Dr. Matt Swartz is a Labor Economist who has researched and published on MLB labor markets for over a decade at websites including The Hardball Times, FanGraphs, and Baseball Prospectus, as well as at MLB Trade Rumors. Matt created the arbitration salary projection model for MLB Trade Rumors, and co-created the SIERA pitching statistic available at FanGraphs. He has consulted for a Major League team since 2013, in addition to working in his day job as an economist in the cable industry. This article reflects his own opinion and not that of any of his employers or clients.
In essence, every proposal floated by the owners has requested that players assume the downside risk associated with lower ticket revenue. Part of the reason I suspect this is offensive to players is that owners have benefited substantially in recent years from upside risk associated with television revenue, and little to none has found its way into player salaries.
To understand why, all we need is a superficial understanding of labor economics. Baseball’s free agent market follows those models better than perhaps either side realizes. Owners offer free agents certain salaries because they believe that their labor will generate as much money in revenue. Yet owners primarily get their revenue from two sources: tickets and television.
Since what free agents are actually selling is wins, the translation from ticket revenue to free agent salaries is obvious. Teams sell more tickets when they win more games. Especially if those wins push them further in the playoffs, they sell substantially more season tickets in subsequent seasons. Teams readily pay free agents with this in mind.
Yet the translation from television revenue to free agents is virtually nonexistent. National television deals with ESPN, TBS, and FOX are distributed to all teams, regardless of how many games they win. Regional Sports Networks often sign multi-decade contracts with teams to broadcast their games, which also are unaltered by win totals in a given season.
The reason this matters, and the reason this is a source of acrimony between the owners and players now, is that television revenue has grown far more quickly than ticket revenue. Player salaries have grown in magnitude about as much as ticket revenues have— suggesting this theory is likely true. Owners have seen higher profits from faster growing television revenue.
Consider my rough estimates in the graph below. Here I have used Baseball Prospectus payroll totals, approximate average ticket prices from various sources, average attendance from Baseball Reference, and Maury Brown’s (now unavailable) BizOfBaseball.com website and Forbes articles for total revenue. None of these figures are exact but they are certainly close enough that the message and pattern is obvious. Players have seen salary growth (red) almost exactly in accordance with the growth rate of ticket revenues (green), while owners’ profits have grown more quickly as they pocket the faster-growing television revenue (blue). This is not the owners pulling the wool over the union’s eyes—it is just the structure of their agreements in which the payroll share of revenue is not fixed as it is in other sports, but tied to owner incentives that have not kept up with total revenue.
If the owners want the players to accept the downside risk associated with low ticket revenue, they need to find a way to share the upside risk associated with higher television revenue.
A starting point is simple. Instead of minimum salaries defined exactly by the CBA, let free agent and arbitration prices be set in excess of the salary minimums, and set future salary minimums distributed to all players. Let those minimums represent some fixed X% of the cumulative national television deals. Bargain about that percentage, but when TBS offers 40% more in their next deal than their current deal, players will see that upside. In exchange, when future identifiable events lower ticket revenue— e.g. say government regulations of Y% reduced capacity in stadiums due to COVID-19 in 2021– the players will accept lower salaries by Z%. This gives players exposure to upside and gives owners protection from downside. Everything else is bargaining around X, Y, and Z%.
Now is the time for the players to request this. Now is the time for the owners to offer this. It need not even be for 2020– that ship may have sailed already. By right now, there is downside risk associated with empty seats associated with 2021. If owners want players to assume lower salaries in such a situation, they should make an offer to give the players a piece of future television revenue growth now. Otherwise, the players will again be asking the owners the same question next year: “Why should we accept this downside risk?”
I’m guessing all thirty owners are colour blind, and thus can’t read this…
Color*
He’s allowed to use the “u”
No he’s not. Baseball is America’s Pastime. No unnecessary letters allowed.
If someone in the UK wants to use the Queen’s English on an American baseball site… by all means my friend! Hope you can convince your neighbors (neighbours?) to check out the game… whenever we get around to having it played again.
@dixon. Thank you, but only on Tuesdays. I have to use a bracketed “u” (as in colo(u)r) any other day of the week on a US based site and it takes about six days to bracket an elusive “u”… .
@thornt25 – Sheet – I forgot rule 25d – Un-necessary letters (subsection vowels) – to use an un-necessary letter is an indiscretion – a vowel is an astro-nomical offense. Asterisk – still mileage in this one.
@roguesaw – we’re still a bit irked by 1776 (and a few other things – particularly “The Partridge Family” in more recent years) so absolutely point blank refuse to accept a logical phonetic spelling. (To my European wife) amongst others we throw in the occasional silent p, k, or my particular favourite (oh god – there we go again) the silent b.
Like something else there is no room for negotiation here….
The
Partridge
Family!!??
LOL!
That is funny. Years ago I was in London and overheard a discussion in a restaurant about an American TV show that was unaccountably very popular in Britain at the time, and laughed when I heard it was being referred to as “die-nasty.”
@Blue Skies – I can’t express surprise with regard to “die-nasty” but the UK in the early 80s totally bought in to Dallas & Dynasty. I mean totally.
The Dallas episode where JR’s attempted assassin was de-frocked, err undressed, err, revealed, err fingered was supposedly watched by about 18 million people. At the time this was about 33% of the entire nation. I’m not joking, it beat royal weddings, funerals, the storming of the Iranian embassy.
I’m REALLY not joking – had the Russians or Martians invaded the UK in the early 80’s they’d have been met with a nation obsessed with unprincipalling Heather Locklear, or principalling Victoria Principal.
In my misty memory, happy endings all round….
Laughing – it’s pronounced: di-nisty here
@A’sfaninLondonUK, yes, I know, both of those programs were ridiculously popular in the UK. I remember overhearing people talking about them in conversation in my UK travels during the ’80s and thinking, “I don’t watch these programs at home and I don’t even know anyone who does, so why is this such a big cultural moment here?”
Going by the poster’s handle, your attempted correction of spelling is incorrect.
That is the correct spelling in British English.
His username offers a hint…
Turn this into a 30 second video MLBTR. Make it spicy and machine gun it over Twitter. This is a wildly simple concept and hopefully push more sentiment to force the owners to be less disgusting
billionaires fighting with millionaires about how to divide up our money why can’t the players just Get paid what they would normally make per game based on the contracts signed?
Well said
Welcome to today. Thats exactly what is happening and the owners are like “nah fam, we need our regular profits.”
That’s what the players have been arguing this entire time…
“”Owners have seen higher profits from faster growing television revenue.””
Other than that statement, which is speculative, I agree with the suggestion. Young players need to get paid more. Basing minimums on TV revenue seems like a pretty good idea.
Forbes annual franchise valuations, which come out every April, have showed steady profits among virtually all mlb teams. The Marlins were the lone exception last season.
Does Forbes show profits or do they show simple calculations of revenue vs expenses.
They do guesstimate a teams value.
In this chart, the far right column has an educated guess of operating revenue.
forbes.com/mlb-valuations/list/#tab:overall
It’s a guess. The Braves have shown they lose money. It’s a bit of creative accounting, but even if they make money, they have a new stadium, have the best contract in baseball, have no huge albatross contracts and made the playoffs.
The Angels play in a 55 year old stadium, have not won a playoff game in a decade and have an albatross of a contract. When Moreno says he loses a little money most years, I’m not so quick to dismiss him. Part of that is based on Disney losing so much money, but I can’t easily dismiss it.
it’s all the art of accountants!
Could be, which is why I don’t understand the need for tax returns.
They basically tell you how good your accountant is.
I don’t know. I’m always surprised how much people claim they know when I research and still don’t know.
You are being mypoic. The city sold Arte the land around the stadium personally for “a song” to develop. There is no universe where the owners arent making a killing and not sharing anything but ticket rev growth with labor.
Its just the regular privatize the gains socialize the losses.
And when did that happen? Moreno recently leveraged the stadium lease into a great deal.
So the previous 15 years didn’t exist?
It seems you are being myopic.
Or in the immortal words of Leo Bloom, “creative accounting.”
I enjoy your articles, Matt. The finance side may be boring to some, however I find it extremely involved and complicated. I can difinitely see downside risks associated with city’s involvement in not only seating capacity, but whether it’s feasible for them to pay for their associated costs in policing, providing parking staff at greater costs, utilities, etc. That’s why there may be eight owners plus who don’t even want a season in 2020. As for future CBA negotiations, surely we should also discuss an x,y, z% split of future unknown media revenue, as well. BAMTECH sale sorta thing we don’t see clearly in the future that make billions. Some VR revenue stream perhaps?
Hi Tim, compliment to the editor in chief for another good call on a guest writer. This is the old media advertising commercial collector/agency owner who called on MLBTR ages ago. I definitely like these articles after years of collecting on everything from MiLB and MLB ad contracts (signs, sponsorships, etc) to internet revenue contracts and Unique individual impressions and purchases being different costs. There are so many moving revenue streams that we just don’t see clearly today what may be of most value or loss tomorrow.
agree – great stuff from Matt. I love the finance side of baseball almost as much as the statistics and actual games.
Who cares – baseball is dead to me. Once a die hard fan and now a shocked hater …. the nerve of both owners and players to publicly fight over millions and billions when the real world is fighting to stay alive and live normal lives with all the chaos there is today. I’ll never watch, attend or follow another game. I’ve never seen a bunch of selfish people like this in my life. I hope it’s the end of the game. What a darn shame.
Please don’t drop out due to the finance talk. It’s everywhere. Just wait, once a viable vaccine is found the finance talk will be even more front and center to everyday needs. Many will need a vaccine and governments and folks will be discussing how much profit and costs they will pay for a vaccine. Just walking away there isn’t an option and I for one plan to be following some baseball to get away from the real heavy discussions that will take place at that time.
Yap – totally agree. Well said.
Game is over for all those guys.
Live in Florida – baseball is back. Cheaper and these players give 100%.
I remember Frank Thomas’ famous line in the last baseball strike. “ I can’t live on 9 million a year”
Players get back to the real world.
See ya!
Regardless of COVID-19, the grievances will/would be exposed when the current CBA expires after next year. The virus has simply sped up the fight. Both sides need to not only come to an agreement for what to do with this season, but should also make it a priority to work towards the next CBA negotiations (at least a more civil process and /or result).
You’re flat out delusional if you think money wasn’t a sticking point before we even knew what covid 19 was. Money makes the world go round, sorry to break it to you. We dont live in CandyLand.
Good for you. Pick up an instrument, learn a new language, read some thought provoking books, spend more time with family where they are the center of your attention vs some athlete. Lots of better things to do. Pro Hockey Rumors needs some love, only like 10 people follow that.
That would require there to be an actual partnership between the players and the owners. The owners don’t want to be partners with the players and players don’t want to be partners with the owners.
That does seem to be just about the size of it. Both sides want an unqualified “win” over the other side – zero sum – instead of win-win.
Notably though, if I understand correctly, the owners are open to settling all this through arbitration, for 2021 at least. If that’s true, what say you players?
I’ve heard the opposite. The owners don’t want to go to arbitration because they don’t want to have to open their books.
From Conner Byrne’s article earlier this morning:
” In a letter to the union Monday, deputy commissioner Dan Halem left the players with three choices: 1. Waive your right to file a grievance in regards to the March agreement; 2. Go to arbitration; 3. Keep negotiating.”
It would be a cold day in hell before I would expect the players to waive the right to file a grievance.
there isn’t time for arbitration.
I wish the players made another counter offer, even if they had to say it was their final offer. They called Manfred’s bluff about setting a 50 game schedule, and threw his world into a shitstorm.
Propose 82 games, full prorated salaries, expanded playoffs for 2 years, defer salaries above x amount at 0% interest for 2 years with monthly payments.
If the owners set a schedule for fewer games than possible, file a grievance. If they cancel the season, file a bigger grievance.
Is the grievance more or less likely to be successful when comparing an imposed 50 game schedule vs outright cancellation? I truly don’t know. But if outright cancellation reduces the risk of the owners losing a grievance, then the players might be unwittingly incentivizing a complete cancellation. by ownership.
That depends on the reason for cancellation. Manfred’s comments so far won’t help the case if they now try to blame it on the virus. It’s clearly about economics and not wanting to pay the players more than X amount.
It is about the virus. If you could guarantee a post season, I think the owners would take their in-season losses. However, if a team gets sick, then their isn’t a post season.
In may not be about the players health, but it is about the virus.
Very interesting idea, Matt.
The players are no doubt peeved at the fact that revenues have far outpaced salaries for the past several years. Yet the players have steadfastly refused to consider revenue sharing- because that is a salary cap. This has historical significance in MLB’s collective bargaining story. They’ve been willing to die on that hill.
When they sit down to start the next round of talks, will they open with “you’re making all this money and we want our share”???
It’s time for new leadership who will think outside the box, on both sides. Owners need to stop the lies and open the books. And the players need to see the opportunities that await them if they tie their salaries to the fortunes of MLB.
“Owners need to stop the lies”
Wow, you seem open minded. The Braves do have open books and reported a loss. That is probably due to some creative accounting, but depreciation expense is an expense.
Owners (especially that rat scum owner of the Angels) have lied through their teeth for literal decades, he’s allowed to close his mind up on this – its akin to letting an abuser continue to bully you instead of telling them to die in a fire.
He’s lied for decades? That would mean he has owned the team twenty years. Which makes you a liar.
Even though I heard for decades how much owners made, Autry had to sell, he couldn’t afford running his team. Disney lost money, tens of millions of dollars.
So when Moreno says he has years where he has lost money, I believe him.
Moreno is such a lousy guy that he wont sign known cheaters.
We could make quite a list, starting with “we’re going to lose $4 billion if we have to pay the players prorated salaries”
and downhill from there
And how do you know they are not?
This is not perfect analysis, but close enough to blow the $4 billion claim out of the water.
blogs.fangraphs.com/parsing-mlbs-claim-of-a-4-bill…
BTW- do you live here in OC?
Nice link, it’s why fansgraphs is a site to which I subscribe.
I never lived in OC, but i did live about twenty minutes from Chavez Ravine when the Angels played there. That’s when I became an Angel fan.
I should have read your post more carefully, sometimes when I read the same things over and over again, I tune out when I see the buzz words.
.. to parse everything, if a season is not played. He estimates 3 billion. But when you consider losing a year of control of the most affordable players, I really don’t have a hard time believing it’s 4 Billion. But even if you think it’s much less, isn’t 2 billion enough?
If they play games and the playoffs are cancelled, it’s going to be more than a couple of billion more.
I take the term “loss” to mean income less expenses, and not just “see all the money we could have had”. Like there’s $4 billion less in the bank after this season.
Teams are losing $4 billion between gate receipts and concessions. 39 percent of $4.1 billion. But they still have $5.3 billion in national TV revenue, $ 2.2 billion in local TV revenue, and $1.1 billion in revenue from sponsorships.
In the Fangraphs’ article, Craig Edwards suggests that clubs make more money by playing games. What I think is not considered is that MLB might be getting some TV revenue regardless of playing games. It’s not all just prorated per game. If that’s the case, they can pocket the TV revenue that is not prorated and claim a loss per game. Also, if that is the case, maybe they don’t want to open the books.
Craig suggests in a separate article that the MLB could have taken the 114 game offer, had the playoffs cancelled, and turned a profit because they would make more revenue than the 100% pro rated salaries. I simply don’t buy it. To trust his numbers in this series would be to believe MLB has an absurdly high profit margin during normal times.
This is not an endorsement of MLB’s claims of being an unprofitable business. I doubt “losing 4 billion” means a negative profit of 4 billion, but the owners want us to think that.
Patrick….How do you revenue share when ownership refuses to show you their books?
You can’t. Other sports have an auditing firm.
The owners voted to propose a 50/50 revenue split with players, but the offer was never made. Why is that? They know that, if Tony Clark was smart enough to not just mouth off right away, the players would ask them to open the books.
And now, Manfred freaks out at the thought that the players called his bluff and are ready to file a grievance- which starts with a discovery motion to open the books. That happens before any hearing.
Don’t other sports leagues(NBA, NHL) have revenue sharing? I assume their books aren’t open to the public, which seems to be a common demand (maybe not Patrick’s).
Open to the public and open to the collective bargaining unit are two different things. Hockey players get their cap based off all “hockey related revenue”, which they get to see. They do sometimes argue over what is and isn’t hockey related revenue, but their union does get to see the numbers for everything that is agreed to be “hockey related revenue”.
In a revenue based plan, the players don’t need to see the books in their entirety, just the the agreed upon revenue streams their cut is based on.
Players and owners need to decide if they want a revenue sharing model or not. There are pros and cons to each side. Right now each side wants to have their cake and eat it too, especially the owners.
If players are simply employees there’s no need to ask them to share the pain in the first down year in memory. Locking in a shared revenue system might lower some teams margins but it would ensure a margin.
If players truly want to their fair share of the revenue they have to realize the ups and downs of business cycles. The fact a disproportionate amount of income comes from broadcast deals at a time when a million households a year are pulling the plug.
Yep. Agree
The third wall here is the rising cost to me as a consumer to buy a ticket or (more nebulous) the rising costs to me that make up TV revenue. No one at the MLB level cares about the game anymore. That’s what makes losing the Minor League teams so hard. MILB and Frontier leagues is where real baseball lives now.
That;s you, ticket prices have nothing to do with it. The prices are set on what most people will pay just like a concert ticket. TV contracts rule the day.
The article just said ticket prices do have something to do with it.
Geat idea Matt.
I’m certainly no economist, but with player salaries at the top end skyrocketing, I can’t fully agree that the new revenue hasn’t gone into player’s pockets.
Could it have been distributed more fairly? Absolutely. But in a free agent market, it will inevitably be handed to the top performers. Teams are incentivized to spend more on stars, and less on utility players and younger players.
The biggest labor change that needs to happen is that Minor Leaguers need to be paid a living wage at the bottom, and upper minor leagues need to be compensated closer to a well-paid white collar worker. A range of $40,000-$125,000 seems totally reasonable to me.
The chart makes it very clear that total player compensation has not kept pace with revenues. Distribution is a completely separate issue, but as the article points out, when teams sign free agents they are buying wins. Salaries for free agents are coupled with gate revenue, but are decoupled from media revenue. Therein lies the problem.
Bingo BlueSkies. Should the union ask for revenue sharing in the next CBA? They must know all of this stuff already, so why be so resistant to the idea of revenue sharing?
That’s a key question and I don’t know the answer. My only theory is the players believe ownership will never be transparent enough about their revenues to make this work (and not without justification). But it’s fair to say that neither side can be credited for doing much thinking outside the box. Maybe some version of revenue sharing can emerge from this standoff. I don’t see much hope for baseball if it doesn’t.
If it’s a matter of trust, I’d expect they could negotiate some annual independent audit in the next CBA, assuming revenue sharing and a salary cap. I truly don’t know what I’m talking about in this realm though.
When this entire process of negotiations started I thought it would have to go an outside arbitrator if it was ever going to be resolved (which implies an audit of some kind). Ownership would likely not agree to that much because it would make it even more apparent how evasive they’ve been on their financials. Ownership has to move off this position or baseball is in trouble.
Players know revenue sharing has to come with non-guaranteed contracts and a salary cap.
Right now teams lose money on bad contracts with underperformance but make it back in gross revenues.
There’s also a dispute over what counts as player share of compensation. MLB likes to include things like non-monetary perks in contracts, health and training benefits, taxes, etc… Basically everything they pay for a player to be there and taken care of. MLBPA points to contract values alone.
I don’t remember the exact difference, but it’s sizeable. There were articles written some time ago when it last came up pointing to the MLB calculation putting sharing as equal or greater than the percentage found in other major sports – nhl, nfl, nba… but the MLBPA valuation showed a gap, something like 4-7% of total IIRC.
To give up that extra money I personally wouldnt think it unreasonable to go with non-guaranteed deals. I don’t think covid was enough to make owners give it up just in exchange for gate revenue loss sharing.
Besides, you then get into a HUGE can of worms… do all tv rights need to be auctioned by sealed bid? Can liberty media no longer get a sweet heart deal? How do you force a fix to the nationals? What about team owned RSNs getting below market deals on paper? Would players accept sharing only national tv revenues and not local? If players get a share of regular season revenue, how do you separate that from combined regular/postseason contracts? If players get postseason tv revenue sharing how do you rework postseason ticket revenue sharing?
Once players are supposed to get a share of revenue those are problems. It’s a more complex set of issues than what led to the dysfunction this year.
If a Team also owns or is part owner of the Broadcasting Station that carries their games, the owners can work out a deal that benefits the Station & hurts the Teams Income therefore lowering the amount to be paid to the players but the owners would still pocket the money only through the Station.
Network Station=Huge Profit
Baseball Team=Loss In Revenues
This could be a reason the Union Won’t Go For Profit Sharing, Maybe
Salary caps take on various forms, with various exceptions.
The NFL and NHL have hard caps that can not be crossed.
The NBA has a soft cap with eleven different exceptions, mostly to allow teams to sign their own players.
The NHL and NBA have a limit on the number of years, 7 and 4-5 respectively.
The NHL still has restricted free agency, which often results in a player signing a multi year deal to stay with his current club.
The limits are all tied to revenues under various formulas.
Unique to MLB would be the ownership interest in RSN’s.
– They could have their evaluator put a market value on the annual value based on other deals, market size, ratings, etc
– They could pick a fixed variable that the cap is tied to so it goes up at the same rate every year as that index. That would require less complex valuation and less discovery.
The MLBPA would want to include the value of the RSN profits from subscribers and advertising revenue. The owners would never go there. The players might want to value the streaming revenue, at least for baseball, from MLBAM. Big argument.
But if the players sit down at the table and open with “you’re making all this money and not sharing it”…… give it a week for the laughter to subside.
“The chart makes it very clear that total player compensation has not kept pace with revenues.”
The most terrible thing is: this sentence applies to almost all businesses in America in 2020 (if you replace “player” with “employee”).
lol strike four. Sigh. Sometimes I laugh when I’m sad.
What the chart DOESN’T show is how team expenses also increased over the same time period – increased foreign operations, overall increased scouting, analytics, rising health care/treatment/wellness/therapy costs, use of nonmonetary perks and compensation in player deals that add to overhead, rising general operating overhead costs (travel, debt service, coaches, execs, etc…)
All those things cost. Doesn’t mean team profits have increased at the same pace
@BS_LA. I guess we disagree that it’s a problem. I don’t like the owners pocketing all the extra cash, but I also don’t see any reason for player salaries to keep rising. They make plenty.
I’d like there to be mandates for teams to invest in their communities, to be perfectly honest. Call me a socialist.
I think it’s kind of strange to say that the players “make plenty” when these are the people who we as fans show up to watch, and the owners freely decide how much to pay them. Keep in mind too that ownership makes sure we know exactly how much the players are paid, but how much of our money the owners keep is a deep, dark secret. If I was Tony Clark I would make that part of the CBA negotiations. Either both the players’ and the owners’ ends are made public, or neither. That would set off an interesting discussion.
I think that would be a dead end. Owners would say no changes. MLBPA would say they want the concession, owners say what will you give up? MLBPA says, predictably, nothing. Owners say, ok, then not happening, strike if you want.
What will PR be on the players striking because they want their contract values made private?
Bring on the replacement players, no big loss
Sounds like you either didn’t live through 1994-95 or just don’t care about baseball.
I’d say I was a bigger fan AFTER the strike than before. Oddly I don’t feel there’s was some greater appreciation after the return, just lost interest in other sports over that time.
Baseball didn’t wussify it’s rules like the NFL. It also didn’t make championships a joke like nascar to where the regular season didn’t matter.
Pace of play “initiatives” are at risk of wrecking the game though. My #1 team is in the AL, but my #2 is in the NL. I enjoy watching both because of the dh difference making roster construction and in game management different animals to watch. Hopefully the inevitable universal dh doesnt happen, I already don’t watch the all star game anymore.
The strike and lockout begat the steroids era so this first episode of damage to the sport was followed by the second and led to a sea of asterisks that will never be resolved. One the main strengths and appeals of baseball is being able to trace the history of the game back 150 years. Every time it falls apart or cheating is allowed run rampant both the reputation and the historical continuity of the game are damaged and with it, a lot of its appeal to fans (which we should not forget aren’t growing in number). Nobody can count on the game recovering from another series of self-inflicted wounds. That’s my fear.
Or we fans view the current history as the emerging media market and explain what we would like to imagine will just be another historical byline in a long and rich (if somewhat tarnished or patina’d) history that’s ever unfolding pages of it’s accounting for future generations to marvel upon.
The players association is the one that makes salaries public.
Are you certain? I can’t think of a single good reason why they would do that on their own volition, since it benefits them not all, and plays right into the owners’ narrative.
Absolutely
An excellent analysis. Nail hit squarely on the head. But now it is time to acknowledge that ownership would not accept such a plan on any planet known as Earth, because it would require them to disclose their real revenues. This is one thing we know they will continue to refuse to do even if it comes at the cost of destroying the game and their business.
Good series so far! Matt has been one of the few writers to look at this issue in a cool headed manner and that is refreshing. If the MLB and MLBPA had this posture during negotiations, it would lead both sides to a win-win.
A common refrain from the players is “why ask for revenue sharing now?”. I really hadn’t considered that the perfect response to this is “Yes, take advantage of this temporary situation to get a huge long-term benefit!”. The players are letting a temporary crisis go to waste.
This is very good, Matt. It’s also why I’ve been pro-player all along. If owners want a partnership, then it needs to be a true one where they share unexpected revenue growth, and not just ask players to share the burden of unexpected revenue loss. Partnerships just need to operate 2 ways.
My understanding is that the players’ union has always considered revenue sharing a non-starter because it implies a salary cap. Matt’s analysis here makes me think that their position might be kneecapping their future earnings as TV deals greatly increase in value while ticket revenues only increase slightly.
The owners won’t go for it simply because they know there are far, far more ‘up’ years when they make a butt-tonne of money than there are ‘down’ years. They’d end up losing out in the long run, though that hasn’t stopped them trying to get the players to cover this year’s “losses” all the same.
Great article Matt just look at the values of these sports franchises now vs 25-30 years ago. It’s an incredible value appreciation and all of it is to the benefit of the owners. The conversation of over profits one year or lack there of is not or should not be the top Prioraty of any business owner but more so continue the business value growth! Remember again laborers or players do not enjoy that wealth creation!
All 30 ownership groups have always been the biggest problem in MLB.
If America did a hybrid of communism like they should have done 40 years ago to prevent whats happening right now, MLB would simply eliminate all team owners and let the players all co-own the teams (even minor league teams) and split the profits evenly amongst themselves.
There’s hundreds if not thousands of grocery store co-ops in the country, why not just do that but with pro sports?
It might mean a lower ceiling of salary, which is a thing all “Joe Fan”s hate already, the best player making $10M instead of $40M in a season doesn’t really hurt anyone or anything, especially if minor leaguers would be making living wages, if not moreso.
Yea, wake up my friend….the guy making 40 mill is never doing this
Your last paragraph made zero sense and the reason why said communism would never work in this country- Too much greed
That is not the problem. The problem is the differences between spending between franchises. Tampa Bay $67.1k compared to the Yankees. Cole, Tanaka and Paxton alone make almost as much as the Rays 40 man roster. Until there is a salary floor nothing changes.
Install a salary floor for players with over 5 years experience, or making all team owners agree to spend money on players works too.
I keep telling everyone “Moneyball” is actually a terrible story to begin with, because at it’s core it’s about how one man saved a billionaire money by using talent that would accept lower wages than others. Then it does nothing but celebrate that one man’s achievements in being….thrifty?
That’s not…a good thing. Well, except for the billionaire.
owners will just pay players under 5 years less than they are now.. or not sign a bench player with 5 year experience when he can pay someone with less year at half the cost….. it still comes down to what the owners want to spend per year for payroll. After that its up the GM to spend it as he see’s fit..
Moneyball was a terrible movie ill agree on that for so so many reasons
IM glad Oak is taking a beating today finally from it
If you interpret Moneyball as “celebrating” the fact that he saved billionaires money, I think you’re missing the main point of the book. I really liked the book, but interpreted it differently.
Moneyball was about putting together a roster on a limited budget while taking advantage of market inefficiencies. Platoons, defensive WAR, churning the roster to avoid paying veteran salaries……….
Patrick. You and I completely agree.
Moneyball was about discovering undervalued assets. Twenty years ago that was OBP and Relief Pitching.
Neither are undervalued today.
@strike four
We’re trying to sing from the same song sheet and usually I agree with some of what you say. You’re damned with faint praise there, but take it as a compliment.
Thing is that I was drawn to baseball by Moneyball. The film was absolute bollocks (it was an awful Brad Pitt vanity project) but the book was an absolute object lesson (the holy trinity of Mulder, Zito, Hudson aside) in bringing under valued goods to the market. Everybody knows about the greek god of walks. I’ve done annual baseball trips every year since 2011 to watch my A’s, have been to play off games in Detroit, KC, NY, (seemingly freaking everywhere) without seeing my team win a bloody play-off series. I bought tickets in Boston for the ALCS in 2013. Didn’t have to buy many beers, Bostonians were very generous and sympathetic. I have a Kevin Youkilis card given to me by a steward at Fenway. Anyway the point of Moneyball was also to give opportunities to guys who would have otherwise fallen by the wayside due to poor analysis.
I think I’ve probably spent $50,000 US dollars on baseball holidays. I have loved every minute, enjoyed every beer, been welcomed at every ballpark enjoyed banter and joking everywhere I’ve been lucky enough to visit. Randomly I love Pittsburgh, what a brilliantly kept secret in terms of marketing a fabulously historic city….
Time for everyone to value what they might be losing….
I agree, time to make a floor of 100 million, and move both Tampa to Montreal and Oakland to Vegas. They also need to add two new teams in Nashville and Portland.
The real problem is there should be a floor of at least 100 million!
If a team doesn’t meet a certain minimum salary, I don’t think they should be entitled to revenue sharing.
I’m not sure why that is unreasonable.
Can’t have a cap top and bottom unless you have completely revenue sharing which includes local TV/Cable Revenue.. that way every team pretty much working with the same amount of money like in the NFL..
If you want a payroll of $ 100 million, then the threshold needs to be $115 million to account for $15M per team in benefits, as they do on the current luxury tax threshold at the top end.
I would set the tax threshold at $ 250 million with a dollar for dollar tax above that amount, and then the lower threshold at 50% of that amount, which would be $ 125million to start.
You can’t have a floor without a ceiling and as a yankee fan you should not be for that!
MLB consistently has problem that the other 3 major sports do not. Why?
The NFL, NBA and NHL are partnerships, however tenuous, between the league and the players. The players get a specified piece of the pie and all parties have a vested interested in growing that pie.
I can’t wait for the Red Sox, Yanks et al (teams that own their RSNs) to show that those RSNs are only marginally profitable, and that Dave O’Brien and Jerry Remmy have to spend their nights at the Dew Drop Inn while on the road.
thats easy. Look at masn. Once Pete paid himself all that money, reinvested some of what’s left.. well its just not that profitable! The advantage of being an “employee” of your own company. Your salary and bonuses reduce you company’s overall profits, lowering its taxes and the amount you pay the Nationals! Lol
The Sox claim they genertae 80M in profit from NESN…how is that possible, with a 6-state area where they have almost exclusively, when the Dodgers deal is worth 350M? The thievery isn’t in the millions, it’s in the hundreds of millions.
I don’t believe anyone believes the Yankees, Red Sox or the Dodgers don’t make money hand over first.
Umm..look at the obvious Bob.
1) Vermont, New Hampshire, and Maine don’t have much population.
2) Massachusetts has a big number of Yankee fans west of worcester.
3) RI has a healthy contingent of yankees fans
4) CT is majority yankees fans west of I91, and a decent showing east of it.
Boston has a lock on the Boston metropolitan areas, but southern new england is far from theirs alone.
Northern New England is so sparsely populated it’s not really a huge boon, and, travel to boston from the populated areas of VT near burlington for example is a 5 hr trip in good weather.
I’m not saying there isn’t some cooking going on there, but it’s not 270m worth, not even a third of that.
I live 60 miles north of Fenway Park. It’s basically all interstate on the way down until I get about a mile and a half from the Charles River. About two-thirds of the games last season were night games, which means taking a bus is difficult to impossible for them because of the time games end. That leaves driving and paying exorbitant rates for parking. I hate driving at night because of the glare (and I won’t even get into driving in Boston).
There are a lot of northern New Englanders, who are Red Sox fans, who don’t live a few blocks from an interstate. It’s a whole lot easier and cheaper to sit at home and watch a game on TV.
I really can’t understand at all where the players are coming from. I know I am in the minority here, but I entirely understand the owners perspective and I’m not some rich billionaire either…. and Matt explains it as well…….. after explaning how player salaries are inextricably linked to ticket revenues…. the logical conclusion to the situation of ZERO or minimal fans would be the players taking a significant cut to their pro rated salaries if there are no fans in attendance….. yet the players seem to want to be paid AS IF there are fans in attendance…. which as Matt explains is not feasible nor what was bargained for, nor economically even rational…. how the VAST majority of the public seems to side with the players in this dispute, according to main stream media and articles I’ve read, is beyond me. By the way the dispute the players are having is not with the “owners” of teams, it’s with the teams themselves, which should be operating in the notion of surviving to pay FUTURE players as well as CURRENT players as an ongoing enterprise should (and I assume teams are incorporated as ongoing business entities or ongoing concerns) and which pay the players out of revenues generated each year and also invest in the game so it can pay future salaries…. the “owners” invested hundreds of millions of dollars to buy their teams and maintain them and are fully entitled to whatever growth their teams generate, in my opinion, just as players should be entitled to bargain for a share of whatever extra ticket revenues and even merchandise and concession revenues are generated from their playing to some degree…. and I feel the players ARE already paid more due to the added television revenues than they would be if it was just based on gate receipts and revenues (i.e I feel Matt’s data or argument may be flawed here, If he is arguing all the extra television money is going in the owners pockets, while the players only share in the gate receipts and game day revenues, I suspect that is just not the case at all: what’s really happening is probably that the teams (I.e not “owners” per se) have increased salaries at such a level, distinctly as they have BECAUSE of the fact that teams are able to make money on the television portion of the deals…. were the players not already sharing in the benefits I would guess player salaries would be much lower.
I have found it very difficult to understand the players arguments for not taking a 50 percent or more pro rated deduction considering there would be ZERO fans in the stands. The teams to me seem to come off being generous by paying the players at all when there are no fans in the stands…why aren’t the players happy to be paid even some pro rated portion or percentage for playing a game in an empty stadium? It seems entirely fair to expect a reduction. So essentially by Matt’s evidence of historical pay correlations, they should be owed ZERO for those games with no fans in attendence….yes there are health reasons for them to want to be paid and ethical reasons for them to want to be paid something, but the insistence by the players union that they be paid 100 percent pro rata is only going to hurt the players in the long run…. watch. At this point I wouldn’t be surprised if the owners decide to forgo the tv revenues (OK yes I would) and let the players sit and think about the situation that they caused, by not being reasonable in taking a percentage cut due to the stadiums being empty…..owners have clearly been giving something g up by offering to pay the with no fans in attendance…. the players to me seem to be digging in their heels and saying, “we don’t care if there are no fans, we deserve to get paid what our contracts which were signed fully based on expectations of fans being in attendance, even though the situation has clearly changed for fans and owners and the world in general, we deserve every cent we expected to be paid when times were good, and we dont really care where the money comes from (just seems greedy to me). I got one hope the owners decide not to play any games at all, take “their” losses in the television revenue, give up the revenues as a show of solidarity with the players, wouldn’t that be something? No one gets paid, which is what the players seem to want most of all (I.e. if we can’t get 100 percent as if there were fans, we just won’t play). Sure the teams will feel pain, but the destruction of the season wouldn’t be on the owners, it would be the players insists ce that they be paid as if nothing happened when the whole world can see, something did happen (a pandemic, restrictions, etc). Since the virus hit and the pandemic, It’s clearly a new world, the players just are acting like it’s not…. the teams have in my opinion tried to bargain in good faith and were willing to pay them to play in empty stadiums just LESS (not ZERO) on a pro rated basis, that seems entirely fair to me. Especially given that The situation and the revenue the player Salaries (as Matt’s article states) have clearly been tied to ticket revenues and receipts…. Am I way off base here? If the teams decide to give up the television revenues, legally, it would be interesting if they could just use that bargaining position to use replacement players from next year on out, resetting the replacement player salaries to coincide with the NEW reality of fewer fans, given that these players didn’t seem to bargain in good faith at all…. am I being harsh here?
Any playing any games this year now at this point, I feel like the players are counting on the owners not being willing to give up the television revenues and using that as a way to claim the owners are somehow at fault for wanting to pay them less than they would have been due if the world hadn’t changed drastically. It will be Interesting to see if MLB takes the bait.
You must be paid by owners to post this Pro owner garbage! The players have contracts that state No matter what happens they are to be paid all the money their contracts state- All of it! Out of the goodness for the players hearts in late March they agreed to pro-rating -Covid 19 discount to owners and that wasn’t good enough for them! I hope the players stay firm and don’t cave to their wishes. The owners greed and lies has killed the golden goose of baseball!
I only wish the owners paid me to post such very obvious insights.
And if the player comes tracts actually state that they get paid no matter what, then I look forward to seeing that happen. However I do have my doubts as to the credibility of that, legally speaking it would seem if that were the case the players would ha e already filed suit. Somehow the position of them acting in “kindness of their hearts” wasn’t what jumped to mind, either
Matt4 -You are wrong. There is a clause in their contracts that states if a national emergency happens (i.e. COVID) and the league is unable to play games due to the emergency then the players don’t get paid for missed games. The owners agreeing to prepay them 4% of their salaries this year was the only thing done out of kindness of the heart.
@Dorothy
The Owners have agreed to play games if the Players will take a pay cut. Therefore the Owners have Blown that stipulation in the contract, they are not, not playing because of the Virus, they are not playing because of the Money.
Therefore the Owners will be held responsible for the total of all signed contracts. It may take years in court, but they will have to pay.
Dogs8. Can you guarantee the virus will not prevent a postseason where teams and players are benched because of the virus?
Of course not. A farce and non-guaranteed post season is the reason.
If the Yankees can’t field a team in October because of the virus, how can anyone possible think that’s not a problem?
And that’s all because of the virus.
@Halo11Fan
Maybe’s do not count in a contract. As of right now, the Owners have chosen not to play because of the money.
Now if they start a season & get shut down because of the Virus, then they have legal rights to stand on.
But, as of right now the original contracts would stand.
Maybes are in the contract. It’s based on fans attending games. That’s a huge maybe that the players agreed to.
Since there are no fans, the owners don’t have to pay 100% of prorated salaries. That’s a stipulation in the contract to which the players agreed.
@Halo11Fan
And if the Owners do not start a season, they broke the contract, therefore it is Nullified.
The Players have said “When & Where” It is now on the Owners!
The start of the 2020 season will be March 29, 2021. The start of the 2021 season will be March 29, 2022. There will be no 2022 season as the CBA is renegotiated, with the next CBA covering the 2023 season onwards, beginning March 29, 2023.
Problems solved.
Owners are already giving them credit for a whole season of Service Time when they are playing less games.. If I was an owner I would say if you don’t want to take less because of no fans..then we will pull away full Season service time..and just give you credit for actual games played…
In order for MLBPA not to be able to enforce the March Agreement, one of only a couple things has to happen…
1) a new agreement modifying or revoking the March one gets signed by all parties
2) there’s has to be a finding a true meeting of the minds never occurred… tricky because of statements issues and partial performance by both sides
3) default of obligations under the agreement where the non-defaulting party seeks to tear it up rather than seek performance by the breaching party
4) take the biggest risk of all – breach yourself and argue that the other side cannot seek equitable remedies because of their own bad actions.
Using any of those may be limited/prohibited by terms we don’t know buried inside.
What was given up was given up, but it’s a reason ownership seems distrustful that it’s good faith efforts don’t seem to be taken into account as much as ownership feels it should’ve been.
Mlb structure is complicated and even some team owners gain extra revenue by owning their own tv rights like the yes network just to mention 1 of many. So owners can and will manipulate their numbers. Any how I understand mlb has the highest player acquisition system with farm systems and academies abroad and then guaranteed player contracts but in the end they have an 8 month schedule to capture American wallets. In the end mlb has the worst owners and commish in profesional American sports and has not and will not maximize their earnings potential!
If both sides are fully committed to playing, then why aren’t they playing? Neither side will win the argument with the fans who pay for the tickets. For a fan of over 50 years, this is pathetic. There are now other options that are just as entertaining.
Baseball, and many industries, need to be nationalized. Lower the prices charged for fans.
In turn, the players should accept less money, as should high-pay executives across many industries.
Wealth inequality is the main driver of white privilege and with this privilege comes deep social injustice.
Again, nationalize the National Pastime…
White privilege? Graduate high school. Don’t get into drugs. Don’t break the law. Grow up in a two parent household.
When that happens, white privilege almost disappears.
My African American next door neighbors are doing just fine.
And the Angels are owned by a Hispanic.
What a simplistic inaccurate answer. I can name a couple of successful miniorities so white privlege can’t possibly exist. It’s ok, the world is slowly progressing despite the self centered attitudes of anonymous keyboard blowhards
yeah… no. Free market baby. Want lower ticket prices? Get people to stop buying tickets at these prices. If someone is willing to pay these prices, why shouldn’t the teams charge them?
Players should clearly have their earnings potential capped because not everybody is as good as them.
Great analysis. The part glossed over here and repeatedly else where is that the players are the ones responsible for the fact that players don’t receive upside. They’ve signed all of the previous CBAs, and during negotiations they pushed for chefs and first class airplane rides and extra spaces in bus seats. They did not push for revenue/profit sharing
That players failed to negotiate properly in previous agreements is not a defense of the fact that they are failing to negotiate properly now.
Nice series. I’ve long posited that a salary floor equal to the average of the previous years revenue sharing allotment should be instituted. There’s no reason for a team to get $125 million from that pool then trot out a $75 million payroll.
Considering a huge chunk of the money deposited into that pool is generated by local TV contracts, it has a similar make up as the proposal above.
the players would not agree to a “salary floor” because it’s the flip side of a “salary cap”. Yet the luxury tax is now a de-facto soft cap. They should have negotiated a tax on the lower end of salaries, say with a threshold at 50% of the upper threshold. And charge a dollar for dollar tax on the underage.
Hey! new word- underage. Almost like under age. nvm
Don’t google that, Patrick.
The salary floor would add salary to 15 MLB teams, anywhere from $62 million in Miami to $10 million in Minnesota. It would almost certainly result in a higher minimum wage and more money for arbitration eligible guys. Those mid tier free agents who get no love would have some suitors with some money.
The teams that consistently break $125 million in payroll would do so anyway and do so under the current revenue sharing program, so it wouldn’t impact the big ticket free agent signings from big revenue clubs.
Matt, I really enjoy your work! I have done some analysis and come up with very similar number. Following is a few columns of my Excel work, based on an 81 game season that provides 50% of TV revenues and full-prorated pay to players. The first column is a teams profit/loss assuming no unusual additional expenses. The second column is a teams profit/loss assuming additional $250,000 Covid-related expenses per game. Interestingly, it appears the Big Market Teams lose the most in this Covid Season analysis. I wonder if this is the group of owners who are not eager for a deal?
Added Exp
Team Profit/Loss Profit/Loss
New York Yankees -41.65 -61.65
Los Angeles Dodgers -0.2 -20.2
Boston Red Sox -14.4 -34.4
Chicago Cubs -18.5 -38.5
San Francisco Giants -7.4 -27.4
Houston Astros -32 -52
Philadelphia Phillies -15.45 -35.45
St Louis Cardinals -16.2 -36.2
Atlanta Braves -9.35 -29.35
Los Angeles Angels 0.65 -19.35
Washington Nationals -11 -31
New York Mets -13.25 -33.25
Texas Rangers -2.45 -22.45
Seattle Mariners 28.1 8.1
Colorado Rockies -12.4 -32.4
San Diego Padres -7.6 -27.6
Minnesota Twins -1.2 -21.2
Milwaukee Brewers 16.85 -3.15
Cleveland Indians 23.3 3.3
Chicago White Sox 8.6 -11.4
Arizona Diamondbacks 12.3 -7.7
Cincinnati Reds -4 -24
Detroit Tigers 21.65 1.65
Pittsburgh Pirates 35.35 15.35
Toronto Blue Jays 14.35 -5.65
Tampa Bay Rays 29.9 9.9
Baltimore Orioles 42 22
Kansas City Royals 22.75 2.75
Oakland Athletics 21.95 1.95
Miami Marlins 35.15 15.15
Average 3.5 -16.5
finmsully,
Are the (-$250k) COVID related expenses just testing related or taking into account fanless games?
That was a guessimate, based on Covid testing, quarantine, extra travel expenses, and sanitation. Could be way off, but I figured it reasonable to include some additional expenses.
Does profit/loss on the low end assume revenue sharing payments received at 2019 levels?
Because all revenue sharing was suspended for 2020. NOBODY receives $1 in revenue sharing this year, if it even happens. It was announced in May.
AtlSoxFan, great point! I did this analysis a couple of weeks ago, prior to knowing that revenue-sharing was suspended. I will have to redo the analysis to consider this.
However, a quick glance at the revenue-sharing numbers tell me that most Big Market teams are still losing more than most Small Market teams. Primarily resulting from a differences in payroll.
Also, since 23 of 30 owner votes are needed to approve a deal, this still makes me wonder if the Big Market teams are the sticking point to a deal. Afterall, these are probably the strongest voices in the room!
I’m not sure what 2019 numbers were. But 2018 saw $118 million from combined local sources and an estimated $91 million from the national pot given to each team after everyone paid in 34% of local revenue.
That tells me a team like the rays loses BIG since 34% of their local revenue is nowhere near 118m.
You’ve got them at just under +30m… if we use year old numbers ignoring some revenue growth, they lose 118m for a net of -88m before adding back some 34% local credit.
And, because total revenue sharing contained some of the national pot, if your model awards both national tv pot revenue, plus full revenue sharing award, it’s a double credit for the national pot depending what sets of revenue sharing you used.
I was using these numbers:
econintersect.com/pages/analysis/analysis.php?post…
So using your TBR example, the Rays have a TV deal paying $20M this year. With revenue-sharing that goes to $36M. The $91M share of the National deal adds up to give the Rays $127 in TV this year (without Covid). I simply took 1/2 of this $127 as an estimate of TV revenue. If we remove revenue sharing, the number becomes 1/2 of $111M ($20M local and $91 share of National). That would reduce the Covid revenues to TBR from $63.5M (1/2 of $127) to $55.5M (1/2 of $111M). Not too meaningful?
As you can see from the ecointersect data there are many more revenue-sharing receiving teams than revenue-sharing paying teams. The paying teams would gain more by getting rid of revenue-sharing. The most significant is the Red Sox (paid $73M in revenue-sharing).
Do you have data that is vastly different?
I don’t have newer data onhand, but, that chart asterisks a big number of clubs saying 2019 would be higher and the chart reflected 2016 data… which could be a big error based on the changing nature of tv deals in general.
Better than nothing though.
AltSoxFan,
Yes, you are correct. But the astericks are for 5 of the 9 lowest local TV contracts. Assuming the 2020 local TV contracts are higher, this suggests that the small market teams are even that much better off in this Covid season.
The Rays signed a new contract that pays up to 83 mill a year for cable rights. 2020 is the first year and i believe it is worth 70 mill + revenue sharing,+ 50 mill for streaming +? That’s the whole point…Players can’t share revenue with the owners since they will never be honest with all the baseball streams of income.
Thanks for the info. Crazy system! MLB needs some better minds in the Commissioner’s Office. This current system just creates so many perverse incentives! But, since the Commissioner works for the Owners ……..
Rays have a pretty strong TV deal. Not all teams are like that, but many do make some pretty insane money in the end too.
Revenue is irrelevant. You would have to compare owner profit to player salaries to be fair.
I’m starting to feel like “labor economist” is a cute nickname for :”union head wannnabe” or “Labor Communist”
Most economics PhDs get their degrees from liberal arts schools, not business schools. The rigor in their research is typically a joke.
In another article the author says “Let’s start with what should be obvious and unarguable.’, then he follows it up with personal opinions which have not been tested in any way. How were they “unarguable”, exactly? Where did you test to determine this? Did you present us with evidence supporting your statements?
If you are really a doctor you need to burn your degree.
Username checks out. You need a margarita.
If you actually read the whole article instead of just being angry at words you would know that those points are inarguable because they were already collectively bargained for. The owners already have the right to play a 50 game season and the players already have the right to full salaries in such a season.
Thus from there it holds true the following: – A new agreement should contain more profit for the owners because otherwise why would they want to replace the old agreement?
– A new agreement should contain more salary for the players because otherwise why would they want to replace the old agreement?
Those points are thoroughly covered in the article.
I did read the article.
A new agreement should contain more profit for owners? What if profit isn’t on the table at all and ownership is just trying to limit losses? What if its better for ownership to just cancel the season? Does this economist take that into account? What if the bargained-for agreement leaves room to renegotiate if there will be no fans at games?
And why are we calculating payroll as if the players are the only employees? To the labor guy who wrote the article, they are the only employees that matter because they are the ones enriching a union.
When calculating payroll you have to include every scout, manager, analytics guy, cook, laundry guy, janitor, etc. Payroll is everyone who works for the team. Not just players. What about the R&D that goes into developing most players? Are we going to pretend that isn’t part of the owners’ investment in those players?
I am not biased for the owners. I am biased for reality. The players are being unreasonable and damaging the game.
I don’t like the 6 years of service time rule. A lot of players end up too old to get paid for their prime. But I can also be logical and reasonable when looking at the current situation. Instead of just being a jealous hater blaming things on owners. How dare they try not to lose their asses.
My understanding is that the owners have already offered revenue sharing to the players in the past but the MLBPA turned it down because it would result in a salary cap like the other major sports (NBA, NFL, etc.). If TV revenue is truly growing this fast then the players’ union is really dumb not to accept it. But there is a hardline stance from the union to never, ever accept a salary cap.
If you wonder whether MLB teams make money or not, allow the part where their values have increases tenfold in the past few decades to clear up that confusion.
The true value in baseball teams is operating cash flow, not profits. These teams generate a lot of positive cash flow each year, but they all carry sizable non-cash expenses like depreciation of their buildings (stadiums), capital improvements, etc. Most owners borrow money for this so there are some cash expenses associated with this too, but at the end of the day, MLB teams print cash but pay very low taxes due to the non-cash charges they can take every year. With over 40% of their cash going away this year in stadium generated revenue, all owners will see a substantial cash flow loss this season. Cash is king and this why some owners prefer just to cancel the entire season as the cash losses will be less than if they played in empty stadiums.
You, sir, are a saint.
I never cease to be amazed at how many MLBTR readers are economics experts. Clearly, we are all much better at running a baseball business than the billionaires who own them (*note: sarcasm). You are absolutely correct regarding cash flow. That’s not just baseball. That’s true of many companies/businesses. Too many people get hung up on how “their values have increases tenfold” and think that means a team with a Forbes value of $2 billion has a bank account with $2 billion in cash. The author of the article has great material explaining why this is a false equivalency, but too many jealous readers focus on the assets and owner’s equity portion of the equation, and fail to solve for liabilities.
Dorothy, great point with these noncash expenses. What I wonder is how much depreciation an owner can take on the stadium that was mostly financed by a municipality? Is suspect the owner could only depreciate the expenses they actually paid?
It’s cheaper to let it rain inside your house than fix the roof, especially if you don’t have the cash.
Should you let it rain inside the house or should you find a way to fix the roof?
They might actually have to feel an ounce of financial pain in order to keep their billion dollar businesses going during an economic catastrophe…and even that is unlikely, unless you believe the paper losses.
10fold is putting it mildly for at least half the teams. The Cardinals, a legacy franchise although in a small market were sold for 150 million in 1995. Today the franchise valuation hovers around 2.2 to 2.5 billion
Uber loses billions of dollars per year but is worth 100 billion.
I can’t believe how age has shifted my views, but I do totally understand the owners points here. In the real world, if a business struggles, we lose our jobs or take pay cuts (something many of us are dealing with now). But with guaranteed contracts, you can’t lay off players, you can’t let go of non performing staff, etc. I’m all for job protection, but it’s hard to identify with players that already get so much more then the fans. If we aren’t cutting it, the best we can hope for is a severance package if we’ve been there a long time, not our full pay for the length of our agreement. Ownership, by its nature, takes on most of the risk associated with running a major business, where the players take very little. Team stinks, revenue down, they get paid. Player stinks, still gets full pay. I am all for protecting the employees, but there has to be a limit. Who I really feel bad for is all the ballpark employees and local businesses that rely on baseball to feed their families.
Cap it 140 floor, 160 ceiling. Salaries increase more than they do normally from year to year. Revenue goes up, cap limits go up and vice versa if revenues drop ( which they don’t do ).
The factor that the above graph does not consider is operating expenses. That gross revenue is up does not necessarily imply that operating income has risen – or that it has risen by a similar amount.
According to the Forbes article, the average MLB team has $345m in revenue and $50m in operating profit. If they lose 40% of that revenue (i.e. $138m), the operating profit will, on average, be negative. You could argue that there will be savings due to reduced travel, etc but those will be at least partially offset by extra covid-related costs.
And on an unrelated note – in what country was the first “baseball” game played? Not cricket – I mean the first game with rules approaching the modern baseball ones.
People just see what the blue line is doing and want to say the owners are fine. Now put that green line to 0.00. What do you think happens to the black line? Looks like it may fall under the red line.
Mlb owners get a lot more than just ticket sales and tv revenue. There’s revenue from radio, streaming and concessions. If you own the redsox or Cubs, you get 100% of the concessions as you own the stadium. Plus the parking and the dizneeland atmosphere around it.
Plus Trademark & Copyrights. Yes, the Illich Family is making money from Fox Sports Detroit even though the Tigers have not played a game yet. The Illich Family owns the Copyrights to all past Detroit Tiger Games and Fox Sports Detroit is running these past Game Reruns in the time slot that the Tiger Games were scheduled. Also people can go to Tigers.com & buy Jerseys, hats, balls & many other gifts. Then there are Stores Nation Wide who have paid for the rights to sell Detroit Tiger Trademarked & Copyrighted Merchandise.
Yup, they are making money & have not even played a game. They are not making as much as they would be making, but they are making money & not paying the players, Yet!
I have even seen Detroit Tiger Peanuts being sold in stores, just Peanuts in shell with the Tigers Logo on the bag. What People Will Do For The Almighty $$$$$$$
I have read articles that assume the money from national TV contracts will come in regardless of games, and that revenue from the RSN’s will be prorated. MLB made a presentation to the players with their first offer that used prorated revenue for RSN’s and completely ignored national TV revenue. That’s just taking “local revenues” and not revenue from “the central fund” which comes in through MLB and goes to all clubs.
The reality is that there are 30 different contracts with the 30 clubs.
Most clubs have an ownership stake in their local RSN, so they’re paying themselves for broadcast rights, at least partly.
In order for canceled games to result in reduced revenue from the $2.2 billion annually.
These local networks are usually part of the standard cable or satellite package sold to consumers. To lose that revenue, subscribers have to cut the cord. They can’t just unsubscribe from the RSN.
Even if they could cancel the RSN, the network is not taking a direct loss from the cancellation of games.
So it’s not just prorated per game at all.
On the national level, there are three networks and two other major sources.
ESPN shows 100 games a year for $700 million
Turner shows playoff games for $325 million
Fox shows regular season and playoff games for $525 million. Fox is the biggest carrier of postseason games, and most of that revenue has to be for the post season.
These are also all on cable or satellite networks, and part of a standard package. Same path for the revenue stream as the RSN’s except it’s national to MLB, not local directly to the teams.
Again, we don’t have the TV contracts, nor do the players. So MLB is not supporting it’s claims of losing money per game.
If MLB has these TV revenue streams coming in and not dependent on games being played, it’s no wonder that they want to play as few games as possible and reduce the player salaries. In the process, they shaft the players, shaft the fans, and shaft their broadcast partners.
MLB will take a hit from “out of town” subscribers who get the extra innings package with directv or Dish network, or who stream games on MLB.TV. Those programs can be canceled individually. The revenue is estimated at $1 billion.
And I’m sure that teams will lose money when they take a 40% revenue hit, on average, from lost game revenue, but that’s never been tied to player salaries.
When you say “it’s never been tied to player salaries”, the article clearly shows and attempts to demonstrate otherwise ….
Radio and Streaming will be part of the MLB.tv deal which would be tied to TV revenues. Part of the TV contracts as well. As for concessions, I’m going to assume that’s included in tickets as a combination of gameday revenues.