UNTIL THE CASH COWS COME HOME….

By:  Holly Horning

For all of those fans who thought that owning a baseball franchise was a cash cow, they may want to rethink their beliefs. Especially now.

Baseball teams are, presumably, struggling mightily today trying to make ends meet. Just because the team you bought decades ago has unbelievably exploded in value doesn’t mean you are liquid financially.

Or at least that’s what some teams want you to believe. MLB has made it such that a team’s finances are not open for public scrutiny. But in the meantime, most owners are crying poverty.

No matter the case, the vast majority of owners are refusing to dip into their own pockets to support their employees.

To catch you up from previous blogs published here, MLB made a deal with the Players’ Union. In return for paying players a total sum of $170 million (app. $6 million per team) to cover the months of April and May, the MLBPA has agreed not to sue MLB for lost wages during the 2020 year.

Players are currently receiving a stipend based upon their length of service and contract with a greater focus on those making near minimum, which is the majority of the sport’s players. Athletes like Justin Verlander and Miguel Cabrera are receiving somewhere in the neighborhood of $143,000 each to help put things in perspective.

Should the season resume at some point, players will receive their regular contract salary albeit on a pro-rated basis.

Except now there is a further complication that will require additional negotiations between MLB and MLBPA if games are played without fans.

Ironically, some teams will lose more money if the game resumes instead of going on hiatus for the full year.

If baseball is played this year with empty stands, the average team will receive approximately 50% of its normal revenues. This figure is based upon tickets, concessions, parking, advertising and catering. Some teams will actually skew higher at 60% and a few will run as low as 30%, which is a result of their markets.

To look at it in more familiar terms, if the season doesn’t happen, Miguel Cabrera would end up with app. $143,000. If half the season is played, he would earn half his contract salary – $15 million. Add the rest of the roster’s salary to that.

Now consider the concern that the seats which pay for these contracts would be empty.

If this is the case, the only expected revenue would be tv and radio broadcasting contracts.

You can see how some teams would lose lots of money based upon their contracts, market and expected performance standings. Player payroll would quickly exceed revenue and teams losing money in the past would bleed even more.

Which now brings us back to the legal agreement between both sides. Sports economist Andrew Zimbalist reports that there are safeguards in place that would require owners and the union to negotiate further points:

“There’s nothing in it that indicates players’ per-game salaries will be unaffected by special circumstances. In fact, the agreement states the opposite: “Absent consent by the Office of the Commissioner, the 2020 championship season shall not be commenced unless and until each of the following conditions is satisfied: (i) There are no federal, state, city, or local restrictions on mass gatherings or other restrictions that would materially limit the Clubs’ ability to play games in front of spectators.”

“It goes on to state that MLB and the union “will discuss in good faith the economic feasibility of playing games in the absence of spectators” and that “the parties will meet regularly to bargain over application of, and any appropriate modification” to the agreement.”

Potentially, as Zimbalist suggests, both sides may agree to adjust salaries on a team-by-team basis based upon their revenue or “introduce a supplementary inter-team transfer plan to adjust for the disparities.”

The problem with that is that it would require owners to share their team’s financials with the union.

Rut-roh….

That ain’t gonna happen.

Much more likely would be a new revenue sharing program which will pit owner against owner as it did in the past.

But in the meantime, count on Scott Boras to fan the flames of dissent and question the wording of the legal agreement in which, he (erroneously) states, requires players to receive their full salaries.

Meantime, teams are reportedly struggling if you read the news. Rather a surprise especially when you learn how the 30 teams are regularly splitting the profits from certain sales of proprietary assets. Recently, each owner pocketed over $50 million from the sale of BAM technology alone.

Then, you’ve got the teams reaping the benefits from being one of baseball’s worst with increased percentages of revenue sharing, top draft picks and special funds for being in the basement. Look no further that the Tigers who made a profit of $19 million for finishing in last place, despite significantly decreased attendance figures.

However, let’s give credit to Chris Ilitch for leading all of MLB in supporting employees. First, the leader in giving a $1 million donation to keep part-time workers afloat. And now, the only owner in MLB to guarantee wages for all employees beyond the end of May. Very well done, Mr. Ilitch.

Beyond Detroit, what teams are doing – or not doing – isn’t looking very promising.

Commissioner Rob Manfred invoked a rule allowing teams to cut or lay off employees starting in May. Twenty-one teams now have promised to pay employees through May with only the Tigers paying beyond. The Rockies will also have a more flexible policy, yet unstated, beyond that time. The Yankees, MLB’s richest team, surprisingly was the last of these teams to join the group.

Curiously, the Dodgers and World Champion Washington Nationals have made no such promises. Two of baseball’s wealthiest teams.

Other teams are announcing that they will be unable to pay certain Front Office staff. Some are having their salaries cut. Other teams are cutting health benefits while others are postponing payments into retirement accounts.

And a few teams are pushing their minority partners to kick in more money. One even suing them in order to get them to pay.

But teams are also trying to save money in other ways. Hence the shortened draft from the usual 40 rounds to as few as 5 this year. Even next year’s draft will be shortened to no more than 20 – half of the usual. It is rumored that owners will no longer approve anything over 20 rounds going forward beyond this pandemic.

If that’s not enough, players who will sign with teams this summer will only receive 20% of their bonuses with the rest deferred until 2021 and 2022.

Those not drafted can still sign as free agents but their bonuses will be capped at $20K. Consider that those who are ranked near the top, but not drafted, will take a 94% bonus cut. A move, needless to say, that has agents up in arms and crying foul. They believe that owners are using the conditions of the pandemic to unfairly cut costs and further improve their bottom line.

But the cost-cutting by MLB teams doesn’t stop here. Next week, we’ll explore another strategy being pursued by owners. And it’s not a popular one…..


Totally Tigers loves your comments!  But please be aware that there are specific rules for posting and that comments may be edited in order to meet our specific requirements.  Responses are only published if they address today’s topic, are respectful and do not exceed the maximum 3-4 sentence response length.  Please become familiar with all of the rules at:  https://totallytigers.wordpress.com/commentsrules/.

With MLB on hold, we have been mixing it up a little bit.  Three new interactive blogs that allow you, dear readers, to have more input.  Which means, we need your ideas and questions for several of them.

1. Send us your questions that you’d like to see addressed about baseball and we’ll pick at least 2 each week to answer.

2. What questions do you have specifically for Kurt and Holly?  They can be on anything (nothing political or religious though) so you can get a more complete picture about baseball’s infamous (mostly) odd couple.

 

 

16 thoughts on “UNTIL THE CASH COWS COME HOME….

  1. Holy Cow. I never took an economics class in college, but after reading this, I feel I could go toe-to-toe with the likes of Paul Krugman. Impressive work, as usual Ms. Horning.

    Liked by 4 people

  2. Businesses can always point to cash flow as being the measuring stick. Despite how much the owners and MLB have in their coffers, the drying up of cash flow will cause any business to cry poverty. As others have mentioned, these guys didn’t get to their level of wealth by giving away anything. Baseball has proven to be almost “recession proof” in the past. It will be interesting to see what happens over the next few months.

    Liked by 1 person

  3. Not sure MLB should be any different from any other business that has had to shut its doors. I mean, isn’t that why we have unemployment compensation? The issue of how to play the players when/if the season starts is a fair one, but I think as long as the doors are shut the players and other workers are unemployed and should be thought of that way.

    Liked by 1 person

    • It is interesting to compare how the US has handled taking care of our new hoards of unemployed versus other countries with comparable standards of living. We used to be the gold standard; now we are a horrifying cautionary tale.

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      • My brother-in-law is a laid off plumber and with the additional Federal stipend to his regular unemployment, his is actually taking home more per week now than he was when he was working. And, that’s not including the $1,200 stimulus payment. That’s from the horses mouth….him.

        Liked by 1 person

  4. Is the cut in the number of draft rounds related in any way to the Owners desire to cut the number of minor league teams? It sure sounds like it. I agree with Boris’ opinion of the reduction in signing bonuses. I guess the adage of “never let a crises go to waste” is true here, too.

    Liked by 3 people

    • You pose one heck of an interesting question. Has Kurt or Holly or anyone out there heard of a relationship between the number of draft rounds and the proposed cut in minor league teams? This is why I like this blog so much: Great baseball fans posing interesting questions and ways of looking at things that not all of us would have thought of.

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  5. If there isn’t a season the networks will want money back/stop paying teams going forward under the TV deals which will be more pain for the owners. Keep an eye on which owners non-baseball businesses are particularly hard hit, they could be in the biggest trouble. The CBA expires at the end of 2021 and it’s never to early for owners to start posturing.

    Liked by 1 person

    • I wonder if MLB’s television revenue is impacted in any way by Dish Network not airing any MLB games from FSD. Or is Disney paying MLB the same amount with half the customers watching it? It is hard to believe Dish has gone a year without settling the contract.The shame of it is I am still paying Dish the full amount. No cut in the bill for us, the loyal subscribers.

      Liked by 1 person

      • I know what you mean about DISH. You’d think MLB would have noticed a drop in revenue. But if DISH and FSD not getting it settled wasn’t bad enough, DISH then had the nerve to up my bill by $5/month. Needless to say, I dropped ‘em.

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