For months now we’ve been reading that MLB is heading towards a lockout next year. It is inevitable and there’s no way MLB will have a normal off-season, spring training, and season. So says literally everyone. The owners are absolutely united in wanting a salary cap and the players will not accept it. So the outcome is locked in. Accept it. Both sides are going to the mat here.
I get the players not wanting a salary tax that doesn’t exist now, that makes logical sense. I’ve never understood the owners side though. How are the Dodgers, Mets, Phillies, and Cubs in perfect alignment with the Pirates, Athletics, and Rockies? They don’t behave the same now, and clearly have different goals for their franchise, right? These are franchise dumping money into their teams to try and win, while other owners (who are billionaires) are literally just trying to turn a profit. Why would owners who are spending be in agreement with owners who are not? Why would owners who have relatively good television deals regionally want television money entirely pooled between all the clubs? Why would teams who are good at player development want to ban high school players from the draft and off-ramp all player development to the college level? How are 30 owners in entirely different situations in lockstep on such a radical alteration to the game?
The best way to understand this labor dispute is *not* as an argument over the way things are, but frankly an argument over the way things *might* be. MLB owners aren’t trying to salvage their current system. MLB is generating record revenue. Attendance is actually moving back in the right direction, topping 70 million. Teams are monetizing more and more of their product. Even beyond their game driven revenues, teams are monetizing their real estate and owning more things. And team values are rising. In short, MLB is actually doing better than it has probably ever. This fight is not about improving this system for the owners or the league. I’m not sure there’s much they can do there.
Baseball is volatile though. They don’t like that. MLB wants to be the NFL. The truth is, every sport does, but not necessarily because they are comparing the actual revenues. The NFL is easy. Whereas the Kansas City Royals are considered a “small market” baseball team, the Chiefs are a constant contender that is trying to spend money and is building a new stadium now. The Packers have one of the smallest home cities of any major sports team globally, and they spend and compete every year. These franchises sign free agents every year that are good, relatively expensive players, they win a lot of games, and most importantly, they still turn a profit. MLB teams turn a profit in one of two ways- either they cost cut and keep their operating expenses low enough that they can make more from television, tickets, and whatever else they can monetize, OR they spend a lot of money in an effort to compete for championships, and therefore be popular enough that their fanbase puts more and more money back into the team. Let’s be honest though, even the biggest market teams that almost always try to contend end up going through a year or two bust cycle under this model, where either the team decides it’s not competitive or the fans decide it for them, and then their left cutting costs to turn a profit on the fly. Owners don’t like that kind of instability. Just look at my beloved Phillies, a team that has consistently been spending among the top five to ten teams in baseball for close to a decade now, after doing so for the majority of the previous fifteen years too. Are they good? Yes. Do they have a large fanbase? Yes. But right now attendance is ever so slightly down after a fourth straight playoff loss last year, and there are concerns about their television deal with Comcast SportsNet’s Philadelphia regional affiliate. So much so that they are considering creating their own network. Because, well, stability. People that own multi-billion dollar assets want those assets to essentially be risk free. If anyone tells you they are free market capitalists, remind them that no one is less in favor of that than owners of sports teams.
As I said, they want to be the NFL. The NFL receives over $13 billion in television money. According to the latest estimates I could find, every single NFL team (regardless of market size) received an equal $432.6 million media rights pay out. The NFL Salary Cap is $301.2 million. Including benefits and other costs, players cost around $378 million a year. Maybe you don’t love math, but what that means is that a lazy team could spend very close to the salary cap and probably come out ahead or even after all their other operational expenses without selling a single ticket, any merchandise, or monetizing anything else. In reality, they’re doing much better than that. From Yahoo Sports:
While those figures are generally kept private, they are revealed through the Green Bay Packers each season. The Packers are the only publicly owned team in the league, which requires them to reveal their financials on a yearly basis.
Though each team is different, the Packers’ financial statement provides a pretty good benchmark for franchises throughout the league. The Packers’ profit from operations, according to ESPN, increased from $60.1 million to $83.7 million year-over-year. Local revenue, which was helped with the addition of a ninth regular-season home game for the first time last season, also increased by about $35 million.
The Packers said that the national revenue sharing they receive accounts for about 60% of their total revenue.
The article goes on to quote their outgoing Team President as saying the league aims for 7% growth every year. Of course that growth level controls the salary cap level for every team, and also the media rights pay out to every team in the league. Every team in the league has a relative baseline to plan what they will receive, and every team in the league has a relative baseline to plan their expenses. No boom cycles or bust cycles. If the team is good, you might sell more merchandise and monetize more things. But if the team is bad, you’re getting a media rights check that should come in around 7% higher than last year, and your expenses are set to basically match. You almost can’t *lose* money on an NFL team. Even signing a bad contract with a player who becomes terrible quickly doesn’t matter, because the only guarantees in NFL player contracts are the bonus money, so you can cut a player at any time.
This is essentially what MLB is shooting for. Rob Manfred has talked about wanting to nationalize more of the media rights. Couple that with the owners proposed salary cap and you see where this is going. They want to limit contracts to five years. They want to end contract deferrals. They essentially want to cap a player’s salary somewhere around $44 million a year. They want to remove high school players from the draft. In other words, they want to set certainty into most of a team’s revenues for the season across the board, and set certainty onto the costs too. Like the NFL. They want to streamline and shorten player development, like the NFL has by forcing players into college programs. They’re willing to give in on tying draft compensation to the qualifying offer for free agents, as well as let players who are 30 years old receive free agency after five years (shorter than now), in exchange for essentially limiting compensation growth moving forward to a target number based on revenues they can control. They’ll even accept a salary floor if they can get the stability and certainty they want.
Look, this would dramatically change the way the game operates. Obviously it would make it much easier for teams like Pittsburgh and whatever city the A’s will be playing in by then to take free agency risks on par with the Dodgers. On the other hand, it would have two major impacts on the players. First, it would limit the on-field compensation for the biggest stars in the game. Second, while they are saying they would raise the minimum salary, this would cause a lot of mid-level and role players to cycle out of the league much faster, as paying them in free agency would make less sense than bringing up new, cheaper players when you have a set limit on what you can spend. It would force teams to find incentives beyond on field pay to attract players to their team. It would also set up a situation not unlike the NFL and NBA, where players tend to flock to the cities they like most, and leave some franchises constantly in a state of struggle.
It is true that running a baseball team is riskier than other sports. You can make a mess of your roster and payroll situation, become a bad team, and then lose money for an extended number of years if you’re an idiot. Does equity bring about parity though? When are the Cleveland Browns or New York Jets good? How have the Memphis Grizzlies done attracting major free agents? Is it an accident that the Cincinnati Bengals managed to mess up a great thing after Joe Burrow took them to a Super Bowl, I mean he’s the only man to quarterback them to a playoff win in the cell phone age for a reason. You can’t tell me most teams make what Jerry Jones does in the NFL, the guy just decided to build a stadium way bigger than everyone else’s for a reason. If teams no longer control their own television situation because the league does, will Pirates fans still get a Bob Walk, or Phillies fans a John Kruk, or will we get the sanitized, one size fits all that we get from most national broadcasts? He’s actually improved a bit since 2008, but do I want Joe Buck calling my games over Harry Kalas? A cookie cutter league is just that, cookie cutter. Sure, you’re giving the Arizona Cardinals a chance to win in the NFL on par with the Eagles, but frankly they don’t. Are you really going to tell Mets fans that Steve Cohen can’t die trying to bring his favorite team their first title since the Reagan Administration?
Major League Baseball is doing very well. Even lower revenue teams seem to be generating at least close to $300 million a year. High revenue teams may be generating considerably more (here’s looking at you, Yankees) than many NFL teams. I tend to be a fan of teams running their own ship and taking their own risks. I also get the reality- with regional sports networks dying, teams increasingly will either need their own networks or will have to be in a national media rights deal. Even so, the players are the product. I don’t like deals like Shohei Ohtani’s that danced around the luxury tax, but I also don’t think a salary cap should stop Juan Soto or Mike Trout from getting the deal they can get. If we’re sitting here and saying “Tarik Skubal isn’t worth $50 million a year” then maybe no owner should offer it? I know, they can’t collude, but if there’s someone who wants to pay it, I say have at it. All of these guys are billionaires, if they’re smart enough to succeed in business, maybe they don’t need so many guard rails.
I tend to side with the players here, but I’m a realist. The league is going to have to increasingly control media rights because that’s where both commerce and platforms are moving us. If players want earlier free agency, increases in minimum salary, and a salary floor, I don’t think a salary cap is necessary, but the players are probably going to have to give some of that up and still at least accept a more punitive luxury tax. Rich guys, generally speaking, demand stability for their wealth. If we’re having a political conversation there is no need for us as a society to generally underwrite this and insure it for them, but a negotiation between millionaire baseball players who make their money playing in an organized league and billionaire owners who have the capital to create that league is a lot different than asking if billionaires should be paying more in to Social Security and Medicare. Yes, I think the players should be free to earn whatever they can earn on a free and fair market during the short time they can play baseball. Playing in MLB is not a right though, it’s a far cry different than discussing if people should have health care or retirement. There’s similarities, there’s common ground and themes in the conversation. I generally support the players. But it’s a collective bargaining agreement for a reason. The emphasis on agreement.
