Here’s why MLB wants players to take a 50-50 revenue-sharing split

A week ago, Major League Baseball owners proposed a nearly 50/50 split of revenues for players in a shortened, 82-game 2020 season.

Players almost immediately rejected that idea, with MLBPA chief Tony Clark saying:

“A system that restricts player pay based on revenues is a salary cap, period. This is not the first salary cap proposal our union has received. It probably won’t be the last.”

Now. Far be it from me to defend MLB owners on anything — I’m firmly in the players’ camp, especially with the things they’ve lost in recent collective-bargaining agreements — but here, the owners might have a point.

The numbers were laid out in this Sports Business Journal article by Eric Prisbell. Prisbell says the publication looked over a 12-page MLB document titled “Economics of Playing Without Fans in Attendance” in which MLB said there would be a loss of $640,000 per game if players were paid pro-rated salaries based on the MLB/MLBPA agreement of March 26. The document claims players would, under that agreement, take “90% of revenue.”

A source familiar with teams’ thinking told SBJ: “It is not economically feasible to start the season playing without fans while paying players their full prorated salaries because the economic losses would be staggering, and clubs would not have enough revenue to keep non-players employed. There is also the risk that a postseason cannot be played because of a second wave, depriving clubs of revenue to support player salaries. That was the clubs’ position in March and it remains their position today.”

Examples were given of various teams’ losses based on EBITDA (earnings before interest, taxes, depreciation and amortization). The Cubs were listed at losses of $199 million, fourth-most behind the Yankees ($312 million), Dodgers ($232 million) and Mets ($214 million).

Here is an interesting note from the article about how teams’ revenue breaks down percentagewise:

According to the document, MLB’s 2019 revenue was 39% local gate and other in-park sources, followed by 25% central revenue, 22% local media, 11% sponsorship and 4% other.

The article claims that owners were “surprised” at Tony Clark’s calling the proposal a “salary cap” and quoted a team executive:

“The traditional MLB team model, we’re not going to have it for some period of time because we won’t have fans in the stands,” one club executive told SBJ. “There obviously has to be compromises made by everybody in that situation — the teams and the players. We all have to share the collective pain.”

As I said, far be it from me to be on team owners’ side, but I can’t find anything wrong with what was said there. While Cubs President of Business Operations Crane Kenney expressed optimism during last Thursday’s call with season-ticket holders that fans could be in the stands in small numbers later this year, I can’t see that happening in any form. Having large gatherings such as you’d see at sports events are all in the final phase of re-opening the economy, and no place anywhere in the United States or Canada will be ready for that phase any time this year, in my opinion. Even allowing a small portion of a capacity crowd (say, 10,000) is far beyond anything that will be feasible in 2020.

To go back to the number cited in the MLB document, $640,000 per game, let’s presume that’s an average figure across all of MLB. There are 2,430 games in a major-league season. That loss multiplied by 2,430 is $1,555,200,000. One point five billion dollars in an industry that made about $10.7 billion last year is a significant amount of money. Now add to that losses from regional sports network revenue:

Regional sports networks are only contractually obligated to pay rights fees for each game that is delivered after clubs fail to deliver the minimum number of games (between 140 and 150). Revenue from RSNs drops in proportion to the lost games, from $2.3 billion to $1.2 billion and an average of $980,000 per game for both teams, according to the document. Club rights fees will be reduced further. because MLB must pull games from clubs to satisfy the requirements of ESPN Sunday Night Baseball and Fox contracts. Clubs do not receive additional rights fees if ratings are higher than expected or if advertising income for the RSN is higher than expected.

... and you’re talking about significant losses of revenue to the sport.

For another take on the financial losses MLB might have, Craig Edwards has a good article at Fangraphs this morning. Edwards says teams will likely be losing money, but the dollar figures might not match what MLB claims.

So the real answer to how much MLB teams will be losing with half a season and no fans in the stands is probably ¯\_(ツ)_/¯.

Beyond whatever has to happen for the health and safety of the players — and that should be paramount — there might not be a middle ground for a financial agreement between players and owners. It just might be that they’ll have to pack in the 2020 season and hope that fans can come back to games for a “normal” 2021.