover a portion of a contract to receive a better return in trade.
3. Money paid to players who are still in the organization but who have been removed from the 40-man roster. Any team could have claimed these players if they were willing to take on the contract, and the player probably could have elected fee agency, but then he would forfeit his right to the guaranteed money.

Here are the teams with the most money on their current payrolls going somewhere other than their roster. Read the rest of this entry »

For the first time in several offseasons, a slow winter for free agency was not the theme of winter. Not that a slow winter wouldn’t have been overshadowed by the Astros cheating scandal, but free agency activity started at a fairly brisk pace and nearly all the good players were signed by January. As camps open up, only Yasiel Puig remains unsigned from the FanGraphs Top-50 Free Agent list. The winter was notable not just for the pace of signings, but also for the amounts as well as Gerrit Cole, Stephen Strasburg, and Anthony Rendon all exceeded expectations. With nearly all spending complete this offseason, it’s an appropriate time to check in on where teams stand with their payrolls and how much has been spent, including in comparison to 2019 figures.

First, here’s a look at where every team’s payroll is as of today, per our Roster Resource pages. Read the rest of this entry »

My two previous posts on the contentious PBA negotiations between MLB and MiLB focused on the most significant portion of MLB’s proposed plan: eliminating short-season baseball and contracting or reclassifying the 40 teams that go with it. As Baseball America noted, significant changes would be made to current leagues:

The proposal also completely reorganizes the full-season minor leagues. While there would still be Triple-A, Double-A, high Class A and low Class A, those four levels would be completely reworked to make the leagues much more geographically compact. In Triple-A, the Pacific Coast League would shift from 16 teams to 10. The International League would grow to 20 teams. The 14-team low Class A South Atlantic League would be turned into a six-team league with a new Mid-Atlantic league springing up.

The short-season Northwest League would move to full-season ball.

Part of MLB’s stated motivation for those changes is a desire to improve facilities at the minor league level and make travel, both between the majors and minors and between affiliates during the minor league season, less taxing for players. As Morgan Sword, recently promoted to executive vice president of baseball economics and operations, indicated in this New York Times piece regarding MLB’s plan, there are several factors in determining a minor league team’s affiliation:

One was a team’s proximity to its parent club and to potential opponents. Another was the condition of the facilities. A third concerned everyday life, such as hotel availability and general security.

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Earlier this week, we discussed the principal bone of contention between Major League Baseball and Minor League Baseball regarding MLB’s proposed contraction plan. MLB wishes to, among other things, transfer more control and money away from minor league baseball and eliminate short-season baseball. While they have tried to make their case that the measure is not a cost-saving one, that case isn’t particularly persuasive, as discussed in Part I of this series.

But while contraction is a cost-saving measure, that doesn’t mean major league teams don’t have a more efficient way of producing good major league players than in the current system, and that argument deserves to be assessed on its own merits. David Laurila recently talked to some MLB executives who explained some of their thoughts on the potential changes, and in a piece at FiveThirtyEight, Travis Sawchik laid out the potential benefits of fewer minor league teams while including keeping the level of competition higher, preventing teams from preying on players with little chance of reaching the majors and putting players closer to spring training sites where the quality of facilities is better and the coaching is more concentrated. (It’s worth noting that MLB hasn’t actually done a very good job of making that argument.)

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In 2011, Major League and Minor League Baseball agreed to extend their current Professional Baseball Agreement (PBA) through the 2020 season. That agreement, which extended a prior agreement that wasn’t set to expire until 2014, maintained the status quo between the majors and the minors that most fans are familiar with today. There would continue to be over 160 affiliated minor league teams, with each team’s major league parent organization providing the players and the minor league clubs providing the facilities, travel, and fans. That agreement also included an increase in the ticket tax minor league teams pay to major league teams based on ticket revenue. That PBA is set to expire at the end of this season, and Major League Baseball wants to make drastic changes to the next agreement, changes that would dramatically reshape the minor leagues as we know them now.

The negotiations, which have thus far been quite ugly, first became public back in October when Baseball America revealed some details of MLB’s proposal (Baseball America, and JJ Cooper in particular, has done a great job covering the dispute); a later New York Times report confirmed the 42 teams set for contraction. Since then, the two sides have traded public missives, accusing each other of engaging in behavior that is not in the best interest of baseball.

Cumulatively, the changes proposed by MLB represent a move to gain power and consolidate control over the minor leagues. The MLB plan would move the amateur draft later in the year and decrease its number of rounds, get rid of short-season baseball, remove one-fifth of the independently owned full-season teams, take control of the Florida State League, and restructure existing leagues and reclassify some teams. The cumulative effect of these changes would be to diminish the power of MiLB relative to MLB and to potentially lower affiliate value for independently owned minor league franchises. With such sweeping and fundamental changes on the table, there’s a lot to sort through. But to get to the core of what’s at stake, it’s helpful to unpack one of the most significant changes under consideration: getting rid of short-season baseball. Read the rest of this entry »