The only questions: How bad is it going to get? And who will share in its toll?
“We’re going to lose billions of dollars this year, no matter what,” said one high-ranking baseball official, who, like others interviewed for this story, spoke on the condition of anonymity to freely discuss internal matters. “People don’t realize the magnitude of the losses, but they’re huge.”
While all of the major North American professional sports are experiencing some degree of disruption and financial pain amid the novel coronavirus pandemic, baseball in many ways has it the worst.
While the NBA and NHL completed more than three-quarters of their regular seasons before being forced to go on hiatus and the NFL’s 2020 season is insulated to some extent by the calendar, MLB still has no firm handle on when it can get underway. It is contemplating a handful of contingencies — all of them “degrees of bad,” according to one official — that probably would include games without fans. At the same time, the worst-case scenario — a canceled season — cannot be ruled out.
“It’s a more significant economic impact on professional sports in general than anything I’ve seen in my lifetime,” said Vince Gennaro, author and associate dean at the NYU Tisch Institute for Sports Management, Media and Business.
It is impossible to know how deep the losses will be for MLB — which posted record revenue of $10.7 billion in 2019, according to Forbes — without knowing what a 2020 season might look like: whether, for example, games begin in June, July or August; whether they will be played at home stadiums or at neutral sites; and whether fans will be permitted at some point.
New York Yankees President Randy Levine is among those who have downplayed the notion of staging games without fans, telling Fox Business Network, “To have games just on TV for the whole season for many, many reasons is not practical.”
In the event of fan-free games, the bottom line also would depend on whether MLB and the players’ union can agree to a reduction of salaries to compensate for the loss of in-person stadium revenue — a contentious issue that, according to MLB, was left unresolved in the March agreement that insulated owners against the possibility of a canceled season while advancing the players $170 million in salaries.
The union contends the issue of compensation was decided in the March agreement, which called for the players to receive prorated shares of their salaries based on the number of games played. MLB contends that agreement pertained only to games with fans and that games in empty stadiums would require a different calculus.
“For the average team, about 50 percent of revenue is stadium-based, from ticket sales, parking, concessions, sponsorships, signage. It would only make sense for teams to play games if they can reach a subsequent deal with the players’ association to supplement the deal they made [in March],” said Andrew Zimbalist, an author and professor of economics at Smith College. “[Team owners] would have to get the players’ association to agree to some formula at least close to that reality. If they didn’t, they would lose a lot of money.”
While player compensation in 2020 could vary wildly — from about $4 billion as originally structured (with a now-impossible 162-game season) to about $2.4 billion in a 100-game season to $170 million in a canceled season — MLB has sought to trim costs in other ways.
The draft will be reduced from 40 rounds to between five and 10, with caps on signing bonuses for undrafted players, and teams would save money in the event that minor league seasons are canceled or greatly curtailed.
Teams also have begun trimming costs related to non-playing personnel. One high-ranking official estimated those salaries, industry-wide, to be about $2 billion annually. And while most teams have committed to paying those employees at least through May, the Tampa Bay Rays and Miami Marlins reportedly furloughed some employees, and the New York Mets and San Diego Padres reportedly instituted pay cuts and furloughs that will start June 1.
“If you’re keeping people on payroll without revenue streams,” the baseball official said, “it’s all losses.” Another high-ranking official pointed out companies in other industries are simply folding under similar circumstances.
Senior MLB executives, including Commissioner Rob Manfred, have had their salaries reduced by an average of 35 percent during the shutdown.
“Our clubs rely heavily on revenue from tickets/concessions, broadcasting/media, licensing and sponsorships to pay salaries,” Manfred, according to the Associated Press, wrote to teams last month in suspending MLB’s uniform employee contracts and giving teams the leeway to begin layoffs and furloughs. “In the absence of games, these revenue streams will be lost or substantially reduced, and clubs will not have sufficient funds to meet their financial obligations.”
Increasingly, as the crisis drags on, individual teams could find themselves in deeper economic distress. Among the clubs mentioned by those in the industry were the Marlins and Mets, who both have heavily leveraged owners. The Wilpon family, which owns the Mets, has been trying to sell the team for months; a tentative deal with billionaire hedge fund manager Steve Cohen fell through in February.
A high-ranking baseball official confirmed the Marlins are “behind the 8-ball” largely because of their debt but predicted all 30 teams “should be okay.” Some teams, the official said, are “maxing out” credit lines and taking on more debt. Forbes reported that MLB “modestly” increased its lending capacity for individual teams.
Financial analyst John Tinkler recently modeled a hypothetical 2020 season for the Atlanta Braves, with a start date around July 4 and an 80-game regular season with fans at half of the games, and he calculated the team would suffer operating losses of $60 million, with revenue declining by about two-thirds.
“There are owners who are highly leveraged outside of the team,” Zimbalist said when asked about the possibility of teams going bankrupt. “There may be four or five teams out there that are skating on thin ice because of their financial situation. But I think what happens in a worst-case scenario is an owner goes bankrupt and sells the team. MLB could take over that team. Baseball could go in there and keep the Marlins running, if that’s the [team] that goes over first.”
The March agreement with the union also gave MLB the power to recalculate its revenue-sharing formula in 2020 or 2021, according to people familiar with the deal, which could help keep struggling franchises afloat. But at least for now, it is impossible to discuss revenue sharing without knowing what 2020 revenue looks like.
Union officials, while acknowledging the industry’s economic distress, are inherently skeptical about MLB’s doomsday talk, arguing most owners are in the game for decades and that rising franchise values — even if there is a short-term dip amid the pandemic — insulate them from financial ruin.
Some in the industry have speculated MLB could speed up the expansion process as a way to offset its losses. Although Manfred has been consistent in saying he eventually wants to add two teams to get to 32 — easily divisible into eight divisions of four teams each — he does not want to do so until the Rays’ and Oakland Athletics’ stadium situations are resolved. But the potential for expansion fees of up to $1 billion for each of the new teams could represent a much-needed infusion of cash.
“I don’t see an accelerated timetable on expansion because of its dilutive effect” on long-range future earnings, one person in ownership said. “That’s two more owners taking a thirty-second share of media rights in perpetuity.”
If there is hope in the near term, it is that baseball’s return, even without fans, would almost certainly be greeted enthusiastically by viewers starved for live action. Live baseball could have more value than ever to national and regional sports networks.
“Viewership should be off the charts,” Gennaro said. “Fans who are marginal fans or who left the sport for other things might flock back. Look at the way people tuned in for the NFL draft and [ESPN’s Michael Jordan documentary] ‘The Last Dance.’ ”
But this path forward assumes cooperation between MLB and the union in resolving the salary situation for 2020, an issue made more difficult by a history of distrust between the sides, not to mention the 2021 expiration of the collective bargaining agreement and the epic negotiation that a new one could require.
“There’s every incentive in the world for [MLB] to make an agreement with the players’ association and have baseball this year,” Zimbalist said. “It would be tremendous for MLB, not only because the game would be up and running again but more significantly [to say] to America, ‘Hey, we know you’re suffering, but we’re going to bend over backwards to get the sport up and running.’ That’s really good PR for baseball.”
The alternative — the return of baseball, after being cleared by governmental and public health officials, being scuttled by another financial squabble between owners and players — would be “devastating,” Zimbalist said.
“If that happens, everyone says, ‘Oh, same old baseball.’ And they turn away, repulsed,” he said. “I don’t think there’s an intermediate option between those alternatives. And the stakes are enormous.”