Major League Baseball faces worst crisis in 25 years

The sport known as America’s pastime is embroiled in its worst crisis in a quarter-century.

As other US sports formalise their plans to play this year, Major League Baseball remains locked in a pay dispute with its players’ union over compensation terms for a pandemic-shortened 2020 season, exacerbating long-running tensions over the sport’s financing.

“It’s just a disaster for our game,” said league commissioner Rob Manfred this week of the bitter negotiations. “It shouldn’t be happening.”

The fight — the first work stoppage since 1995 — threatens to undermine American interest in baseball, which ranked first among all sports that US fans said they missed during the pandemic, according to a Monmouth poll this month.

Underlying the dispute are two structural factors unique to MLB, which brought in $10.7bn in revenue last year, according to a person familiar with its finances. One is a higher dependence on game-day ticket and concession sales than other leagues. The other is the lack of a traditional salary cap for ballplayers.

With fresh media rights contracts in play, and the collective bargaining agreement set to expire next year, both sides have dug in while other sports around the world are getting back on the field.

“What began as a health lockout has now morphed into the management of baseball flexing its muscle in a way that makes absolutely no economic sense,” said Paul Finkelman, president of Gratz College and an expert in legal issues in baseball.

“It’s about ego rather than about the best interest for business or the best interest for the players.”

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The conflict reached an apparent nadir on Monday when Mr Manfred told US sports channel ESPN that he was “not confident” that baseball would be played in 2020, less than a week after guaranteeing the sport’s return. Discussions, however, resumed, with the commissioner and Major League Baseball Players Association executive director Tony Clark meeting in Arizona to discuss the stalemate. 

On Thursday, the latest offer came from the players’ association, proposing a 70-game regular season and expanded playoffs in 2020 and 2021, according to Mr Clark. The main sticking points between the sides have concerned how many games should be played, and whether players would receive full prorated salaries.

In a normal baseball year, teams play roughly 162 games from April to the end of September, the longest standard professional sport season in North America. Last year, the League made the lion’s share of its revenues — 39 per cent — from tickets and sales within ballparks, according to the Associated Press, making MLB especially vulnerable to the pandemic-era practice of staging sports without fans.

“For baseball, they’re probably one of the worst sports affected — whereas football is the opposite, with huge national media contracts to offset any losses from lack of fans,” said Michael Nathanson, media analyst and founding partner of analytics firm MoffettNathanson. 

To offset its reliance on attendance, which has declined in recent years, MLB has worked to boost revenues from other sources, particularly media and sponsorships. The League’s most lucrative media rights come from a trio of national broadcasting deals, worth an estimated $1.52bn a year according to MoffettNathanson. That value is expected to rise 45 per cent to $2.21bn when contracts are extended past 2021.

League commissioner Rob Manfred: “It’s just a disaster for our game. It shouldn’t be happening” © Lucas Jackson/Reuters

Last year, a flurry of deals for regional sports networks included a $10.6bn acquisition by Sinclair Broadcast Group as well as a tie-up of investors for an 80 per cent stake in the YES Network, the local broadcasting home of the New York Yankees and Brooklyn Nets valued at $3.47bn.

MLB has also experimented with selling streaming rights to various digital media platforms, including with Facebook and media start-up DAZN, and last year entered into a New Jersey outfitting deal valued at $1bn

At the same time, players have been steadfast in opposing any terms for the 2020 season that could be construed as agreeing to a salary cap, which they successfully opposed during baseball’s last work stoppage from 1994-1995. That stalemate ended with a ruling from then-New York Southern District judge and current Supreme Court Justice Sonia Sotomayor, who sided with the players. 

As negotiations have continued, Mr Clark of the MLBPA has refused proposals by owners that would pass more of the burden of pandemic-imposed losses on to athletes. “Our response has been consistent that such concessions are unwarranted [and] would be fundamentally unfair to players,” he said in a statement this month.

In addition to the acute worries about the 2020 season, investors are growing concerned about financing for lavish new stadiums. Rating agency S&P recently downgraded bonds for Citi Field, the stadium operated by the New York Mets, and put bonds for Yankee Stadium on watch. Both facilities were opened in 2009.

“The downgrade and cautionary outlooks seem fundamentally more concerned about the industry’s future prospects for recovery given what social distancing requirements will entail for prospective revenue streams,” wrote Jeannine Lennon, municipal credit strategist for UBS. Stadium bonds can be secured by “ticket sales, parking revenue, sales taxes [and] hotel occupancy rates”, prompting uncertainty about whether debt obligations could become deeply distressed.

Players, meanwhile, have taken to social media to vent their frustration this week.

“You’re holding a losing hand”, said Trevor Bauer, a pitcher for the Cincinnati Reds, in a tweet directed at Mr Manfred. “Unfortunately, it’s a losing hand for everyone involved, not just you. There’s some saying out there about not killing the goose that lays the golden eggs.”