Come on, let’s get real. Professional sports are a pay-for-play model and it is All. About. The. Money. The athletes expect to maximize their incomes, and the team owners expect a very small percentage of revenues remaining as their profit. That is not a normal business model as your typical publicly traded company is all about profit maximization and earnings per share (EPS). But owning a sports franchise is part of the public trust and fans expect owners to spend, spend, and spend. The payoff for a baseball owner is in the value of their “investment” appreciating which is not too dissimilar from the athletes who expect their salaries to increase over time. Since the explosion of the riches in TV RSNs, baseball owners have seen their team valuations on average triple and quadruple making each of them paper billionaires. The lowly Marlins sold for $1.2 billion three years ago.
As COVID-19 restrictions ease, baseball could be in-play now in almost every American city — but the MLB owners and the players’ union cannot decide on the central point of pay-for-play compensation. So we wait and wait as both sides spout off at each other. The owners reportedly have said they would play a 50-game season which would yield to players a prorated salary of 30.86% of their total 2020 contract -or- the other idea was play half the season (~82 games) and pay the players 30-40 percent or thereabouts which some of the players rejected vociferously in social media. And oh by the way, hanging in the lurch are the fans aka “the customers” who rarely get a mention. The vision by the two-sides is short-sighted as the bigger picture is missed.
The contract in-place that was agreed to between the owners (MLB) and the player’s union (MLBPA) in March when baseball stopped in its tracks due to COVID-19, reportedly had a prorated salary structure agreed to that players would be paid whatever percentage of the games were played. Now, the latest disagreement seems to center on the owners stating they had an understanding in that agreement, dependent upon fans in the stands which now looks doubtful now (except in Texas), and hence they want to renegotiate a lower salary percentage. There could also be legal action if the owners try to enforce that contract and set a 50-game season as the union could try to get an injunction which could derail the season as the calendar is finite and days are coming off the calendar quickly with just 17-days until the official start to summer.
Vegas lines are taking bets on whether there will be a season. Check out the Sports Betting Dime for their odds on baseball and of course the story du jour of baseball coming back. Hint, they seem to think it will. Most feel that way because MLB owners have a chance to recoup some of their losses if a season is played to tap into the RSN TV money as well as the national network deals plus the most lucrative part which is the postseason money. This article gives you the weekend line specifically on whether there will be a season. But who has the over/under for how many fans take a walk from the sport?
Baseball no longer has a loud-mouth owner since the passing of George Steinbrenner a decade ago. Baseball doesn’t have a Mark Cuban or a Jerry Jones who are out in front and outspoken. The closest they have is Cubs owner Tom Ricketts who once again is speaking his mind. Was this Ricketts speaking on his own or was this with the blessing of the other owners? He spoke to ESPN Chicago yesterday.
“Here’s something I hope baseball fans understand,” Ricketts said to ESPN. “Most baseball owners don’t take money out of their team.”
We can debate that point by Ricketts, but if you believe Forbes Magazine is accurate on their estimates on profits for all the teams then the answer is that teams make small eight-figure profits in good times and losses in the bad times. The Washington Nationals did not even make more than their highest paid player (Max Scherzer) last year after winning the World Series. Forbes calculated that the Nats made $27 million last year. They were headed to a huge loss after regular season revenues fell due to attendance plummeting from 2.530 million in 2018 to 2.260 million in 2019, and were saved by a late surge in attendance and the postseason grand prize when they won the World Series.
“[Teams] raise all the revenue they can from tickets and media rights, and they take out their expenses, and they give all the money left to their GM to spend,” Ricketts continued.
Not all of their money Tom, but yes, most of it goes to the GMs to spend on salaries which is the largest expense for baseball franchises. Teams do expect to turn a small percentage of revenue into a profit so lets state that again. Also, more to the obvious points to students of the business side of sports for baseball, but that formula is different in football that makes most of their money from their national network TV deals and a much smaller percentage of money from ticket sales to fans. Baseball is very dependent on ticket sales as well as TV revenue, but they need both as well as the profit sharing from MLB’s corporate deals for national TV rights and merchandising like the Nike deal for uniforms. Ricketts continued his education of the financial side for the owners.
“The league itself does not make a lot of cash,” Ricketts said. “I think there is a perception that we hoard cash and we take money out, and it’s all sitting in a pile we’ve collected over the years. Well, it isn’t. Because no one anticipated a pandemic. No one expects to have to draw down on the reserves from the past. Every team has to figure out a way to plug the hole.”
Again, I think Ricketts is telling the reality of today’s situation not only for baseball, but for most business owners who have fallen into dire straits amidst this pandemic. You hold reasonable cash reserves and move forward to your next fiscal year. It is a lather, rinse, repeat cycle you anticipate if you have a healthy business, and the business of baseball was very healthy in terms of revenues even though fan attendance had fallen before the pandemic. This pandemic has to be costing teams tens of millions if not hundreds of millions if you believe what commissioner Rob Manfred is selling. Okay, Ricketts will tell you losses for teams could be in biblical proportions, and maybe you better get Noah’s Ark at the ready.
“The scale of losses across the league is biblical,” Ricketts claimed. “The timing of the work stoppage, the inability to play was right before the season started.
“We’re looking at 30 teams with zero revenue. To cover the losses, all teams have gone out and borrowed.
“There’s no other way to do it in the short run. In the long run, we may be able to sell equity to cover some of our losses but that’s in the long run.
“Who would invest at the moment?”
To answer Tom Ricketts, there is Alex Rodriguez and Jennifer Lopez who will invest. When we actually see teams selling shares in their teams, then we will believe it. Yes, we know it is bad, but could it be as bad as Ricketts paints it? If it is so bad, is this not the time that owners should open up their books and show their fans and employees (the players)? Making claims is easy to do, but maybe it is time to back it up with facts. My calculations say the owners and players are arguing over compensation between splitting $1.44 to $2.07 BILLION spread over the league. Obviously the largest percentage of those dollars will be paid by the teams with the largest payrolls. If you use Spotrac as your guide, there are nine teams committed to $190+ million in payroll if a full season was played. In healthy times, baseball generates near $10 billion in revenues. Of that amount $3.96 billion was paid to players in 2019 according to USA Today, but that does not include salaries for the front office, coaches, support staff, and office personnel. The numbers are staggering.
Last week, we tweeted out that if no season is played, the Nationals could lose more money than they made the last ten years combined. “Could” is the operative word. The other twist here is that teams most likely have reached out to every person in their own ownership group to inform them of what they refer to as “margin calls.” The Lerners just like the Steinbrenners and every other team have strategic partners who own shares of the team. Sports broadcaster James Brown is one of those lesser partners in the Nats, and you can expect he is readying himself for the red ink, and same with Paxton K. Baker, Alphonso Maldon, Jr., B. Doyle Mitchell, Raul R. Romero, Rodney E. Slater, Fredrick D. Schaufeld, Clifford A. White, Anthony P. Nader, Jonathan Ginns, David Dupree, John W. “Squire” Galbreath, Arthur N. Fuccillo, Jacob K. Schwalb, Harris L. Schwalb, Alan H. Gottlieb, Lori A. Creasy, Margaret M. Mekenie, and Fred S. Zeidman. Yes, that is a lot of people in the ownership group outside of the Lerner family, and we believe that list to be accurate of all of the non-majority owners of the Nats.
Owning a team is like owning a mansion you rent out with a staff at the ready for guests like you see on the yachting show “Below Deck”. Think of it this way, the Lerners invested over $460 million into the Nationals, and they could probably sell the team today for $1.9 billion. That is a handsome profit and would be like buying that mansion for $460,000 and it is now worth $1.9 million. You make a small annual profit on renting out the home after you pay salaries, mortgage interest, maintenance fees, advertising, etc. Maybe your net worth is $5 million, and you’re the richest person in your town. One day a tornado hits and tears right through that mansion and you did not have insurance. You can no longer rent the home out and all of a sudden you have no money flowing in, and your dilemma is what do you do with your staff and paying the mortgage interest and the other expenses? Do you pay everyone’s salary even though you don’t have work for them? You’re worth $5 million so you must have the money to pay them all, but it turns out you are asset rich and cash poor. You now have to as Ricketts put it “sell equity to cover some of our losses” because luckily you do have a lot of equity as valuations soared unless of course you are the latest teams to sell like the Marlins and Royals who could really be in trouble. MLB has supposedly set up a fund at low interest rates for owners to borrow from.
Isn’t that a close analogy of what we are seeing now? The spotlight is on teams to pay everyone, and we saw the anger when the Nats supposedly were going to cut minor league salaries $100 per week. Reportedly, the team didn’t cut the salaries, but you have to believe if the magnifying glass was NOT on every move a team makes they probably furlough anyone who they don’t have essential work for. The largest expense for a baseball team is their salaries.
So here we are watching each side make proposals in this baseball war of words. The newest one is the players are talking about a 114 game season. You have to doubt they want the regular season going into mid-October with a postseason stretching to Thanksgiving, but it is part of their negotiation tactics. Could you imagine a Game 7 of the World Series on Thanksgiving after the Cowboys play?
Okay, if we assume all the reports are correct, can we say that a 50-game regular season is a slap in the face to what baseball is all about in the grind of a marathon season and 150 years of baseball tradition? That just seems the way the owners will attempt to force the players to actually negotiate. Instead the players proposal is almost as bad. Forced doubleheaders and pushing the regular season into the second half of October is a bad idea. The final teams in the postseason might be having a parade in snow, and send players directly into free agency with Winter Meetings set for two weeks after Thanksgiving. Most players rest their bodies from the grind and have over 3 months off but the World Series teams would be lucky to have 1 ½ months off before they start their winter workouts in January.
The squabble becomes polarizing to a population traumatized by the death of African-American George Floyd and not to be forgotten numbers climbing by the minute with more than 100,000 deaths from COVID-19, and we have this extremely wealthy subset of .0000239% of our population who are bickering over splitting up over a billion dollars in salaries while more than 40 million Americans have filed for unemployment since the baseball shutdown started. This is an American issue and a slap in the face of our citizens as this is America’s game. A game. How many would play it for free to put a smile on a little kid’s face? Think of the real life of 7-year-old survivor Ethan Cadby who lost his mom and grandmother to COVID-19.
The risk to players’ health with few rest days during a truncated season is dangerous and a shortened off-season could have negative repercussions especially on pitchers. The wild card in all of this is there is still a risk of a COVID-19 outbreak among the players. What then? Also, there is the chance of a larger second wave of COVID-19 or a COVID-20 mutation. Baseball could start and come to a screeching halt and that is part of the unknown. Add in how all of this could alienate more fans and shrink the population of baseball fans some more and you have to think both sides really have to look at the bigger picture here. Come up with an 81-game plan to play a half-season or don’t do it. Don’t be penny-wise and pound-foolish.