- A Deep Dive Into MLB’s Financial Losses For The 2020 Season
- Manfred Is Talking Just Baseball-Related Monies, Not All Business Tied To Baseball
- Losses Through Regional Sports Networks
- Club-Owned Regional Sports Networks Provide Additional Revenues
- Will MLB Continue To Receive National Broadcast Revenues For Games Lost?
- How Are Sponsorships Hit?
- Could MLB Push For Additional Money With Broadcasts?
- How Disney+ and ESPN+ Put Additional Green In Owners Pockets
- Ballpark Villages Not Part Of The Equation
- Expanded Playoffs Will Bring In Additional Revenue
- Clubs Can Sell Local Streaming Media Rights
- Money Around The Corner In Additional National Broadcast Rights Fees
- Clubs Counting Construction Bond Debt Into The Equation
- The Losses At The Gate Hit Each Club Differently
- League Increases Debt Capacity
- Losses Will Go Far Past 2020. Affects Proposal To Defer Salaries
- Multi-Year Losses Will Stymie Player Salaries
- The Bottom Line
A Deep Dive Into MLB’s Financial Losses For The 2020 Season
The financial landscape of Major League Baseball due to the pandemic will affect the ability to have … [+] any semblance of a season in 2020.
Commissioner Rob Manfred went on record saying that Major League Baseball stands to lose $4 billion if they lose the 2020 season due to the coronavirus pandemic. But there’s more than meets the eye to consider.
Last week, representatives presented plans to the MLB Players Association that would – at least on paper – allow for play to resume. Focused exclusively on health and safety, should games be played it will look nothing before.
Repurposing the lab in Utah that the league uses for drug testing, players would be involved in testing for the coronavirus on a scale few in private industry have been involved in.
Players would be forced to social distance; asked not the leave hotels when on the road; not spit or allowed to use chewing tobacco; be massively fined if fights were to break out; told not to high-five or engage in any other forms of personal contact celebration, and much more.
For baseball to resume, it will come with the players and owners coming to an agreement on safety, first.
Should there be an agreement on how baseball would move forward on those matters, the economics of the game come close behind. Leaked to the media, and putting pressure on the players, the league has campaigned behind the losses the league and its owners would incur.
Manfred went on CNN saying that the league would lose $4 billion and that some clubs would lose money even if the abbreviated 82 game schedule was played. While not yet presented, the league is proposing a 50/50 split of revenues for 2020 – something tantamount to a salary cap.
The union for the players see that as a non-starter.
But the picture is much broader than that. The details of the economics – not just now, but in the future – entail more than just what Manfred has said. Here’s a look inside the numbers, and the issues for the owners and the players.
Manfred Is Talking Just Baseball-Related Monies, Not All Business Tied To Baseball
It’s a well-known accounting trick that baseball moves revenues between holdings and investments outside of what is claimed as baseball-related revenues (one example was the Marlins creating a shell company and funneling money back to themselves in the form of expenses). There are equity stakes in regional sports networks, ballpark villages, and more than funnel into the coffers of the owners outside of what is being claimed.
Losses Through Regional Sports Networks
Media rights are two-fold with national broadcast deals and individual club media rights through regional sports networks.
According to a Sports Business Journal report, the league is claiming, “Regional sports networks are only contractually obligated to pay rights fees for each game that is delivered after clubs fail to deliver the minimum number of games (between 140 and 150).
Revenue from RSNs drops in proportion to the lost games, from $2.3 billion to $1.2 billion and an average of $980,000 per game for both teams,” according to an MLB document.
Club-Owned Regional Sports Networks Provide Additional Revenues
Not all the clubs have invested, but the Yankees, Mariners, Dodgers, Red Sox, Mariners, and Cubs have in their own regional sports networks. Those RSNs are not part of the pie that the league has pointed to.
While the ownership stakes vary, these revenues will flow in and will help offset some of the revenue losses.
So, looking at the losses the league is mentioning at the RSN level does not account for revenues flowing back into these clubs.
Will MLB Continue To Receive National Broadcast Revenues For Games Lost?
In 2011, the National Football League went into an off-season lockout. Occurring during the off-season, as the specter of regular-season games being lost crept closer and closer, questions about lost media rights surfaced.
NFL Commissioner Roger Goodell said at the time that regardless of games being lost as part of the broadcast inventory, the networks would pay as if they were conducted.
The league would be forced to rebate the networks for lost games, but that would be done over years with interest.
Could MLB be under the same model? Repeated requests to the Commissioner’s Office have gone unanswered. The reply has been that regardless, lost revenue is lost revenue whether it occurs now or in the future. There’s truth in that, but it’s worth noting that if the league is under the same model, the losses are more easily managed over a long period, rather than in a single hit.
How Are Sponsorships Hit?
One of the bigger questions is how are sponsorships hit? One of the little-discussed reasons MLB wanted to get games in home ballparks wherever possible was to allow in-stadium ad signage to be displayed as part of broadcasts. While concourse ads would not be seen, at least around the ballpark, it would.
Could MLB Push For Additional Money With Broadcasts?
While media rights are locked in, there’s a case to be made that additional money could be found through broadcast deals. When NASCAR returned to live racing in Darlington, viewership jumped dramatically due to a live sports starved nation.
Anything fresh is going to garner massive audience increases.
While it has not been put in place, could the league and clubs seek a percentage of ad revenue on top of the fixed-rate card that comes with media rights deals? It would be a creative way to minimize losses.
How Disney+ and ESPN+ Put Additional Green In Owners Pockets
Major League Baseball has long been considered the gold standard for streaming live sports. With a massive slate of games, and millions of subscribers, MLB.TV has been a massive cash cow for the league.
Built out under what was formerly known as MLB Advanced Media, the league has a huge media company in its own right. They were so good at it, they spun off a separate media company called BAMTech.
You may not have heard of the company, but when the Walt Disney Company purchased it from the league for $3.58 billion, MLB’s 30 owners retained a 15% equity. What does BAMTech power? Disney+ and ESPN+.
These revenues, while built off the back of baseball, are not considered baseball-related. Therefore, the continued dividends that the owners will receive through the massive growth of Disney+ are not counted as part of the losses the league is touting.
Ballpark Villages Not Part Of The Equation
This works both for and against MLB’s owners, but there is a growing effort by club owners to invest in properties around ballparks in an effort to gain additional revenues from the crowds that attend games. The St. Louis Cardinals, Boston Red Sox, and if plans go through, Los Angeles Angels are but three examples.
It is clear businesses around ballparks will be hit due to not only social distancing orders in the city and states that host them, but due to the season being played without fans in attendance.
As the country begins to slowly open up, some revenues – no matter how fractional – will come from these sources that are not part of MLB’s projected losses.
Expanded Playoffs Will Bring In Additional Revenue
As part of MLB’s plans for the season (and almost assuredly beyond), the number of postseason teams will increase from 10 to 14 with expanded playoffs. That will allow four additional wild card for two series. In doing so, it offers up additional revenues on national television that will go for a premium. That’s revenues not yet calculated.
Clubs Can Sell Local Streaming Media Rights
In December, the league reached a deal with the owners that will allow them to sell their local streaming media rights. While small-market clubs may find it difficult to find buyers, the storied brands in large markets could find it easier going. The pandemic might push some of these deals into place to help offset losses and remain new revenues in the years after.
Money Around The Corner In Additional National Broadcast Rights Fees
This is not to diminish the losses that MLB will take this year, but they have a glimmer of additional revenues coming in at the end of 2021 that will lessen the blow. Already FOX has renewed its national media rights as part of a seven-year, $5.1 billion extension that starts at the end of the 2021 season.
To place that in perspective the current deal sees $525 million annually. That will jump to $728.6 million beginning in 2022; a jump of nearly 39%. With that as the benchmark, both ESPN and Turner are nearing renewals that will add to the bounty.
Once again, MLB will be hit, but at least there’s some relief not far around the corner.
Clubs Counting Construction Bond Debt Into The Equation
The biggest focus by the league has been the lost gate-related revenues should the season be lost. According to the Associated Press, “The New York Yankees alone would have $312 million in local losses when calculating their earnings before interest, taxes, depreciation, and amortization.” But remember, that includes approx.
$100 million in bonds that the club used to pay for the development of new Yankee Stadium. In other words, clubs that are involved in paying off stadium debt as part of largely public investment with private involvement are lumping their construction bonds into the equation.
This will account for a part of the projected losses the league is touting.
The Losses At The Gate Hit Each Club Differently
As noted, the league is reporting that the Yankees will lead the league in losses due to a lack of fans through the turnstiles. The aggregate loss is claimed to be $640,000 per game across the league.
Behind the Yankees, local losses would be followed by the Los Angeles Dodgers ($232 million) New York Mets ($214 million), Chicago Cubs ($199 million), and Boston Red Sox ($188 million). Losses are losses, but a key factor is to look at how the rest of the revenue pie is shaped.
All the clubs at the top of the projected loss list have ownership stakes in regional sports networks, as well as lucrative media rights associated with them (note the Cubs are an open question with the launch of Marquee Network, although projections are for $50 million annually).
So, there’s a balance in how large the pie is, and how significant the overall losses are (see the complete list, via the AP).
League Increases Debt Capacity
All the major sports leagues are re-evaluating the amount of debt clubs can carry, and MLB is no exception. According to the SBJ story, “clubs project to increase their debt from $5.2 billion last year to $7.3 billion in 2020.
MLB's central office increased debt by $550 million to support clubs and is seeking $650 million more credit.” That’s important in the sense that there’s some self-governance around finances. While a $10.
7 billion industry might be seen as being prepared to weather hits, those hits are different for every club.
Losses Will Go Far Past 2020. Affects Proposal To Defer Salaries
The league has been keen to point out that losses will be far beyond 2020. That’s not a hyperbolic stance; it’s legitimate as the pandemic’s effect on not only social distancing but the overall economy will stretch for many years. That’s why any counter-proposal by the players to defer salary will almost assuredly be rejected by the owners.
Multi-Year Losses Will Stymie Player Salaries
Beyond the philosophical position that a 50/50 split of revenues for 2020 is ostensibly a salary cap, the players are bound to be aware that their salaries will be impacted by the pandemic for years to come.
There’s little doubt that if the trend to invest in prospects was part of the landscape before the pandemic, it will become a roaring blare that will consume the league for years now with the losses tied to the coronavirus lockdown.
Knowing that the players would, of course, look for their own interests in retaining their salaries pro-rated for the loss of games. With the All-Star Game being canceled, many will also lose bonus opportunities that are part of many contracts.
The Bottom Line
The bottom line is the bottom line is going to be hit. It’s important to distinguish facets of MLB as a business, but there’s no way anyone can look at what is happening and not say there will be some form of financial loss.
The players stand to lose the remainder of the season’s salary if it is canceled (the league has paid $170 million for April and May, only) while retaining service time. The owners stand to lose billions through the loss of gate-related revenues and media rights.
There are massive incentives for the sides to come to an agreement.
Many have looked to the players as being obstinate or tone-deaf given that there are front line workers in the medical and service industry such as grocery store workers being potentially exposed to the coronavirus daily. The line of thinking is the players are selfish. That’s a bit of an oversimplification.
There’s no mistaking that the front-line workers are the new heroes of the globe and should be celebrated as such.
Athletes have something looming over their heads each time they engage in play that others don’t: careers are short, to begin with, but there is always the possibility of that career-ending suddenly due to injury.
Manfred has said that if a player feels unsafe, and wishes to sit out the season, he’s not going to go to the mat and force them to play. The question will be how many players would choose to go that route before the overall integrity of the season is in play (if it already isn’t with the underpinnings of the shortened season)?
Getting the 2020 season in seems a long shot – no matter the best intentions. What is certain is half-season, or no season, the financial implications go far past this season for Major League Baseball.
The pandemic will have its fingers in the upcoming labor negotiations for a new labor agreement at the end of the 2021 season.
the rest of the world, the coronavirus’ direct, and indirect, effects to Major League Baseball will be felt for many years.