MLB Owners Say They Could Lose $4 Billion Even If Games Are Played. Does That Math Add Up?

Leave it to baseball: Somehow the biggest impediment to starting the 2020 season isn’t the deadly pandemic swirling around us, but rather dollars and cents. Several MLB proposals to cut player salaries were rejected by the players’ association, with both players and agents blasting the owners’ plans as yet another breach of trust in a relationship full of them. A counterproposal was filed by the union Sunday afternoon, which — according to ESPN’s Jeff Passan — is expected to be rejected by the league, though it might be a path to an eventual agreement.

The crux of the argument is around how much of a salary hit players should take to offset the lost revenue not only from playing an abbreviated season with fewer games but also from having to play without fans in the stands — a major source of league revenue — when games do start. In March, the players came to what they believed was a firm agreement to prorate their salaries relative to how much of a full 162-game schedule is played (so, 50 percent of a full salary in an 81-game season, and so forth). The owners have claimed that agreement didn’t cover the eventuality of playing games without fans, and that they have the right to negotiate further salary reductions to offset the reduction in revenue.

As you might imagine, the players have, um, not been receptive to that idea.

The owners have claimed (via a presentation from the commissioner’s office to the union leaked to The Associated Press) that playing an abbreviated season and paying the players their prorated salaries would result in 89 percent of league revenue going to the players and would hand teams a $4 billion total loss. That number was met with immediate skepticism and fact-checking scrutiny. Infamously, the public doesn’t know each MLB team’s financial situation — but even a little back-of-the-envelope math off public estimates paints a far rosier picture for teams’ finances even if they had to pay the players their prorated salaries.

Let’s start with revenues. Last season, MLB teams set a record for total money made in a season, a new high-water mark it seems to set every year. According to Forbes’ estimates from 2019, as gathered by the University of Michigan sports economist Rodney Fort, MLB teams made a total of $9.9 billion. Of that, $2.8 billion (or 29 percent) came from gate receipts and the other $7.1 billion from sources that include nonticket stadium revenue, national and local TV revenue and licensing, merchandise and similar agreements.

(Forbes’ estimates are just that — estimates. But until MLB opens its books for every team, estimates are all we have.)

We can estimate each of those categories further with a little more math. According to the Fan Cost Index, which looks at the average price for a group of four to attend a game — including parking, concessions and other in-stadium purchases — the average game in 2019 cost $234.38 to attend, with tickets making up 56 percent of the total money spent at the game. So from that data and a few other estimates of how much nonticket revenue contributes to total baseball revenue, we can guess the share is about 17 percent — which means that about $1.7 billion in additional revenue came from earnings made at the park outside of gate receipts.

All of that money — $4.5 billion in total, between tickets and nonticket revenue — is out the window now, with fans not attending games. But that does leave $5.4 billion in leftover revenue, which should still be intact to some degree even without fans in the stands.

And where does that money come from? According to FanGraphs, MLB made $1.7 billion from its national TV contracts last year. Another $2.1 billion came from local TV revenue last season,¹ though the average team owns about a third of the regional sports network (RSN) that airs its games. There’s also a $1 billion central revenue stream that comes from MLB-owned properties such as the MLB Network and MLB.tv. Finally, the remaining $600 million has to come from licensing, merchandise, sponsorships and other similar deals.

How much of that would be lost without fans and with an abbreviated schedule? The national TV money is guaranteed through deals negotiated years ahead of time, and the majority of it is focused around the playoffs, so we can assume that $1.7 billion will be roughly intact barring a “force majeure” clause being invoked, or some kind of “reduction rights” that may be written into the network contracts if certain content isn’t delivered. (This is something we don’t know for sure, but it’s hard to imagine a large reduction unless playoff games are lost.)

The local TV revenue is more precarious — especially since so many teams own stakes in regional sports networks, which see less advertising revenue with fewer games. But as FanGraphs’ Craig Edwards points out, those networks make most of their money off of subscriber fees, not ads, so they should keep most of their revenue intact as well, for now. (The issue of consumers paying cable companies for sports content they’re not receiving is its own complicated mess.) Likewise, the central fund will surely contain less revenue, even though services like MLB.tv haven’t issued refunds yet.

Overall, MLB revenues will be reduced a lot by playing a half-season of games without fans. Even if we broadly assume teams can retain all of their national TV revenue, 75 percent of their local TV revenue² and licensing revenue and 50 percent of their central revenue, that would see MLB-wide revenue drop from $9.9 billion to just $4.2 billion.

(This estimate is obviously dependent on the assumptions involved. But it’s hard to do the math so that total MLB revenues fall outside of the $3 billion to $5 billion range, even in an abbreviated 2020.)

With around $6 billion in lost revenue, it’s easy to see why MLB teams are so anxious to pass the downside of their sudden financial shortfall on to the players. But the owners will also be spending less — how much less being at the very heart of their disagreement with the players.

The same Forbes numbers from above estimated that teams spent a total of $8.7 billion last season — good for a net operating income of $1.2 billion. (Generally speaking, it’s good to own a baseball team!) Of that expense, $4.6 billion went to paying player salaries,³ and $4.1 billion went to “other” expenses — which include front office and staff payrolls, minor league costs, stadium expenses and the cost of operating MLB’s central office.

If teams spent the same as last season but with the reduced revenue we calculated earlier, they’d be on the hook for a total loss of $4.5 billion. (Is this the logic behind that presentation the AP reported?) But paying the players a prorated version of their full salaries in a half-season — as the players believed they’d agreed to in March — would cut those losses by $2.3 billion. And if the other expenses were similarly sliced in half, another $2 billion in losses would fall away. That would leave MLB teams with a total net operating loss of $129 million — hardly the bonanza they’re used to, but also a far cry from the supposed losses that would require players to give up even more salary.

Is it right to assume an estimated 50 percent reduction in “other” expenses? On the one hand, some long-term obligations attached to stadiums and other debt would be difficult to prorate down or otherwise alter from their 2019 levels. But teams have also taken aggressive steps to slash nonplayer expenses during the coronavirus, including staff furloughs, a dramatically scaled-down draft and sweeping cuts to hundreds of minor league players and employees. It’s not unreasonable to assume these would balance out to roughly the same reduction we’d assume of anything else in a prorated half-season.

To break even under the assumptions we’ve laid out, teams would only have to reduce MLB player costs to 47 percent of their normal full-season amounts. Instead, the owners have advanced plans that would cut salaries down to a far smaller share. Doing a rough analysis using last year’s salaries and the league’s proposed reduction scale (according to Passan and Jesse Rogers), players would make only 48 percent of their prorated salaries under the owners’ sliding-scale proposal — or just 24 percent of their normal, full-season salaries.

Plug that into the ledgers above, and cutting the salaries down to 24 percent of usual instead of half, would bring costs down to $3.1 billion … resulting in a net operating income of $1.1 billion, or almost exactly what Forbes estimated MLB made across last year in a full season.

In other words, the owners’ proposed salary-reduction scheme looks like a clever sleight-of-hand designed to cause a shortened season — in the midst of a life-changing pandemic for millions of Americans — to essentially give them the same profit as they made during a full season in the midst of a baseball boom. Unless we think baseball teams were just barely breaking even last year (despite record revenues and even the small-market Kansas City Royals selling for $1 billion), it’s hard to believe the owners aren’t trying to live by the words of former British Prime Minister Winston Churchill: “Never let a good crisis go to waste.”

Trouble is, everyone else stands to lose under this tactic. The players face the choice between taking a massive pay cut — and handing owners an undue profit — or making themselves the villains in the public’s eyes, potentially catching the blame for a lost season. The fans would lose a source of joy at a moment when those are sorely needed. And as ESPN’s Buster Olney wrote Sunday, the future of the game itself could be at stake if MLB misses an entire year to bickering over money in the middle of a recession and pandemic.

Although it still seems like all parties involved have too much to lose not to come to a compromise, it bears questioning why MLB owners would let the future of the sport hang in doubt to preserve their own profitable status quo in the short term.