MLB’s Latest Proposal Caters to Its Richest Teams by Craig Edwards May 29, 2020 Much of the focus regarding baseball’s potential return has centered on whether the players and owners can come to a financial agreement both parties feel works for them. The two groups may negotiate as cohesive units, but they are comprised of distinct individuals and entities that often have diverging interests. The league’s proposal appears to have been an attempt to drive a wedge between the highest earners in the sport and those making closer to MLB’s league minimum. And while Rob Manfred needs to find a solution that players will agree to, before he can even make such an offer, his proposal has to fly with his 30 bosses, the MLB owners. Those owners don’t always have the same goals or ideas about how the business of baseball should be run – the league’s latest proposal reflects those differences, as big-market teams received the biggest benefit. A few weeks ago, Ken Rosenthal and Evan Drellich reported in The Athletic that baseball’s traditional revenue sharing was at risk in 2020. Local television money is big for teams in this era, and the gap between the top 10 teams in television revenue and the bottom 10 is, on average, $67 million even before accounting for network ownership. Attendance and stadium-related revenue tends to further exacerbate that gap. Revenue sharing, where each team pools together 48% of local revenue and divide it equally, shrinks the gap some, but still provides the big-market, high-revenue teams a significant advantage. With most stadium-related revenue potentially gone, the divide gets a bit skinnier. From the Drellich and Rosenthal piece: “The discrepancy between the Rays and the Red Sox this year is not that dramatic,” the executive said. “It’s still money. It’s tens of millions of dollars. But it’s not hundreds of millions of dollars. And if you’re going to share that, it’s not going to move the needle enough this year.” MLB’s presentation to the players regarding team losses had some fairly significant holes, but it did show the traditional big moneymakers like the Yankees and Dodgers suffering the biggest losses. Lost stadium revenue drives some of that, but high payrolls contribute as well. Those high payrolls are normally easily justified by massive revenues, but if team revenues were the same, the higher payroll clubs would be more likely to lose money. MLB’s latest proposal attempted to do those clubs a huge favor. To provide some sense of the typical payroll gap between teams, the graph below shows only salaries of $1 million or more projected in the original 2020 season: We see a huge spread between the top and bottom teams, which is fairly typical over the last few years. Here’s what the same graph looks like with pro-rated salaries over an 82-game season: The second graph is basically the first one divided in half. These aren’t full payrolls because we’d need to add in all the minimum-salaried players, but the differences you see are pretty close to the total numbers. MLB’s latest proposal hits the highest-salaried players the hardest, and the teams that pay the higher-salaried players tend to have the larger payrolls. Here’s what would happen to team payrolls under MLB’s latest offer, including only players originally scheduled to make $1 million or more in a full season. The $200 million for playoffs is included in the figures below: We see these salaries bundled more in the middle. MLB’s proposal dropped these players’ salaries by 45% compared to a pro-rated 82-game season, but the standard deviation of these salaries dropped by 53%. The graph below shows the changes in each team’s payroll from the March agreement with pro-rated salaries to MLB’s latest proposal: Those teams on the left have the most to gain under MLB’s latest proposal, while those teams on the far right barely see any change to payroll at all. It’s not hard to identify the types of teams in each group. We have the Yankees, Astros, Dodgers, Phillies Cubs, Angels, and Red Sox leading the way with salary cuts while the Marlins, Pirates, Rays, Royals, and A’s are all near the bottom in terms of change. To illustrate the change a little more, here’s a scatter plot showing the change above with Forbes valuations: There’s a pretty strong relationship here (the R-squared =.57) and a lot of that is because rich teams spend more. In MLB’s latest proposal, those same rich team receive the biggest benefits. It’s the owners’ of trying to share the lost revenue, except instead of doing it amongst themselves, they are hoping that the players will do it for them. It’s a way that prevents some potentially difficult conversations between Rob Manfred and the owners. If the union response is any indication, the owners are going to need to have some of those difficult conversations in the coming days if they want to have a 2020 baseball season.