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Leagues and Governing Bodies

MLB-union dispute a numbers contest

In a document, the league said it would lose an average of $640,000 per game.getty images

As MLB and the union continue to negotiate a return-to-play plan, there is one sentiment coloring the process that both sides can agree on: mutual distrust.

 

Interviews with multiple sources familiar with the negotiations paint a picture of a fundamental, if unsurprising, dispute over money. Specifically: How much revenue would be lost in a shortened 82-game season played in empty ballparks? 

Players want to see details to know if owners are indeed facing the dire financial situation they claim. MLB has presented the union with a 12-page document that it believes illustrates its bleak financial forecast for a truncated season played at least initially without fans. The union does not take the financial figures at face value — and notes that owners won’t open their books.

It’s against this backdrop that both sides are discussing whether owners are willing to pay players prorated salaries for the 2020 season based on the number of games played, a plan the two sides agreed to in March. But earlier this month, the owners approved a plan for a 50-50 revenue split with the players, which the union has signaled it will reject because MLB player salaries have never been tied to revenue before and it has long been viewed by the union as a step toward a salary cap. 

The union believes that even paying prorated salaries in an abbreviated season without fans would result in a far less substantial loss than the $3 billion in a best-case scenario that a source familiar with the owners’ thinking detailed.

“The real construct is what is fair and appropriate when we will have about $3 billion in revenue — that’s revenue, OK — that doesn’t even factor in expenses, and we have billions of dollars in fixed costs because we are paying people right now,” the source said. “Last year they received 47%. What’s an appropriate percentage for them to get this year?”

When asked what happens if the union does not budge from its stance on sticking to the plan for prorated salaries, the source said, “The economics just don’t work. I just don’t think there is a good understanding of how devastating this is economically. If players took almost all the revenue, there is literally no money for owners to use to use to keep their non-player payroll.”

For a window into the dispute over the facts of the financials, consider when MLB presented the union with the document titled “Economics of Playing Without Fans in Attendance” on May 12. It detailed why the league says it would lose an average of $640,000 per game if it paid prorated salaries.

MLB believes that the player compensation issue is subject to renegotiation now that it is clear that a season would start without fans. If it paid players prorated salaries this season, the league says 89% of revenue would go toward player salaries. The union believes neither MLB’s revenue projections nor its expense projections are accurate.

In response to the union questioning the figures, the source familiar with the owners’ thinking said, “We’ve been calculating and they’ve been calculating both industry revenue and player compensation the same way for decades. We are not changing the calculation. We have an understanding between the parties how our revenue is calculated and how our payroll is calculated.”

In MLB’s economic proposal, it projects $1.3 billion in total global media revenue for an 82-game season in empty ballparks, which includes $411 million from Fox, $381 million from ESPN and $325 million from Turner. But the union doesn’t believe those numbers include additional revenue that would be accrued from an attractive expanded playoff structure, expected to include 14 teams instead of 10. Nor does it believe the figures take into account increased media revenue generated from baseball likely being the only professional team sport nationwide in July, which is the season’s proposed start date. 

MLB projects that it will generate $1.2 billion in local media revenue in an 82-game season, down from $2.3 billion for a full regular season. It notes that clubs do not receive additional rights fees if ratings are higher than expected or if advertising income for the regional sports network is higher than expected. The union said it has been told that any additional revenue from more advertising sales would flow to the RSN, but stressed that more than half of the 30 teams own a partial or majority stake in their regional broadcaster.

The union also believes some figures in the document are inconsistent, misleading or incongruous. For instance, it says MLB’s listed expense for amateur player acquisition ($440 million) in a season played without fans is inflated. 

Sponsorship revenue is another area of contention. MLB says sponsorship revenue will drop from $1.1 billion to $300 million if the regular season is cut short by nearly 50% of games. The union said that doesn’t account for make-goods, with a source adding that “the sponsor just doesn’t say we’re not going to pay you anything. They enter into negotiations and maybe extend the deal.”

The source familiar with the owners’ thinking said, “It’s like a Catch-22. They say, ‘We don’t want to share your revenue because that’s a salary cap. But we don’t believe your projections so we can’t use that for a basis for negotiating.’ How do you respond to that? It sets up a no-win situation.”

In a formal request to MLB, the union has sought information and financial figures on a number of fronts, including the nature of MLB’s current discussions with television partners, licensees and sponsors. The union is also seeking financial documents related to revenue generated from RSNs, MLB Advanced Media and ballpark villages. At the heart of these requests is a central question: What constitutes baseball revenue? MLB has been assessing the requests and is expected to respond to at least some.

A source familiar with the union’s thinking said, “Players are opposing pay cuts because it’s not fair, because the players are already giving back 50% of their salaries, because the owners are billionaires, because they are going to own these teams for years after players’ careers are over. MLB is better off playing than not playing, even with salary concessions. It’s just a money grab, is all it is.”

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