Parsing MLB’s Claim of a $4 Billion Loss by Craig Edwards May 18, 2020 Last week, MLB presented documents to the player’s union regarding the financial implications of playing the 2020 season without fans. In an exclusive report, the Associated Press has revealed a considerable amount of the contents of those disclosures. The main takeaways are in the title — “MLB projects $640K per game loss with no fans” — and the third paragraph, which reads: Teams say the proposed method of salvaging a season delayed by the coronavirus pandemic would still cause a $4 billion loss and would give major league players 89% of revenue. That $4 billion figure was echoed by Commissioner Rob Manfred on CNN on Friday, except that he indicated in that interview those would be the losses if no season is played. Given that these documents are an attempt to convince the MLPBA to take less money and to put public opinion on the side of the owners against the players, it is fair to take these figures with a bit of a grain of salt. Let’s try to work through the numbers and answer some of the questions raised by the information in the presentation as reported in the AP piece. First, the big question. Are the owners going to lose $4 billion? No. At least, they won’t if games are played. There’s a graph in the AP piece that shows team-by-team losses from an 82-game schedule played with no fans in the stands. The losses range from $312 million for the Yankees down to $84 million for the Tigers. The total losses come to around $4.4 billion, an average of $147 million per team and a median of $135 million. But this figure is misleading as it does not include MLB’s estimate of central revenues, which amount to $1.35 billion. Even taking MLB at its word, the losses immediately move down to $3 billion. And depending on how revenues and costs are interpreted, the losses might be considerably lighter. First, there’s the issue of amateur spending. In the March agreement, the players agreed to let the owners defer about $425 million in spending to future years, but that $425 million is still included in the loss figure for this year. There are other ways that MLB’s loss could or will be lessened. MLB’s loss estimates are based on their local media revenue ($2.3 billion) in a normal year, which is right in line with my estimate of $2.1 billion. That estimate did not include the Blue Jays or radio. To estimate revenue for an 82-game season, MLB cut revenues in half to $1.2 billion, and indicated “rights holders have already reserved rights to stop payments or demand refunds if agreed to inventory is not delivered.” These losses might be more theoretical than actual; RSNs might choose not to alienate their partners, particularly if they don’t lose any money. Cable providers would have to seek refunds from RSNs, which might then lead to the networks asking teams to cover those losses. But there’s been little public indication that is likely to occur. In any event, nearly half the teams have an interest in their own RSN. Requesting a discount based on fewer games played could end up in the money flowing back to the team, anyway, but through a manner not considered baseball revenue. As to the other baseball-related revenue not included, the five teams taking the biggest losses according to MLB are the Yankees, Dodgers, Mets, Cubs, and Red Sox. All of those teams own a significant portion of their RSN, which means about $300 million of their combined local losses are less likely. In addition, those clubs, particularly the non-Dodgers teams, all have relatively under-market RSN deals due to club ownership that could hide half a billion dollars in profits not counted above. If teams could recover 75% of their local RSN money instead of 50%, and 75% of their $2 billion central revenues for the regular season including deals with ESPN and FOX as well as MLBAM money instead of 50%, that would drop losses down another billion dollars. If teams were able to reduce their local expenses (which are largely hidden) by 40% instead of the 25% assumed in the MLB presentation and get a few hundred million dollars for an extra round of the playoffs, then they break even. That’s perhaps more speculative, but it isn’t completely unrealistic, either, and I’m not the only one questioning the numbers presented by MLB – Rob Mains wrote a piece at Baseball Prospectus that is worth a read. Are teams really losing $640,000 for every regular season game they play? No. For one, that figure is spread across two teams, but more importantly, it leaves out a huge amount of regular season national television and central office MLB revenue that gets distributed to teams. And that’s before we even get to the postseason. Giving the MLB owners’ presentation the benefit of the doubt, they say the cost of every regular season game in pro-rated salaries plus the actual costs of putting on the game are $1.87 million, with $1.67 million coming from player salaries. In MLB’s presentation on revenue, they include only the $1.2 billion for local television as well as about $250,000 per game in other local revenue, totaling $1.23 million per game, leaving that $640,000 deficit. MLB again leaves out national money distributed to teams. According to MLB, those national revenues in a shortened no-fans season will amount to $1.788 billion, which includes TV money as well as money from national sponsorships and products like MLB.TV and their MLB app. Including that revenue turns the amount MLB makes per regular season game to $2.68 million, which makes MLB $810,000 per game. If we were to add an extra round of the playoffs at $250 million, MLB makes a $1 million per regular season game played. What about MLB’s worries that it will pay players for the regular season and then miss out on the playoffs? A considerable amount of MLB’s revenue is tied up in the playoffs. If the players were to make it through the regular season, but then an outbreak of COVID-19 prevented the playoffs from taking place, the owners would likely be denied a good chunk of their expected 2020 revenue. According the AP piece, owners are set to receive $787 million in television revenue for the playoffs. In a normal season, that leaves around $1.1 billion for the regular season. MLB has divided that number by two to around $550 million to account for lost games. Add in roughly $450 million from MLB.TV and other central revenue generators, and for the regular season only, MLB looks set to make $2.04 million per regular season game played, netting $170,000 per game played compared to not playing the games at all. Even without the postseason, playing the regular season games brings in more money than it loses, but even if it were a breakeven proposition or a slight loss, playing the regular season games and getting to the postseason gets MLB potentially a $1 billion or more to share. That certainly seems like a financial risk worth taking, and that’s before you even get to the potential marketing value of playing versus the potential backlash of not. Even if everything goes according to plan, will the owners lose money? Maybe. As I mentioned earlier, there are scenarios where the owners might not even lose money this year, but losses are definitely possible. Some teams are more likely to lose money than others, but the owners have the option of spreading money around to ensure that no team suffers massive losses while others profit. And MLB’s claim of never making more than $250 million in a season? Over the last four years, player payroll has not moved while baseball-only revenues have increased by a $1 billion, to say nothing of baseball-related revenues that have put billions more in owners’ pockets. Keeping EBITDA close to zero is an accounting strategy that reveals little about the financial health of the sport or its value to its owners. In addition to the large annual increases in franchise value, there’s evidence that owners have reaped $5 billion to $7 billion over the last three seasons above and beyond the costs of owning and operating a franchise. … Ultimately, owners might lose money this season, but just how much is up for debate. If the teams play games, it certainly won’t be the $4 billion figure that is being floated. And even without a postseason, playing the games and paying players prorated salaries results in more incremental revenue per game for owners than skipping the season.