Proposed Revenue Split Threatens MLB Season

JohnWallStreet

Major League Baseball and the Major League Baseball Players Association (MLBPA) have been meeting this week to address a variety of concerns that would - if mutually agreed upon - enable the league to restart the 2020 season (think: timing/logistics of spring training, COVID-19 testing protocols). Assuming the two sides can come to a meeting of the minds on the health and safety measures needed to operate safely in the midst of a pandemic, they’ll turn their attention to the economic dispute threatening to force a work stoppage. The owners maintain that playing a truncated season (82 games) - without fans in attendance - would cost them more than $3 billion in revenue and result in financial losses of +/- $100 million/team (that number would vary based on each individual club's payroll size and the value of their local TV rights). The billionaire collective would like the players to accept a pay cut and share in their struggles (they've proposed paying players a percentage of their contracted salary based on a 50/50 revenue split). The MLBPA, believing the owners agreed to prorate salaries for games played during the virus-shortened season when they signed off on an abbreviated draft and expanded postseason format back in late March (the players also got a $170 million advance on '20 salaries and a guarantee that service time would be accredited regardless of whether or not games are played this year), is reticent to accept any proposal that includes a salary cap or results in a further reduction in compensation. A resolution is needed within the next 2.5 weeks if play is going to resume on July 4th (as proposed).

Howie Long-Short: The idea of a 50/50 revenue split sounds equitable, but as Baseball Prospectus’ Craig Rangoon wrote the “owners like to say that baseball is a business; that capital is entitled to profits because it takes all the risks.” If that’s the case, it’s unclear why the players are being asked to assume some of the liability now (a cancellation of the postseason would wipe out lucrative playoff revenues and cost the players money under the terms of the rev-share deal); it's certainly not like player salaries have grown commensurately with baseball revenues. The players also feel as if they've already done their part agreeing to sacrifice nearly half (50.6%) their contracted salaries during the 2020 season.

While it’s logical to reason because the NFL (48.5%), NBA (50%) and NHL owners and players split revenues that there’s no reason the structure shouldn't work for MLB. But those leagues all have salary caps and as MLBPA executive director Tony Clark explained the MLB union has long been opposed to any system “that restricts player pay based on revenues” (see: ’94 strike).

Scott Boras is urging the MLBPA to stand strong and has advised his own stable of 100+ players to “refuse to play” unless the owners honor the terms of the March agreement. The super agent argues that the owners - beneficiaries of skyrocketing team valuations (“every club [has gained] $700 million to $2 billion in equity”) - could easily withstand the short-term losses suffered (presumably he's assuming the post-season goes off without a hitch). He also makes the convincing point that in no other business does the owner socialize losses with their employees. He said, “if I’m an owner of a company, I don’t ask my employees in a downtime to bear the cost. I pay them their salaries.”

Former players and politicians alike (see: Mark Teixeira, Illinois Governor J.B. Pritzker) have suggested the players should accept the owners proposal for the sake of the fans and have painted those in opposition as greedy. They argue that the players should be happy earning a living playing baseball - particularly in light of the current economic conditions - and that the alternative is “not [making] anything and [losing] an entire year off their career.’’ While there's no doubt the players would suffer financially if they decided not to play in '20, giving in to the owners could cost them even more. The MLBPA fears that caving to ownership on the rev-share proposal will damage their position/leverage in the upcoming CBA negotiations and hurt them worse long-term (the current pact expires in Dec. ’21).

It reasons to believe that much of the information/commentary coming from both sides at this point is simply posturing and that a deal will eventually get done. As Teixeira noted, player earnings windows are short and there are a lot of players who need to play games this season (i.e. they're living paycheck to paycheck). Scrapping the season would also cost the owners at least $25 million more apiece and the loss of nearly all revenues could create liquidity issues for several; a labor stoppage would also depress team valuations. It's not difficult to envision the owners eventually deciding to honor the terms of the March agreement knowing that they'll be able to make up the losses later (think: cut payroll over next few years, spend less in free agency, ’21 CBA negotiations). 

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Major League Baseball and the Major League Baseball Players Association (MLBPA) have been meeting this week to address a variety of concerns that would - if mutually agreed upon - enable the league to restart the 2020 season (think: timing/logistics of spring training, COVID-19 testing protocols). Assuming the two sides can come to a meeting of the minds on the health and safety measures needed to operate safely in the midst of a pandemic, they’ll turn their attention to the economic dispute threatening to force a work stoppage. The owners maintain that playing a truncated season (82 games) - without fans in attendance - would cost them more than $3 billion in revenue and result in financial losses of +/- $100 million/team (that number would vary based on each individual club's payroll size and the value of their local TV rights). The billionaire collective would like the players to accept a pay cut and share in their struggles (they've proposed paying players a percentage of their contracted salary based on a 50/50 revenue split). The MLBPA, believing the owners agreed to prorate salaries for games played during the virus-shortened season when they signed off on an abbreviated draft and expanded postseason format back in late March (the players also got a $170 million advance on '20 salaries and a guarantee that service time would be accredited regardless of whether or not games are played this year), is reticent to accept any proposal that includes a salary cap or results in a further reduction in compensation. A resolution is needed within the next 2.5 weeks if play is going to resume on July 4th (as proposed).

Howie Long-Short: The idea of a 50/50 revenue split sounds equitable, but as Baseball Prospectus’ Craig Rangoon wrote the “owners like to say that baseball is a business; that capital is entitled to profits because it takes all the risks.” If that’s the case, it’s unclear why the players are being asked to assume some of the liability now (a cancellation of the postseason would wipe out lucrative playoff revenues and cost the players money under the terms of the rev-share deal); it's certainly not like player salaries have grown commensurately with baseball revenues. The players also feel as if they've already done their part agreeing to sacrifice nearly half (50.6%) their contracted salaries during the 2020 season.

While it’s logical to reason because the NFL (48.5%), NBA (50%) and NHL owners and players split revenues that there’s no reason the structure shouldn't work for MLB. But those leagues all have salary caps and as MLBPA executive director Tony Clark explained the MLB union has long been opposed to any system “that restricts player pay based on revenues” (see: ’94 strike).

Scott Boras is urging the MLBPA to stand strong and has advised his own stable of 100+ players to “refuse to play” unless the owners honor the terms of the March agreement. The super agent argues that the owners - beneficiaries of skyrocketing team valuations (“every club [has gained] $700 million to $2 billion in equity”) - could easily withstand the short-term losses suffered (presumably he's assuming the post-season goes off without a hitch). He also makes the convincing point that in no other business does the owner socialize losses with their employees. He said, “if I’m an owner of a company, I don’t ask my employees in a downtime to bear the cost. I pay them their salaries.”

Former players and politicians alike (see: Mark Texiera, Illinois Governor J.B. Pritzker) have suggested the players should accept the owners proposal for the sake of the fans and have painted those in opposition as greedy. They argue that the players should be happy earning a living playing baseball - particularly in light of the current economic conditions - and that the alternative is “not [making] anything and [losing] an entire year off their career.’’ While there's no doubt the players would suffer financially if they decided not to play in '20, giving in to the owners could cost them even more. The MLBPA fears that caving to ownership on the rev-share proposal will damage their position/leverage in the upcoming CBA negotiations and hurt them worse long-term (the current pact expires in Dec. ’21).

It reasons to believe that much of the information/commentary coming from both sides at this point is simply posturing and that a deal will eventually get done. As Texiera noted, player earnings windows are short and there are a lot of players who need to play games this season (i.e. they're living paycheck to paycheck). Scrapping the season would also cost the owners at least $25 million more apiece and the loss of nearly all revenues could create liquidity issues for several; a labor stoppage would also depress team valuations. It's not difficult to envision the owners eventually deciding to honor the terms of the March agreement knowing that they'll be able to make up the losses later (think: cut payroll over next few years, spend less in free agency, ’21 CBA negotiations). 

Editor Note: Please note that joining our community (below) will entitle you to receive our free daily sports business email newsletter.


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