The True Cost of 2020
By Ed Botti
The Dodger’s six game World Series victory over the Tampa Bay Rays is now in the books and a part of history. The strange 2020 Baseball season is in the rearview mirror. I for one am glad to see it go.
If you think it should have an asterisk or not, is up to you.
Yes, the series had some interesting and compelling moments, to say the least. Starting with the performance of Corey Seager, to the head first slide at the plate by Randy Arozarena and ending with the inexplicable removal of a dominant Blake Snell in game 6 by Kevin Cash and his team of computer geeks sitting somewhere in Tampa Florida.
The series featured two of the worst decisions I can remember; pulling a dominant Snell after 73 pitches and Justin Turner suddenly reappearing on the field to celebrate after being diagnosed with Covid-19 earlier in the game.
I am not going to even mention the embarrassing broadcasting of A-Rod and Big Papi.
Oops, sorry I did!
Taking a good hard look into the rearview mirror reflects images that we normally do not see. The oddest image is all of the MLB revenue disappearing in a cloud of smoke.
Perspective also has to be considered; is the image in the mirror gaining ground, or are we pulling away?
One would think that if you win the World Series the old adage of “to the victor go the spoils” would ring true. Hardly the case in 2020 for the Dodger’s ownership group and the League as a whole. Yes, the players are going to get all sorts of endorsements, get their pictures on the covers of video games, cereal boxes, do the talk show circuit, and who knows one of them may even host Saturday Night Live. However for the owners and the League it is a completely different story. One that will reverberate throughout the League in the years to come, and then eventually trickle down to the player level.
How’s this for a dose of reality? The Dodgers won the World Series and lost roughly $125 million for that privilege.
I am a little surprised that he could actually do the math, he must have had an intern help him, but MLB Commissioner Rob Manfred openly stated last week that the league’s 30 teams collectively are projected to lose between $2.8 and $3 billion. An average of $97 million per team, while accruing a collective $8.3 billion in debt in 2020.
That is a number we haven’t heard a lot about. $8.3 Billion in debt was taken on to preserve liquidity throughout the league.
I will have more on that in the coming weeks. But right off the bat, my questions are:
How is the debt structured?
What is the amortization period?
What is the rate?
Who is the guarantor?
What is the collateral?
Who are the lenders, and what recourse do they have?
Why do I care about their debt? Because ultimately it will effect the economics of the game, and therefore the structure of teams and their payroll.
The Yankees will not be insulated from that impact. No team will be.
For now, let’s stick with the $2.8 to $3 billion in lost revenue.
The biggest losers are big-market teams. That means the Yankees, my friends, got taken to the cleaners this season.
An MLB source stated that if MLB had canceled the 2020 season, the teams would have lost a lot less. Which means in simple terms, no one made a penny.
Let’s see if Tony Clark and the MLBPA remember that inconvenient truth when it comes time for the negotiation of a new Collective Bargaining Agreement (CBA) in the very near future. Don’t hold your breath.
The owners on the other hand, they will be hard pressed to forget it.
The CBA expires after the 2021 season, and big-market teams are likely to strongly argue that they should share less of their revenue with MLB after this year’s fiasco.
The fact is, if 2021 is like 2020 teams will be faced with a very serious dilemma; playing games means losing money. Not a good business model if you are in the Baseball business.
Throw the $8.3 Billion of debt into the mix, and you end up with one of the more unstable markets we have seen in any industry.
I read a very dark statement by the head of the Sports Management Program at Adelphi University who recently stated “You’d be a bad business owner if you didn’t ask yourself if playing games was worth it. Why would you want to compound these losses next year? I hope fans enjoyed the World Series, because I don’t know when we will see baseball again.”
I do not agree with that statement. I am optimistic that we will put this mess behind us, have some semblance of normalcy in the coming months, and in March hope will spring eternal once again.
However, you do have to be realistic and take the rose colored glasses off when analyzing actual figures. 2020 was a losing proposition for the entire league. Owners and players all took a haircut to play.
They say they did it for us, the fans. I’ll take them at their word, but a part of me still wonders if that is true.
After all, the players did get paid handsomely for 2 + months of work. Yes, it was not easy, but they did earn respectable salaries, relatively speaking when compared to the rest of society, especially during the pandemic when many lost their jobs.
Back in the good old days of 2019, the Yankees led all of MLB by generating $214.5 million in gate receipts alone, plus concessions and parking for a gross estimated $285 million generated from 2019 in game sales.
3.3 million Yankee fans spun the turnstiles at Yankee Stadium, and the money flowed. The media rights revenue flowed as well, and after the season, the Yankees cut a nice hefty check.
In 2020 the league played in front of nonpaying ghosts, with the exception of 11,500 fans at each of the six World Series games. That is over 900 games played during the 2020 season without ticket sales, not even a beer or hot dog was sold.
In 2019, 110 million fans attended major league and minor league baseball games.
I am not trying to convince anyone to feel sorry for billionaires that lost money. They are billionaires for a reason, they know business. When businesses lose money, changes must occur.
Attendance accounts for about 40 percent of the total revenue, another 40 percent is from media rights (national and local), and the rest from sponsorship and suites.
Besides taking a beating at the gate, the media rights portion of the revenue was also battered.
Looking at just the World Series ratings alone, sheds some light on the loss of media rights revenue.
Nielsen Media Research stated that the six games on Fox Sports averaged a 5.2 rating, 12 share and 9,785,000 viewers. The previous low (considered dismal at that time) was a 7.6 rating, 12 share and 12,660,000 viewers for the San Francisco Giants’ four-game sweep of the Detroit Tigers in 2012 (the Yankees should have beaten the Tigers in 2012 ALCS, it still stings!).
In just one year the ratings were down 36% from the 8.1 rating, 16 share and average of 14,067,000 viewers for the Washington Nationals’ seven-game win over the cheating Houston Astros last year.
Comparing the last two game 6’s played, the Dodgers – Rays drew a 6.8 rating, 15 share and an average of 12,627,000 viewers, down from a 9.6 rating, 19 share and average of 16,551,000 viewers for the Nationals – Astros.
The 2019 World Series average was enhanced by having a Game 7, which drew a 13.1 rating, 25 share and an average of 23,217,000 viewers. As we know, there was no game 7 in 2020 (thank you Kevin Cash).
Fox Sports stated that when Spanish-language coverage on Fox Deportes and all of the other streaming platforms were added to the equation, the 2020 game 6 averaged 13,215,000 viewers, down 25.24% from 2019 numbers.
Those numbers add up to big dollars lost. Never to be recovered.
The aftermath of that will impact the 2020-2021 spending patterns across the board, as the clubs project 2021 revenues.
But that’s the problem. How do you project revenue if you have no idea if you will have paying customers?
Not including the odd 2020 season, all teams previously contributed 48 percent of their local revenue to MLB, which distributed it equally with all teams. This was done so the smaller market teams (Rays) were at less of a disadvantage against bigger market teams (Yankees) when signing players to contracts.
In 2019 as the 3.3 Million fans came to the Bronx and revenue soared, it was not a problem.
Now it is a different story and the big-market teams like the Yankees are expected to loudly voice concerns about the inequitable loses to their revenue streams in the coming months, and rightfully so.
It’s obvious that the revenue losses suffered by the teams due to the absence of fans is immense. Maybe in the future, they will appreciate the fans more, who knows.
Hal Steinbrenner said the Yankees lost more money than any team in baseball this year. They had an MLB-high payroll of $109 million for the 60-game schedule.
As we discussed in the past, cutting costs is always the first step a business takes when revenues drop to keep a respectable Return on investment in place. We saw various job cuts throughout the industry, especially at the facility level.
However, those cuts might just be the tip of the iceberg. If the owners really want corrective measures, the obvious next move will be to make cuts in team payroll.
Remember, they just accrued $8.3 Billion in debt. Payroll cuts it would seem, are inevitable, until the debt is paid down.
In just the last 2 weeks we discussed a large inventory of non-tendered players and an indifferent market for free agents.
At the conclusion of the World Series close to 150 players immediately became free agents. As of today, that number has reached 175.
That’s a lot of players and it’s probably going to increase as team options on players are refused.
Teams have until December 2 to tender 2021 contracts to their players. It is anticipated that there will be more non-tendered arbitration eligible players than ever before. It is expected to see a lot of players sign undervalued contracts to avoid being non-tendered, and going out into a very weak free-agent market.
The utmost concern for players, remaining team employees and the well-being of the sport is the possibility of additional revenue losses in 2021. We all hope that the fans will be allowed back next year, but that is really still up in the air.
If teams are refusing options on players all indicators point towards a long inactive winter in the free-agent market, as the inventory grows.
For every Anthony Rizzo and Zach Britton that had their options exercised by their teams, there are many that will not.
This off season there are several prime players entering the free agent market, such as DJ LeMahieu, J.T. Realmuto, Trevor Bauer, Michael Brantley, Didi Gregorius, and George Springer. All very good players that would positively impact any team that signed them.
Many in the MLB industry do not believe any of them are going to get offers commensurate with what comparable free agents have received in the previous free agent markets.
I guess its true, timing is everything. Just ask Gerrit Cole and Mookie Betts.
Supply and demand. Microeconomics 101.
How that all plays out is anyone’s guess at this point.
In the Yankees case, the bear market may help them keep DJ LeMahieu and Masahiro Tanaka, and potentially re-acquire Didi Gregorius.
The losses suffered will be felt throughout the industry for the foreseeable future. How teams react is an unknown. Some may see the down market as a chance to get a player at 70 cents on the dollar. Others may just sit out and wait for the market to stabilize.
Numbers can be manipulated in many ways. Manfred telling us about the $2.8-$3.0 Billion in lost operating income, right now is unconfirmed.
We don’t know if the losses being reported are net or gross. How did they factor in that 2/3rd of payroll was slashed along with many other costs, such as minor league affiliates? Did the teams (I presume they did, but who knows) have Business interruption insurance? Did they have the Paycheck Protection Program loans?
However, besides the reported losses that the teams suffered this year, accruing that $8.3 billion in debt to preserve liquidity is the real concern. That is the black cloud hovering over the industry.
The cost of playing in 2020 was like nothing the league has seen before.
2021 is a mystery right now. No one has a crystal ball, so playing it safe might just be the consensus.
Just like starting an extra inning with a runner on 2nd, I am hoping it is the last time we see it.
2020 is in the rearview mirror. Let’s move forward. But just keep in mind that objects in the mirror are closer then they appear.