MLB’s Slow Free-Agent Market Reflects The Financial Disaster Of 2020

The Major League Baseball players’ market this off-season, save possibly for the San Diego Padres and the New York Mets, has been moribund. It’s a good bet that Scott Boras and others will soon be crying collusion. 

But let’s be clear. Whether or not Rob Manfred’s figure of $3 billion of losses for MLB teams last year is inflated, 2020 was a disaster for the league’s finances. Including money from corporate sponsorships, the average team gets about half its revenues from stadium activities. Stadiums were barren last year, and this year doesn’t look much better.

Players’ salaries in 2020 were reduced pro rata by the number of games played. Sixty out of 162 games were played, so a player who would otherwise have earned $10 million received instead roughly $3.7 million. But the owners not only lost revenue from the 102 games that were not played; collectively, they also lost nearly 50% of the revenue they would normally have generated from the 60 games that were played. Yes, they retained most of their national television revenue by running an expanded postseason, but they also had additional costs from Covid-19 testing and other public health measures.

Prospects for fan attendance this year are dismal. Teams will be fortunate if they can sell 50% of normal ticket levels to the games after July 1 (although this will surely vary from state to state). Projecting ticket sales, advertising, concessions, parking and memorabilia revenue at 25% of normal levels does not seem unreasonable. 

Adding to the immediate uncertainty of 2021, MLB may face lower revenue for its next TV deal with ESPN and possible further dilution down the road from the fragmentation of video markets and the proliferation of alternative entertainment options being vigorously consumed by younger fans. (The introduction of sports betting and partnerships between teams and sportsbook companies, however, will help buttress revenues going forward, although this revenue source has been slow to develop.)

Over recent decades, franchise values have tended to outpace the growth in the stock market, so returns to ownership, even with possible meager annual operating profits (or losses), can still be robust. Tax advantages, synergy benefits and capital gains have sustained valuations and promoted healthy returns. There is, however, nothing inevitable about this virtuous cycle.

There is little question that were it the off-season of 2019, the DJ LeMahieus and Trevor Bauers of the free-agent market would be worth every penny of what they are asking. But they would be worth that because of the expected incremental revenue they would…