MLB owners make financial proposal, players disappointed

Major league baseball owners finally made a formal financial proposal to the Major league baseball players association (MLBPA) on Tuesday for a dramatic reduction in player salaries in the event that a season can be played without fans in attendance. The MLBPA immediately expressed disappointment at the proposal. After going over some of the details, it’s easy to see why the players could never accept such a deal.

The proposed pay scale

According to Jeff Passan at ESPN.com, the pay scale would look something like this:

The MLBPA has insisted that the agreement reached by the parties in March provided for a prorated share of their salaries to be paid based on the number of games played, and should stand as negotiated. That would mean about a 50 percent reduction in salaries. The owners claim that the agreement does not apply to a situation where there are no fans in attendance.

MLB has skewed the proposal to benefit those players at the bottom end of the pay scale, where 40 percent of union members are earning at or near the minimum salary. More than 450 players are set to make $2 million or less. So it may be true that, for most players, the gap between the prorated salary for 82 games and the proposed salary is not very big. On the other hand, the less a player makes, the more the reduction in pay may hurt.

Only two players have salaries above $35 million in 2020. Five more are above $30M. But there are 124 players with salaries of $10M or more, and 244 players earning at least $5 million. They’re not going to go along with this proposal.

The owners have not helped their cause by floating some claims that are easily disproven based on the information that is publicly available, although they have never opened their books for public scrutiny. Based on estimates provided by Forbes.com, the owners cries of poverty in the event of playing games without gate receipts are greatly exaggerated, as shown in this article at Fangraphs.com

According to Forbes, attendance accounts for about 30 percent of revenues across the 30 MLB clubs. Gate receipts which includes concessions brings that up to just under 40 percent.

The Revenue Pool

As we wrote just last week, here again is where MLB gets it’s $10.5 billion in annual revenue, according to Forbes.

Gate receipts: $3.2 billion, 30.4%

National: $3.2 billion, 29.5%

Local media: $2.1 billion, 20.9%

Sponsorships: $1.1 billion, 9.6%

Other stadium revenues: $925 million, 8.8%

Players’ salaries add up to $4 billion per season, before any reductions are made. If MLB gets $3.2 billion from national television contracts and even half of the $2.1 billion from local media and $1.1 billion from sponsorships... what am I missing?

Local television and other media revenues account for about 21 percent of MLB revenues, on average. This number varies widely between clubs, with almost half of it going into the revenue sharing pool. These are typically long term contracts of 10, 20, 30 years or longer, and two-thirds of all MLB teams have an ownership stake in the regional sports networks (RSN’s) that carry their games. So, in essence, they’re paying themselves, or not paying themselves in the event of games being cancelled.

At least some of the revenue from RSN’s can be made up by MLB providing other content for the networks to carry in place of games. Another 10 percent of revenues come from sponsorships.

Nowhere in these calculations are owners’ revenues from MLB Advanced Media, a multi billion dollar enterprise that owns the streaming technology that carries baseball and other sports. While most of the stake has been sold, this is another case of the owners paying themselves, or not if that’s more convenient.

Common Ground

The players are apparently very receptive to an 82 game schedule, and would be willing to play more games in order to boost revenues for both sides. They are also willing to expand the playoffs to 14 teams instead of the current 10 team format. Since national television contracts are heavily dependent on post season games for their revenue, that accounts for 30 percent of revenues.

The players are also receptive to many, but not all of the proposals to guard their health in the midst of a deadly pandemic. This was not part of the proposal presented on Tuesday.

The players are apparently open to deferring salaries as long as they are paid eventually. Some have maintained that, if clubs have any financial issues due to the pandemic, they are more of a cash flow problem than an overall revenue problem. Deferring payments for the highest paid players could relieve the short term money crunch in that case.

Will there be baseball?

If the owners insist on crying poverty, and asking for the biggest stars in the game to take a 75 percent pay cut, there’s nothing to talk about. But if they’d be willing to defer salaries on the biggest contracts and pay the players close to half their regular salaries, we can have a baseball season with 82 games, starting by the fourth of July, with expanded playoffs in October.