MLB claims Royals would lose $113 million if players don’t take further pay cut

MLB has given the players’ union a presentation claiming that teams will lose a combined $4 billion this season if players don’t make further concessions in reducing their pay, according to a report from the Associated Press. Players agreed back in March to pro-rate their salaries based on the number of games played, but owners now claim that without fans, revenues won’t be sufficient enough to pay even those reduced rates, and instead want to base salaries on a 50/50 split of revenues, a proposal the union has roundly rejected. Owners contend that under the current arrangement, players would receive 89 percent of projected revenues.

According to the owners’ figures, the Royals would be projected to have $113 million in local losses when calculating their earnings before interest, taxes, depreciation and amortization in an 82-game season. The Yankees would stand to lose the most at a deficit of $312 million, while the Tigers would be projected to lose the least at $84 million. The Yankees project to lose a significant amount of money due to stadium bonds that financed the new Yankees Stadium.

The Royals were projected to have an Opening Day payroll of around $83 million before incentives, benefits, and pension payments, although that number will be cut in half under the agreement with players. They are also in the first year of a new local television deal with Fox Sports Kansas City that would have been expected to pay them around $40-45 million under normal circumstances, but will likely pay them half that with a reduced schedule.

Owners claims that gate revenue and other ballpark-related revenues comprise 39 percent of overall revenues, money that will not be there this year if there are no fans present. They also project that losses could be more devastating if the post-season is cancelled if a second wave of coronavirus hits. According to their figures, teams as a whole receive $787 million for post-season games from their TV partners at Fox, ESPN, Turner, and MLB Network, as well as international rights. They have proposed expanding the playoffs from 10 to 14 teams this year, which could bring additional revenue from television partners for additional content.

The players’ union is skeptical of the owners’ claims and have asked for a slew of financial documents to back up their presentation. They disagree with the owner’s contention that teams will lose more money with each game played, arguing instead that with so many teams having equity stakes in their regional sports network, each additional games provides more revenue. Some players have been outspoken in their opposition to any further pay cuts, with Rays pitcher Blake Snell saying he won’t play this year if his pay is reduced any further.

According to the presentation, owners were already projected to lose money before the pandemic hit, with $10.234 billion in expenses compared to $9.967 billion in revenues. If fans were allowed back in, owners project the loss would be limited to $2 billion. If there is no season, MLB players will receive no further salary other than the $170 million owners advanced them back in March. Commissioner Rob Manfred says if there are no games, owners will still lose a combined $4 billion.

No one doubts this will be a tough year for owners financially, but these numbers should be viewed rather skeptically. Rob Mains at Baseball Prospectus does a good job analyzing the numbers, finding that the owners seem to be underestimating their operating income by about a billion dollars compared to Forbes estimates. But the most important point he makes is this - what has fundamentally changed since the owners agreed with players to pro-rate salaries back in March?

But the March deal, with prorated salaries, implied a drop to $1.91 billion in the event of an 82-game season, and MLB was OK with that and the other reductions to revenues (and the bottom line). Now they’re saying that empty ballparks are a game-changer. Really? Compared to the Arizona/Florida plan, with fans attending games in spring training facilities, when they were floated? What would local revenues havebeen under those circumstances? Half of what MLB had budgeted for a normal 2020 season in MLB parks? A quarter? Less? How much worse is MLB saying an 82-game stadium played in front of nobody will be compared to games in spring training facilities? A few hundred million?

A lot of the public pronouncements on both sides so far could very well be posturing, and this negotiation is likely a prelude to a bigger labor war when the collective bargaining agreement expires in 2021. Hopefully these two sides can find a workable solution to get players back on the field as soon as it is safe to do so.