NEW YORK (AP) Major League Baseball told players their prorated
salaries would contribute to an average loss of $640,000 for each
game over an 82-game season in empty ballparks, according to a
presentation from the commissioner’s office to the union that was
obtained by The Associated Press.
Painting a picture of a $10 billion industry shuttered by the
contagion, the 12-page document titled “Economics of Playing
Without Fans in Attendance” and dated May 12 was an initial step in
negotiations aimed at starting the delayed season around the Fourth
of July.
Teams say the proposed method of salvaging a season delayed by the
coronavirus pandemic would still cause a $4 billion loss and would
give major league players 89% of revenue.
They contend they lose more money with each additional game played.
The players’ union, however, believes clubs would lose less money
with more games. In addition, many teams and/or their owners have
stakes in their regional sports network that would benefit from
additional games.
Owners voted Monday to propose a framework players say is tantamount
to the kind of salary capthey will never accept. Teams gave the players’
association their virus-testing plan Friday and have waited to make their economic
proposal.
The New York Yankees alone would have $312 million in local losses
when calculating their earnings before interest, taxes,
depreciation and amortization. New York’s figure includes about
$100 million in payments toward the bonds that financed new Yankee
Stadium.
The Los Angeles Dodgers were at $232 million in local losses,
followed by the New York Mets at $214 million, Chicago Cubs at $199
million and Boston Red Sox at $188 million.
Detroit would have the lowest negative EBIDTA – an accounting
measure used to assess profitability – at $84 million, with
Baltimore at $90 million, and Pittsburgh and Tampa Bay at $91
million each. Figures exclude distributions from the central
office, which projects to collect $1.34 billion in media revenue.
The figures were calculated by MLB and its clubs, and the
frequently skeptical union already has
from MLB.
MLB said 2019 revenue was 39% local gate and other in-park sources,
followed by 25% central revenue, 22% local media, 11% sponsorship
and 4% other.
Teams fears a second wave of the coronavirus would devastate
finances if renewed government restrictions cause cancellation of
the postseason, which brings in $787 million in media money. The
document details who pays what: $370 million by Fox, $310 million
by Turner, $27 million by ESPN, $30 million by the MLB Network and
$50 million from international and other.
Teams project to increase their debt from $5.2 billion last year to
$7.3 billion in 2020, leaving most clubs out of compliance with the
labor contract’s debt service rule. MLB’s central office increased
debt by $550 million to support clubs and is seeking $650 million
more credit. MLB said many teams do not have the capacity to add
more debt to fund losses in 2021.
MLB and the union agreed to a plan in which players would get a prorated share of their salaries
during a shortened season. As part of the agreement, $170 million
in salaries are being advanced through May 24. If the season is
scrapped, players are guaranteed service time equal to what they
accrued in 2019, a key to gaining eligibility for salary
arbitration and free agency.
Now that plans have been formulated to possibly start the season in
early July in disinfected stadiums with no gate revenue, at least
at the start, MLB says the current economics are not feasible.
Players have said they already made a deal and
But that deal is contingent on playing in front of fans at
regular-season ballparks. The agreement committed both sides to
discuss in good faith the economic feasibility of playing games in
the absence of spectators or at appropriate neutral sites.
Players traditionally have questioned team accounting on what
counts as a baseball revenue or expense. Cincinnati pitcher Trevor
Bauer speculated this week over whether an owner could increase
prices of a parking garage near the ballpark the owner also
controls and generate money that would not be included in the club
accounts.
Since the start of revenue sharing 25 years ago, MLB repeatedly has
said team accounting is monitored and follows strict rules.
Still, for all the questions, the presentation does detail the
pandemic’s financial destruction.
Revenue from regional sports networks 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 projection.
Teams fear some additional losses because the regional networks
will have to give up games to Fox and ESPN to fulfill national
contracts. MLB said rights holders have already reserved rights to
stop payments or demand refunds if agreed to inventory is not
delivered.
Player salaries under the March 26 deal average $1.67 million per
game for both clubs. MLB projects overall local revenue at $1.23
million a game for both teams and cost at $1.87 million.
MLB headed into the season projecting $9.967 billion in revenue,
including $7.548 billion at the local level, according to the
presentation.
Expenses totaled $10.234 billion: $4.366 billion for major league
player compensation, $198 million for pensions and benefits, $537
million to sign amateurs, $4.73 billion in local expenses and $403
million for the central office.
That left MLB with a projected EBIDTA of $143 million after stadium
depreciation and noncash add backs. Free cash flow was predicted at
negative $95 million after interest expenses, mandatory principal
payments and non-baseball income and losses, but excluding capital
improvements. MLB says EBIDTA has been within $250 million of
break-even annually since 2010.
Under the newly developed plan, MLB projects revenue at $2.87
billion, including $1.522 billion at the local level.
Expenses drop to $6.819 billion: $2.36 billion for major league
player compensation, including salaries, prorated shares of signing
bonuses, termination pay and buyouts of declined options.
Pension and benefits stay the same, and money to sign amateurs
decreases to $440 million as part of changes that cut the amateur
draft from 40 rounds to five, caps the bonuses of undrafted players
at $20,000 and allows most of the money to be deferred through July
2022.. Local expenses drop to $3.46 billion and central office
expenses to $360 million.
That leaves a $3.58 billion EBIDTA loss and negative $4.016 billion
in free cash flow. If fans could be in ballparks, MLB projects a
$1.626 billion EBIDTA loss and negative $2.076 billion in free cash
flow.
MLB anticipates $1.788 billion central office revenue for an
82-game schedule with empty ballparks and a $1.345 billion net
after expenses for MLB Advanced Media and Major League Baseball
Properties.
Revenue includes $155 million from sponsors (excluding the MLB
Network); $112 million from consumer products, $93 million from
digital such as MLB.tv and At Bat and $89 million in non-media
revenue.
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