It’s easy to view Major League Baseball’s 30 owners as a bunch of reptiles, so it makes sense that they run their league like Gordon Gekko. Except greed, for lack of a better word, isn’t good for baseball. Therein lies the conflict between treating team ownership as little more than a glamorous form of asset diversification while actively poisoning the viability of that asset.
I’ve been writing here for years now that an owner’s true goal isn’t necessarily to rack up annual profits, but to own an asset that generates huge income while appreciating at a high rate. the Atlanta Braves finances revealed proved that there can indeed be profits in MLB as well, although you’d be shocked how many people answered “well actually” to the numbers.
Then you have those teams like the Rays and the Pirates, among others, who are able to make money by taking meager paychecks and pulling revenue share funds. It doesn’t matter that their ballparks aren’t full, they have a guaranteed income thanks to national broadcast deals and team excesses in the biggest markets. If you want to know why the league’s “best and final” offer included a competitive breakeven threshold that has remained static for three years, look no further than the teams who want to see it exceeded.
My take on how billionaires really view professional sports — MLB in particular — was formed by a conversation with one of them, though I haven’t really seen it echoed publicly before or since. Most decry the difficult nature of leading a team within the arduous confines of the collective bargaining agreement, particularly arbitration raises and CBT. Hell, the commissioner said at his press conference that the league has struggled with revenue over the past five years.
But what if – and this can be very hard to hear, so please sit down – the steward and owners are lying? Wow, I heard you gasp from here. If we can accept the idea that these future stewards of the game really only care about their investment portfolio, much of which includes a team you feel great affection for, we can better understand why it make those people really give a shit about you.
To learn more, take a look at column Jeff Moored wrote for Sportico on “the evolution of sport as an asset class”. Moorad started as an agent, representing Troy Aikman, Manny Ramirez and CC Sabathia, before becoming CEO of the Arizona Diamondbacks. He was later named vice president and CEO of the San Diego Padres and is now a director of MSP Sports Capital, chairman of the Morgan Lewis Sports Industry team, and adjunct professor at the UCLA Anderson School of Management.
There’s a lot more context to the piece, but this snippet exposes a lot of what you need to know. [all emphasis mine].
Basically, investors are attracted to disproportionate annualized returns available in sport, with limited relative downside risk. The indexed valuation performance of franchises and sports clubs has significantly outperformed the S&P 500 over the past decadeand in some leagues, such as the NBA and MLB, have done so spectacularly. Rising valuations have proven to be uncorrelated to performance on the pitch or broader market cycles. For a disciplined institutional investor, sport represents a significant uncorrelated diversification opportunity for a portfolio. At MSP Sports Capital, the sports investment fund I founded with Suns Vice Chairman and NBA Board of Governors member Jahm Najafi and Sportradar North American CEO Arne Rees, we believe that the combination of competitive dynamics, cultural significance and growing management sophistication positions teams, leagues and sports-related businesses for continued growth in revenue, revenue and valuations.
The problem with all of this from MLB’s perspective is that while the sport can’t go bankrupt overnight, the downstream impact of lost games could be disastrous for the league’s revenue model. Even the short-term risks become palpable if more games are canceled beyond the first two series, which the union no doubt understands and will seek to exploit. Players are already in “FU mode,” as one source put it, so they might just dig in and see if they can hit owners where it hurts.
As Jeff Passan explained, teams will owe rebates to regional sports networks who broadcast their local programs unless a minimum number of matches are played. This figure varies from 138 to 150 per team, hence the league’s desire to forfeit up to a month of the season without breaking a sweat. When you take into account the reduced value of these games compared to the playoffs and think that the losses would be mitigated by non-existent salary obligations, April is quite expendable.
That said, a team like the Los Angeles Dodgers that enjoys a massive revenue boost from its RSN deal may not want an extended stalemate. Even teams in smaller markets with significantly reduced trades will want this guaranteed cash flow. But the biggest problem comes in the form of subscription streaming services, which will suffer greatly from a lack of desire.
Remember how Sinclair is trying to get interest from MLB teams, the Cubs being one of them, for what would essentially be the Netflix of sports? While some people surely have an interest in multiple leagues and will subscribe for access to multiple NBA and NHL teams, it’s hard to imagine that many Detroit Tigers fans are lining up to pay close to $20 a month when their team isn’t even playing.
Die-hard fans might not stay away for long, but what about those who wash their hands of baseball for good (or at least for a year or two)? Could the heavy hitters paying billions for post-season rights begin to rethink the wisdom of that investment when it comes time to renew those contracts in the future? ESPN already reworked his deal to reduce regular-season coverage in favor of playoff games, though this will be jeopardized if players forego expansion efforts.
If the goal is really to foster asset appreciation, and I’m sure most owners do, shouldn’t they be looking at the big picture rather than worrying about a few million more wages paid to recruits? The answer is yes, although there may be even more insidious motivating factors in how some of these delegates approach the negotiations.
Baseball America’s Kyle Glaser recently tweeted that a “prominent and influential owner openly stated that his goal during negotiations was to ‘break up the union,’ not find a fair deal.” While said owner is probably an exception in terms of union busting being his main focus, he’s certainly not the only one who wants to wield power over players in addition to making more money.
Even though the assholes always seem to win in these situations, it’s entirely possible that enough of them realize how much they could end up losing if they keep digging in with their unserious trading tactics. Again, perhaps they take the sustainability of their investment for granted. Maybe the league has tried so hard to get fans to look at trees like Max Scherzer and Bryce Harper instead of the forest of pre-arb players making up the majority of the roster that it’s lost perspective. .
What will it take for owners to clean their glasses and see what’s really going on? I’m skeptical that cutting RSN checks for a few games will be enough to start a fire, though I’m sure the fear of possibly losing playoff revenue streams might wake up a few people.
It’s a bad situation for the fans anyway, and then you add the stadium workers and the municipalities who stand to benefit from the spring training activities. And what about all the seasonal workers at Wrigley Field and elsewhere whose livelihoods are at stake? Remember, it’s not just the ballplayers who aren’t being paid during the lockdown the owners have proactively imposed.
This really needs to be understood, but I don’t know how and when it happens if the owners choose to keep making offers that the union will never accept.