June 4th, 2020 at 8:00 am 
by Ron Cervenka At a time when our country – and the entire world – needs the return of baseball more than at any other time in its storied 151-year history, doing so took a major step in the wrong direction on Wednesday, when Major League Baseball rejected a counterproposal from the MLB Players Association that called for a 114-game COVID-19-shortened 2020 season. MLB also informed the union that they would not be submitting another proposal on the matter.
This from The Athletic‘s Ken Rosenthal (subscription required):
“Major League Baseball on Wednesday rejected the Players Association’s proposal of a 114-game season and told the union it would not send a counter, again leaving the parties deadlocked in their quest to begin the 2020 season.”
Late last week, MLB submitted their proposal to the players union calling for a shorter 50-game schedule which, of course, would mean that teams wouldn’t have to pay their highest-salaried players a heftier prorated salary. MLB also made it abundantly clear to the union that they absolutely did not want to still be playing in November over fears that there will be a second wave of the deadly and highly-contagious COVID-19 pandemic, as predicted by many medical experts.
“We don’t want to take the risk of putting our players in jeopardy and our game in peril to be playing games beyond the end of October,” Arizona Diamondbacks owner Ken Kendrick said during an interview on Arizona Sports 98.7 FM on Tuesday. “So our model is and will never be changed that we will not be playing baseball in the month of November.”
Although MLB’s rejection of the union’s counterproposal is most certainly a stumbling block towards the return of baseball in some form or fashion in 2020, Rosenthal notes that there is still hope – albeit diminishing – that the two sides still might be able to come up with a workable plan:
“The league, according to sources, also informed the MLBPA it has started talks with its owners about playing a shorter season without fans, and that it is ready to discuss additional ideas with the union on that subject.”
(Photo credit – Ron Cervenka)
There is another issue that could cause both sides to simply throw in the towel on the 2020 season – that little COVID-19 thing, as Rosenthal notes:
“The league fears a second wave of the virus might force the cancellation of the postseason and cost the owners additional millions. The union offered to defer $100 million if that worst-case scenario occurred, and might negotiate a higher amount if the league offered to maintain the players’ full prorated salaries in a season closer to 82 games than 50. But the league, for now, remains opposed to deferrals.“
Rosenthal also (and ironically) notes in his piece that the midway point between MLB’s 50-game proposal and the MLBPA’s 114-game proposal is 82 games – which is exactly one game more than the halfway point of a regular MLB season.
Play Ball!
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The player union’s refusal to budge on prorated salaries could affect the solvency of many smaller market teams thus forcing them to declare bankruptcy. If MLB contracts the amount of teams in the league, or, if the league remains stagnant for another year, we could see the end of MLB baseball as we know it. And it doesn’t take a rocket scientist to figure out that if there are no teams to pay players, there won’t be any baseball. The players had better figure out a way to salvage a partial season or they will possibly, sooner than later, all be out of work. Better to take less money now and look to 2021 for a sense of normalcy.
MLB has other, very lucrative, revenues coming from other sources like its gaming relationship with MGM Grand (if I am remembering correctly), its relationship with the South Korean baseball league, and other corporate relationships — couple of years ago MLB sold BAMtech media company to Disney and each owner pocketed a $50 million windfall that was not included in their operating revenue. My sense is that MLB has plenty of cash stashed away for a rainy day. According to Forbes (2019) the Dodgers were valued at $3.3 billion – a $1.15 billion increase in value in seven years; and, every MLB franchise was valued at more than $1 billion. And the owners are looking for ways to further increase their bottom line like permanently eliminating more than 40 minor league teams (more than 1000 players, 200 coaches, travel expenses, medical coverage, etc.) Do not feel sorry for the owners.
I looked at the 2020 Forbes article which stated the following:
“Our team values are calculated using a multiple of revenue. The multiples are based on historical transactions and the future economics of the sport and team. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2019 season”.
Very little financial information given, but, for the Dodgers the 2020 article stated the following:
Fair Market Value, $3.4 Billion
Gross Revenue, $556 Million
Operating Income, $96 Million
Forbes is valuing the Dodgers at 6.115 times gross revenue ($3.4B / $556M).
Rate of Return on Fair Market Value, 2.82% ($96M / $3.4B).
I spent many years of my career testifying in court cases on the value of businesses and other assets, While a person definitely cannot value the Dodgers based on the little information known, using the “Rule of Thumb” valuation methodologies Forbes utilized gives a very high value for the expected future earnings stream.
It would take you over 35 years at $96M annual cash flow to recoup your $3.4B investment. Comparing the 2.82% rate of return on your $3.4B investment to the 1.68% current rate of return on U.S. Treasury Bonds (often considered a risk free rate of return), seems pretty paltry to me.
I don’t feel sorry for the owners. They are rich sophisticated people and they will do what they can to stay that way. But I think we are witnessing the end of the golden age for professional sports in the U.S. Of course, I could be wrong, just my opinion, but when you have a non-essential product that is pricing more and more people out while alienating a huge percentage of your customer base, there is a lot that could go wrong in the future.
Bottom line: I’d take the $3.4B and RUN.
If they can’t come together and get an agreement to play an abbreviated season, I just might be done with MLB. Past work strikes have always resulted in me coming back to baseball, but now that we find ourselves in a pandemic of epic proportions, riots and looting almost every night in major US cities and the MLB and MLBPA can’t come together to play a sport that entertains us just shows the greed and “tone deaf nature” of the MLBPA.
Yes, I know the owners make good money, that is when they can have full ticket, parking and concession revenue. Without that they are largely dependent on TV revenue as their cash flow and the MLBPA should understand that and make some reasonable concessions to play a game many Americans need as a diversion from this terrible and dark place we find ourselves in today.
Food service workers have taken some serious employment hits, cities and counties have seen a significant reduction in revenue and are now asking employees for furloughs or face layoffs and certainly a cancellation of any expected pay raises. Business owners have had to re-engineer their business model to meet government requirements for re-opening and used money not budgeted to meet the demands. Now, some business owners and large retail establishments have to completely re-build after rioters looted and destroyed their businesses.
I don’t know the what the final prorated salaries would be with a shortened season but tell me players like Kershaw, JT, Kenley couldn’t make it in todays economy with say $10 or $15 million instead of $19-$33 million and I’ve got a bridge to sell you. I know player’s want to stay united, but their rejection of a salary cut proposal that allows both sides to get this season going shows their greed and a certain level of entitlement not consistent with what most average middle-income Americans are experiencing today.
Just cancel the season!
After today’s schoolgirl-ish email cat fight between MLB and MLBPA, it appears that we are getting VERY close to the point.
The league may never recover from this. Fans will remember how indifferent to the greater good both sides have been, a greater good that would benefit the league, the players, the fans, and especially the country should baseball return this summer. They’re biting the hands that feed the sport.
Baseball, hot dogs, apple pie and Chevrolet… those days are long gone.
Let’s hope the sides can come up with some sort of agreement and we can play some games, regardless of how many.
It’s not about how many, OBF, it’s about how much.