MLB owners’ proposal is more about sharing risk than revenue

Major League Baseball owners on Monday finalized a proposal to the players for a revised 2020 MLB season, per multiple reports. In no way do I want to minimize the medical and safety concerns of the players and every ancillary worker that needs to be involved once games begin again, because that’s obviously important and necessary for any plan to work.

But I’d like, for now, to focus on the financial aspects of the reported proposal.

“Money probably makes this decision,” Dodgers pitcher Ross Stripling said on The Athletic’s Scribes of Summer podcast last week. “We’re ready for the first proposal to have some version, even though we’re already getting pro-rated salaries, for that pro-rated salary to be cut.”

Back in March, owners and players already came to agreement on several factors. The owners got a semblance of cost certainty, guaranteeing only four percent of players salaries if the 2020 season was canceled, while the players secured service time matching their 2019 accrual in the same situation.

Among the other things agreed upon was that, should a 2020 season happen, player salaries would be pro-rated based on the length of the season. Ken Rosenthal of The Athletic outlined part of the proposal, which includes roughly a half-season. Among the concessions given by the players — regarding amateurs and potential minor leaguers not in their union — was allowing MLB to shorten the 2020 and 2021 drafts. The 2020 draft was shortened to five rounds, saving the owners all of $30 million in signing bonuses alone, which paves the way for minor league contraction beginning in 2021, more cost reduction for owners.

Under the March agreement, players playing a half season would receive half their salary. But the owners are reportedly proposing further cuts, with concerns about lost gate revenue with empty stadiums.

The players, not surprisingly, aren’t thrilled with this idea.

On April 20, MLB Players Association executive director Tony Clark in a statement said, “Players recently reached an agreement with Major League Baseball that outlines economic terms for resumption of play, which included significant salary adjustments and a number of other compromises. That negotiation is over.”

It’s understandable the players would balk at a further reduction in salary, but without knowing the full details of MLB’s proposal it’s impossible to know the true impact, and whether other concessions are given by the owners.

But the players already agreed to a pro-rated salary, so on principle any further reduction needs to be bargained, with the players getting something in return.

The owners’ side, per Rosenthal:

Without the players making such a concession, league officials say they will spend more on player salaries than they would earn in revenue for every incremental regular-season game played without fans. The union believes the opposite to be true and that postseason TV and other revenue will further enhance the league’s financial position.

Mike Ozanian at Forbes in April reported that of Major League Baseball’s record $10.7 billion in 2019, $3.2 billion were gate receipts (29.9 percent). Factor in the $925 million for “other stadium revenue” (parking, concessions, etc.) and we’re at a stadium-related revenue of 38.6 percent, slightly lower than but mostly in line with the 40 percent claimed by owners in a report by Bob Nightengale of USA Today.

What owners want here is to share the risk of the downside — albeit a huge downside, in a pandemic — with the players. But were they willing to share the upside as revenues soared? For instance, MLB sold a controlling stake of BAM Tech, its online streaming arm, to Disney for $1.58 billion. That meant an extra $50 million to each team, but not necessarily the players.

Cardinals pitcher Andrew Miller mentioned this recently to ESPN:

“The way our sport works is we are not tied to revenue in any way,” Miller said. “If the owners hit a home run and make more money, we don’t go back and ask for more on our end. Ultimately this isn’t about money. We need to find a way to safely get our players on the field in a safe manner and control that. I would hope this [finances] doesn’t turn into anything regarding that stuff.”

Included in the owners’ proposal, per multiple reports, is some form of revenue sharing. Nightengale notes the proposed split is 50-50, but it’s important to know exactly what MLB is classifying as revenue here.

It’s worth noting that, for the most part, even without explicit and strict revenue sharing, players have been at or near a 50-percent split for at least a decade.

Ben Lindbergh did a deep dive on player compensation at The Ringer in 2018, well beyond publicly available numbers at Cot’s Contracts and the like, and found that industry calculations showed players received between 48.5-51.2 percent of gross revenues from 2010-2017. Noted Lindbergh:

There’s no way to fact-check MLB’s figures from afar, but the Players Association has access to the same financial information that the league does. While the union’s beleaguered leadership has some incentive to sugarcoat the players’ position, one would think that if MLB were grossly distorting the present state of the market, Clark and Co. would dispute Manfred’s declaration, and the data above, rather than leave the rebuttals to writers. Instead, the MLBPA has allowed the commissioner’s “50 percent” assertion to stand.

Maury Brown in December at Forbes had the same numbers, updated to show the players’ percentage of gross revenue was 49.6 percent in 2018 and 48.5 percent in 2019. Those were years with record revenues in the sport.

Revenues this year will be far from a record high, and now it’s up to the owners and players to figure out how to divvy up what’s left. There are both concerns and reasons for optimism.

It’s easy to see a market correction coming this offseason, whether a 2020 season is played or not. This last winter saw 11 free agent contracts of four years or longer, including a record-setting nine-year deal for Gerrit Cole and mammoth seven-year pacts for Stephen Strasburg and Anthony Rendon. Mookie Betts figures to get paid this coming offseason, but outside of that we might see a return to the relatively cold winters of 2017 and 2018, especially after a year of revenues in the tank.

Players might understandably balk at further reductions in 2020 salaries if spending might be down in 2021 and 2022.

There’s also the postseason players pool, which is derived solely from gate revenues. If there are still no fans, or very limited fans in stadium by the time the November playoffs roll around, that’s lost revenue that may or may not be gained with what the owners proposed.

Any sort of truncated 2020 season would also bring extra playoffs, with 14 teams reportedly making the postseason instead of 10. That would mean an increase in TV revenue, which could in turn be shared with the players, in theory.

While it seems like a fight between players and owners is coming, to date both sides have had relatively pleasant negotiations, at least publicly. The fact that commissioner Rob Manfred could have suspended all major league player contracts during a national emergency, as allowed per the collective bargaining agreement, but didn’t, is at least a sign of negotiating in good faith.

I don’t know if that’s enough to get a deal done for a 2020 MLB season — again, assuming it is relatively safe and healthy for everyone involved to do so — but there is at lease some optimism. We’ll find out this week if that’s well founded or not.