MLB’s slow free agent market reflects financial catastrophe of 2020 and uncertainty for 2021

The market for Major League Baseball players this offseason, except perhaps for the San Diego Padres and New York Mets, is dying. It’s a safe bet that Scott Boras and others will soon cry collusion.

But let’s be clear. Whether Rob Manfred’s $ 3 billion loss figure for MLB teams last year was inflated or not, 2020 has been a disaster for the league’s finances. Including money from corporate sponsorships, the average team derives about half of their income from stadium activities. Stadiums were sterile last year, and this year is not looking much better.

Player salaries in 2020 have been reduced in proportion to the number of games played. Sixty of the 162 games were played, so a player who would have otherwise won $ 10 million was awarded around $ 3.7 million instead. But the owners didn’t just lose revenue on the 102 games that weren’t played; collectively, they also lost almost 50% of the revenue they would normally have generated from the 60 games that were played. Yes, they kept most of their national television income by hosting an extended playoffs, but they also had additional costs related to Covid-19 testing and other public health measures.

The outlook for fan attendance this year is dismal. Teams will be lucky if they can sell 50% of the normal ticket levels for the games after July 1 (although this will surely vary state to state). Projecting revenue from ticket sales, advertising, concessions, parking and souvenirs at 25% of normal levels doesn’t seem unreasonable.

Adding to the immediate uncertainty of 2021, MLB could face declining revenues from its upcoming TV deal with ESPN and possible further dilution due to the fragmentation of the video markets and the proliferation of options. alternative entertainment vigorously consumed by young fans. (However, the introduction of sports betting and partnerships between teams and sports betting companies will help boost revenue, although this revenue stream has been slow to develop.)

Over the past several decades, franchise values ​​have tended to outpace stock market growth, so returns to ownership, even with meager annual operating profits (or losses), can still be robust. Tax benefits, synergies and capital gains have supported valuations and fostered healthy returns. However, there is nothing inevitable in this virtuous circle.

There is no doubt that if it was the offseason of 2019, DJs LeMahieus and Trevor Bauers in the free agent market would be worth every penny they ask for. But they would be worth it because of the expected additional income they would generate. When the market outlook is less promising and more uncertain, the economic value of an actor declines.

When baseball went through its long period of work turmoil and quadrennial work stoppages from the 1970s to the mid-1990s, Marvin Miller and Don Fehr called for open competition, rather than wage caps, in the marketplace. work. This strategy worked well for the Players’ Association in part because baseball revenues were growing by leaps and bounds. The same principle of open market competition, however, works differently when income stops growing or, in fact, decreases.

While the dormant market is understandable, it raises some red flags for the game. The first is that baseball has always depended on a vibrant, dynamic league during the off-season. The player movement stimulates discussion and excitement for the coming year. During the pandemic, baseball needs this energy more than ever.

The second is that the MLB collective agreement expires after the 2021 season. Players’ share of earnings has declined in recent years and the union is seeking compensation. The disappointed salary expectations for 2021 will likely only widen the wedge between the two sides. Enlightened management on both sides of the work divide will be at a premium over the next 12 months.

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