June 23, 2024

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Business is my step

MLB hot stove: Three things to keep in mind as owners discuss financial losses during slow offseason

5 min read

MLB commissioner Rob Manfred set the inevitable tone for the offseason during the World Series. When eyes and ears were supposed to be upon the game’s signature event and at the same time appreciating the sacrifices players had to make in order to play a season in the midst of a global pandemic, Manfred decided to talk about the financial hardships endured by the billionaire class of team owners. 

Here’s part of what Manfred told Sportico’s Barry M. Bloom in a piece that ran the day before Game 6 between the Rays and Dodgers

“The economic losses [this season] have been devastating for the industry,” Manfred said. “You’re seeing the ramifications of that in terms of decisions clubs are making with respect to [laying off] baseball operations and business employees. I mean, you’ve never seen those type of decisions, at least since I’ve been around.

“In order to get through the year the clubs did a great job preserving liquidity, but they also took on a lot of additional debt.”

Specifically, Manfred estimated that teams as a collective lost around $3 billion during the 2020 season. Said losses were attributable to the fact that no fans were allowed to attend games until the late rounds of the postseason, and even then in very limited numbers. That meant very little ticket, parking, concession, and in-stadium merchandise sales revenues for the season that was. Tales of such woe have already become an offseason refrain among owners and their valets, and it’s going to continue to be trotted out as an excuse for having to trade stars under long-term contracts and passing on the top class of 2020-21 free agents.

To be fair, MLB through its constituent teams probably did endure a financial hit during 2020, but before you set about believing what Manfred and owners are saying about the scale of those losses you should keep three things in mind. To wit …

1. Almost all MLB teams are not obligated to publicly disclose finances or even tell the truth about them.

With the exception of the Braves under the corporate umbrella of Liberty Media, MLB teams are not publicly traded entities. They’re privately held, and that means they don’t have to release financial statements. That, in turn, means they’re free to lie about their finances, and that’s something team owners have done from time immemorial. Those lies are always typically of the calculated variety designed to enlist public opinion in owners’ ongoing efforts to limit player salaries. Far too often, we go along with it. 

When we do get a peek behind the curtain, however, we find that teams are highly profitable. The Braves, for instance, are doing just fine. Leaked documents from baseball’s supposed underclass of teams also showed healthy profits in the not-so-distant past. Every year Forbes undertakes some forensic accounting of the financial health of MLB’s teams, and its findings are almost universally promising. In non-pandemic years — which, you know, describes almost every year — baseball is a lushly profitably industry. Beyond that, when MLB franchises are sold, they inevitably bestow upon their outgoing owner capital gains that are hard to find in any other market. That wouldn’t happen if MLB franchises were consistent money losers. 

In this space when addressing these matters, we’re fond of dragging an old Paul Beeston quote howling from the vaults. Here’s what the former Blue Jays president and highly placed MLB exec once said: 

“Anyone who quotes profits of a baseball club is missing the point. Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me.”

The point isn’t that owners took no kind of a hit in 2020 — the point is that they are untrustworthy in the extreme when it comes to discussions of team finances. There may be a kernel of truth buried within their current caterwauling, but be sure to apply a healthy discount to their specific claims. 

2. “Losses” could mean different things.

Manfred, owners, team management, both in their public comments and planted quotes, have taken care to emphasize the “losses” they suffered in 2020. Potentially, that functions as a weasel term in this context. Losses could mean that their revenues declined significantly from 2019, which is true, but it doesn’t mean they necessarily operated deep in the red for 2020. 

Scott Boras recently made a similar point: 

“A lot of teams lost profits. Great profits. But we know this — in operating the game and having baseball games teams make money. … Even without fans, we know that players playing baseball games makes money for MLB teams.”

Yes, revenues declined, and in that sense they lost money. However, MLB and its teams still brought in national and local television revenues and some merchandising and sponsorship revenues, albeit less than usual, and they also had the expanded postseason broadcast revenues. There was money coming in, just not as much as usual. 

3. Don’t forget that players prorated their salaries in 2020.

What seems to be forgotten in all of this is that teams’ expenses were also lower in 2020. Prior to the season, players agreed to prorate their 2020 salaries based on the number of games played. That number wound up being 60, which means owners were on the hook for just 37 percent of their 2020 payroll obligations. Obviously, that’s a huge reduction on the expense side. Anecdotally, this rather important fact gets overlooked when discussing the financial sorrows of team owners this year. Above, this was just written: “There was money coming in, just not as much as usual.” Likewise, there was money going out, just not as much as usual. 

In light of all that, it’s possible that a more realistic interpretation of the word “losses” is one that assumes a decline in profits rather than a situation in which expenses outstrip revenues. 

These are old sleights of hand that team owners have been using for as long as there has been such a thing as team owners. They took a one-off hit in 2020, sure, but they’re almost certainly embellishing the extent of things. When it comes to such matters, MLB and its owners should’ve long ago squandered your trust. 

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