The baseball economics for 2021 will create the largest drop in baseball payrolls in history!

Last year, free agency went better than projected for several players like Gerrit Cole, Stephen Strasburg, and Anthony Rendon who all cashed in on their Powerballs and each pocketed well over $200 million. COVID-19 threw a wrench into the cog that spins the wheels of business in the middle of Spring Training 2020. The season was disrupted, and most teams never allowed fans in the stands. 

Expanding salaries will not be happening in 2021 for a variety of reasons that include COVID uncertainty on 2021 revenues, but mostly because the quality of players starts with Trevor Bauer and drops off significantly after him to Marcell Ozuna, George Springer, J.T. Realmuto and then a next tier after them. Overall, it is one of the weakest free agent markets in years. Many players will jump for one-year pillow deals with the hopes that salaries will rebound the following year. Others will find themselves in a cruel numbers game of musical chairs and will find the unemployment line like Yasiel Puig last year.

When cash is king, the smart general managers will try to structure deferred salary deals to free up cash for 2021 and 2022. That could help some players get signed if they are amenable to structuring their contract as such.

Last week, news broke that Josh Harrison took an incentivized one-year deal with the Washington Nationals that could pay him about $650,000 more than a typical minor league call-up. Harrison was smart to grab his seat, and that is one fewer in this finite set of spots. Don’t expect 28-to-30 man rosters in 2021. There should be just 780 opening day roster spots at 26 players per team. Owners have gone public with statements like John Middleton of the Phillies who has vowed that he will be lowering his 2021 payrolls and said they will let Realmuto hit free agency. He did not close the door on re-signing him, just that they were done negotiating for now. You can expect most owners will be reducing payroll in 2021.

October 27-28: The conclusion of the World Series starts the countdown for free agency.

November 1-2 (5 pm EST): Exercising options, making qualifying offers to free agents, and declaring for free agency will be happening by that date and possibly before that. The Nationals have option decisions on Anibal Sanchez, Howie Kendrick, Adam Eaton, and Eric Thames.

December 5: Teams will have to make tender/non-tender decisions by that date for arbitration-eligible players. The Nationals have Trea Turner, Juan Soto and Joe Ross to tender contracts to, and they already non-tendered Michael A. Taylor and Roenis Elias and both players chose free agency. It is questionable as to whether Wander Suero is super-two eligible. An extensive MLB list is here from MLBTR.

December 6: The winter meetings were supposed to start on December 6th in Dallas, Texas at the Omni Dallas Hotel. This event will most likely be a virtual event.

How Bad Were the Losses in 2020?

Over at The Athletic, Evan Drellich wrote this morning that teams are cutting personnel.

Drellich writes: John Fisher, who owns the Oakland A’s, is preparing to layoff a large portion of 150 people who were previously furloughed, The Athletic’s Alex Coffey reported Friday.

The Ricketts family just laid off more than 100 employees from the Chicago Cubs.

The Baltimore Orioles, run by the Angelos family, let go of about 50 people, the same as Greg Johnson’s San Francisco Giants.

John Henry’s Red Sox laid off about 40 people in September. The areas those teams cut varies, with some focusing on the business side, and others trimming from the baseball side as well.

Yes, the Baltimore Orioles who have the lowest payroll in baseball laid off dozens of salaried employees. This is the same Orioles who are withholding MASN funds from the Nationals. Last week, the Orioles side lost another round in the MASN battle in the courts. The money awarded to the Nats of roughly $100 million by the courts is reportedly still being held in escrow until the next court decides on the merits of what could bring on another round of Orioles appeals.

That MASN cash would be critical funds that the Nationals could certainly use, and you can expect the Nats won’t see their payoff for a long time. This dispute is entering its 9th year and the 2012-2016 annual rights fee reset as well as the 2017-2021 reset are all in limbo and the teams are a year away from the due-date to start negotiating the 2022-2026 reset.

Because of the cashflow crunch, you can expect the Washington Nationals will be lowering player payroll overall. If the team keeps all of its players under team control, the team would be at $164 million after paying the arbitration-eligible players.

If you use Forbes as your guide, the Nats non-player expenses in 2019 were approximately $208 million, and Drellich’s estimate is that teams, on average, took in $100 million of revenue in 2020. The Nats prorated player payroll was approximately $79 million for 2020. You can expect accumulated losses for the Nats in 2020 to be near $120 million which we were told in July was the projected loss without fans in the stands for the 60-game schedule.

Drellich writes: The league’s revenues in 2020 were $3 billion and expenses were $6.1 billion, per a league official. Revenues in 2019 totaled $10.7 billion. Had this season been played normally, with fans in the stands, MLB claims it expected $10 billion in revenues and $10.2 billion in expenses — a suggestion that MLB expected to both lose money in 2020, and take in less than it did the year before.

The commissioner’s office suggested the same in a presentation to the players’ union in May, a document that noted its EBITDA has been within $250 million of break-even in every year since 2010.

Fan Attendance and Dr. Fauci’s outlook

The great unknown will be the amount of fan attendance to project in 2021. The Washington Football Team was just limited to 3,000 fans for their next home game. That is far less than the 10% of capacity approved by the State of Maryland. If the Nationals receive a 10% attendance waiver from the DC Government, that would limit the Nationals to 4,131. A 20% attendance would be 8,262, and 30% would be approximately 12,400.

The Washington, D.C. government was the strictest in all of the baseball cities on the COVID-19 guidelines. It kept Juan Soto out of action for the first 10 days of the regular season plus over two weeks in Summer Training 2.0.

The real wild card in all of this is when a COVID-19 vaccine will be readily available. All you have to do is listen to the testimony of Dr. Fauci who is the head of the National Institute of Allergy and Infectious Diseases.

“I think we will know whether a vaccine is safe and effective by the end of November, the beginning of December,” Fauci said on the BBC. “The question is, once you have a safe and effective vaccine, or more than one, how can you get it to the people who need it as soon as possible.”

Using Dr. Fauci’s timeline, we should know in 4-6 weeks about the safety and efficacy of the vaccine. He said it will likely take several months for a vaccine to be readily available for distribution after an expedited FDA approval. His continued hope is that the vaccine, coupled with a continuation of wearing face masks and social distancing in public, could help move the U.S. towards “some form of normality” by the middle of 2021. Define middle? Will D.C. allow fans who show proof of vaccination?

“I think when we get a vaccine, and we start getting people vaccinated, over a period of several months into 2021, we will begin to approach some form of normality, depending upon how many people, what proportion of the people, take the vaccine,” Fauci said. “That should be combined with some degree of public health measures. I don’t think that a vaccine alone right off will get us back to normality.”

There is your answer from Dr. Fauci who is also a Nats fan and wants to get back to attending baseball games. So far we have no public guidance from MLB commissioner Rob Manfred on the 2021 COVID outlook for baseball.

If we literally use middle of the year to mean July 1, 2021 for that normality, then that would be good news for baseball to capture perhaps 50 percent of attendance or more for the season and robust crowds for an expanded playoff. What could baseball do now to be proactive about working with governors, mayors and local governments to come up with an early season plan for attendance?

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