Are MLB Owners Short Sighted?

I want to be clear from the start.  I am now, and I always have been on the side of the players when it comes to salary.  They are entitled to whatever they can get.  Scott Boras and Gerrit Cole can convince NYY that Cole should be paid $324MM, and that becomes his Fair Market Value (FMV). But Scott has no right to dictate to the owners as a group that they need to open up their wallets if they are not signing his players.  It is a negotiation, and not all teams are always willing to meet the price of the player and his agent.  It can go the other way as well.  Think back to 1993/1994  when LAD 2B Jody Reed was offered a 3 year $7.8MM contract by the Dodgers that he turned down to become a FA.  But the best offer he could get after that was $350K plus incentives from the Brewers.  That was his FMV. 

IMO, the owners are letting a very small minority of owners dictate to them whether there should be baseball this year.  There are reportedly 6-8 owners who would prefer to not play this season because they would lose less with no baseball than with baseball.  So the other 22-24 owners need to abide with what multiple poorly run franchise owners dictate.  That is so very short-sighted.  I am guessing that those teams do not have a large fan base to p*** off anyway, and they are not interested in keeping MLB at the forefront of sports audiences, because theirs isn’t.

Somehow those 6-8 owners were able to agree on a 60 game schedule.  But they have said NO MORE THAN  60 GAMES.  Manfred, you cannot negotiate for any more games.  They can hide behind COVID-19, but that is horsepucky.  This is all economic.  So I decided to take a look at exactly what is being considered.  The below schedule does not include $15MM each team needs to pay for player benefits.  It is only 40 man salary commitments.

					10 Game
Team	Team Total	1 Game	60 Games	70 Games	Difference
_____________	_______________	_____________	_______________	_______________	___________
White Sox	$127,598,500	$787,645	$47,258,704	$55,135,154	$7,876,451
Cleveland	$94,852,366	$585,508	$35,130,506	$40,958,590	$5,855,084
Detroit	$106,216,600	$655,658	$39,339,481	$45,896,062	$6,556,580
Kansas City	$86,126,992	$531,648	$31,898,886	$37,215,367	$5,316,481
Minnesota	$134,049,311	$827,465	$49,647,893	$57,922,542	$8,274,649
Baltimore	$63,699,167	$393,205	$23,592,284	$27,524,331	$3,932,047
Boston	$188,657,969	$1,164,555	$69,873,322	$81,518,875	$11,645,554
NY Yankees	$246,833,988	$1,523,667	$91,419,996	$106,656,661	$15,236,666
Tampa Bay	$71,553,833	$441,690	$26,501,420	$30,918,323	$4,416,903
Toronto	$111,237,471	$686,651	$41,199,063	$48,065,574	$6,866,511
Houston	$213,149,147	$1,315,737	$78,944,243	$92,101,617	13,157,374
Angels	$182,395,036	$1,125,895	$67,553,717	$78,812,670	$11,258,953
Oakland	$98,268,933	$606,598	$36,395,901	$42,461,885	$6,065,984
Seattle	$102,944,461	$635,460	$38,127,578	$44,482,175	$6,354,596
Texas	$152,648,555	$942,276	$56,536,543	$65,959,300	$9,422,757
Cubs	$189,709,500	$1,171,046	$70,262,778	$81,973,241	$11,710,463
Cincinnati	$149,127,992	$920,543	$55,232,590	$64,438,021	$9,205,432
Milwaukee	$100,813,503	$622,306	$37,338,334	$43,561,390	$6,223,056
Pittsburgh	$56,189,500	$346,849	$20,810,926	$24,279,414	$3,468,488
St. Louis	$168,351,500	$1,039,207	$62,352,407	$72,744,475	$10,392,068
Atlanta	$150,290,375	$927,718	$55,663,102	$64,940,285	$9,277,184
Miami	$72,238,700	$445,918	$26,755,074	$31,214,253	$4,459,179
NY Mets	$172,842,429	$1,066,929	$64,015,714	$74,685,000	$10,669,286
Philadelphia	$179,944,462	$1,110,768	$66,646,097	$77,753,780	$11,107,683
Washington	$174,004,795	$1,074,104	$64,446,220	$75,187,257	$10,741,037
Arizona	$123,668,000	$763,383	$45,802,963	$53,436,790	$7,633,827
Colorado	$156,763,000	$967,673	$58,060,370	$67,737,099	$9,676,728
Dodgers	$224,283,500	$1,384,466	$83,067,963	$96,912,623	$13,844,660
San Diego	$154,264,900	$952,252	$57,135,148	$66,657,673	$9,522,525
San Francisco	$158,592,747	$978,968	$58,738,058	$68,527,730	$9,789,676
_____________	_____________	_________	____________	____________	__________
Total	$4,211,317,653	$25,995,788	$1,559,747,279	$1,819,705,159	$259,957,880

The 30 teams have an estimated salary foundation of $4.2B for their 30 teams.  As the table illustrates, that is almost $26MM per game on a prorated basis.  There are the high salaried teams:

• NYY – $1.5MM per game
• LAD – $1.4MM per game
• Hou – $1.3MM per game

7 other teams have a per game salaries in excess of $1MM.

Counter that with:

• Pit – $347K per game
• Bal – $393K per game
• Mia – $446 per game

7 other teams with salaries ranging from $500K to $700K

Over a 60 game schedule, prorated salaries total $1.560B.  On the surface, without fans that is a lot of expense to absorb.  But they were willing.  But MLBPA countered with a 70 game schedule that would require a prorated salary base of $1.820B.  Also a very large number to absorb.  That is a 10 game difference of $260MM, or $8.666MM average per team. 

The three bottom salaried teams would need to absorb the following increase in salaries for those 10 games:

• Pit – $3.47MM
• Bal – $3.93MM
• Mia – $4.46MM

Admittedly I have not seen those teams’ books.  However, I am quite sure that each of those three teams can absorb those additional salaries, they just choose not to.  If they cannot, they have no business being in MLB.  How short-sighted can that ownership group get?  I am certainly not in favor of subsidizing the poorer teams, but if I represented one of the “wealthier” teams I would call their bluff and advise those teams that MLB will pick up the additional salaries as a loan.  Those teams must pay that loan back with exorbitant interest (make it hurt but stay away from usury concerns), put together a plan showing they can operate fiscally responsible going forward, and that their plans include becoming competitive immediately.  If they cannot present MLB owners such a plan and payback, within a year, they must put their team up for sale, and they must complete the sale within 9 months (subject to MLB owners approval).  If not, MLB will absorb the team in order to sell it or disband it.  Reasonable owners can dictate policy to make it fair for all.  They just need to get Rob Manfred out of the picture.

There is a huge disparity between the 30 teams MLB franchise value (per Forbes – April 2020) as well as their revenues.  They go from a high of NYY $5B (franchise value) and $683K (2019 revenues) to a low of Miami $980K (franchise value) and $222K (2019 revenues).  See table below.

Team	Team Value Per Forbes April 2020	2019 Revenues	Average Revenue Multiple
______________	_____________	________________	_________
White Sox	$1.65B	$285MM	5.8
Cleveland	$1.15B	$290MM	4.0
Detroit	$1.25B	$276MM	4.5
Kansas City	$1.05B	$251MM	4.2
Minnesota	$1.30B	$297MM	4.4
Baltimore	$1.40B	$256MM	5.5
Boston	$3.30B	$519MM	6.4
NY Yankees	$5.00B	$683MM	7.3
Tampa Bay	$1.05B	$264MM	4.0
Toronto	$1.625B	$265MM	6.1
Houston	$1.85B	$420MM	4.4
Angels	$1.975B	$377MM	5.2
Oakland	$1.10B	$225MM	4.9
Seattle	$1.60B	$315MM	5.1
Texas	$1.75B	$335MM	5.2
Cubs	$3.20B	$471MM	6.8
Cincinnati	$1.075B	$276MM	3.9
Milwaukee	$1.20B	$295MM	4.1
Pittsburgh	$1.26B	$273MM	4.6
St. Louis	$2.20B	$383MM	5.7
Atlanta	$1.80B	$382MM	4.7
Miami	$980MM	$222MM	4.4
NY Mets	$2.40B	$362MM	6.6
Philadelphia	$2.00B	$392MM	5.1
Washington	$1.90B	$370MM	5.1
Arizona	$1.29B	$278MM	4.6
Colorado	$1.275B	$305MM	4.2
LA Dodgers	$3.40B	$556MM	6.1
San Diego	$1.45B	$299MM	4.8
San Francisco	$3.10B	$452MM	6.9
	_____________	________________
Totals	$49.180B	$10,374MM

MLB franchises have a collective value of nearly $50B.  2019 revenues were $10.374B.  That was $474MM more than 2018 and more than $4.5B in revenues for 2008.  There should be zero issues with raising the funds (loan or capital call) to finance an additional 10 games with full prorated salaries

For those who have any interest in financial metrics, included in the schedule is a metric that financial analysts look to when assessing the health of a MLB franchise, Average Revenue Multiple.  The industry average in 2019 was 5.1.

Perhaps the best financial mind on the LAD roster is Ross Stripling.  Before the season, he negotiated a $2.1MM contract and by happenstance, he allocated $1.5MM as a signing bonus. He laughs when asked about the strategy indicating that he had no knowledge whatsoever about any potential delay.  It probably had more to do with taxes, as the signing bonus is considered earned in his residence state of Texas. Texas has zero state income tax. 

MLB is a high stakes game to be played only by billionaires.  But those billionaires need to absorb losses in the down times as well as enjoying the profits in the good times.  “For the good of the game” they need to think more long term.