Rob Manfred says MLB has "historic high levels of debt"
But save your sympathy until after he gets the owners to open up their books.
MLB commissioner Rob Manfred spoke with Sportico for an interview published on Monday. According to Manfred, the league’s 30 teams have collectively accrued $8.3 billion in debt and will post nearly $3 billion in operational losses in 2020. Manfred said, “We are going to be at historic high levels of debt. And it’s going to be difficult for the industry to weather another year where we don’t have fans in the ballpark and have other limitations on how much we can’t play and how we can play.”
There’s no question that MLB was hurt financially by the pandemic. Rather than a 162-game season with fans in attendance, we had a 60-game season with no fans, which meant no revenues from tickets, concessions, and stadium-based merchandise. Manfred tried to recoup as much revenue as was feasible, expanding the playoffs and finagling his way into selling upwards of 10,000 tickets per game for the NLCS and World Series at Globe Life Field in Arlington, Texas.
There are several problems here, though. The first is the timing. Why now, during the World Series, when the league has garnered a lot of positive attention? Manfred is greasing the wheels for the owners to go in reverse with their payrolls. Front offices were already self-imposing austerity measures; the pandemic offers them the perfect cover to continue to do so or to begin doing so if they hadn’t already.
The Red Sox, for example, got a rather light haul from the Dodgers in return for Mookie Betts because they packaged him with David Price. Together, the pair represented $59 million towards the $208 million competitive balance tax threshold. When a team exceeds the threshold, they are penalized for the overage and are also penalized for being repeat offenders. The Red Sox went over the threshold in 2018 and ’19 and were looking at a third consecutive year if they didn’t scale back from last season’s $243.65 million payroll. Specifically, if the Red Sox had a $250 million payroll this year, they were looking at a 20% penalty on the $42 million overage ($8 million) plus a 50 percent luxury tax for being back-to-back-to-back offenders ($21 million). They would also have had their Rule 4 draft selection moved back 10 places.
With only that information, scaling back on payroll seems reasonable. However, the Red Sox are valued at $3.3 billion. They are not the Miami Marlins. They play in a large media market and are owned by John Henry, worth nearly $3 billion himself. The Red Sox have one of the strongest sports team brands in the world. Fenway Sports Group, of which Red Sox owners Henry and Tom Werner are a part, is a majority owner of NESN and Henry also owns The Boston Globe. Needless to say, the Red Sox get very good press coverage in the New England area.
This is all to say that, if they wanted to, Henry and Werner could personally ensure the Red Sox maintain a competitive roster for decades to come; it would simply mean taking in slightly less profit year over year. Instead, Mookie Betts – already one of the greatest players of his generation – is on another team vying for a championship while the cellar-dwelling Red Sox finished 24-36 behind even the Orioles in the AL East.
What happens when you roll out the red carpet for the finance sector in sports? They are less concerned with winning and more concerned with min-maxing. Attracting fans costs money. You have to have good and interesting players, but there are diminishing returns. A $150 million team payroll may be competitive and attract X fans. A $200 million payroll may be even better and attract 20 percent more fans which results in Y increased revenues. Does that calculus satisfy the shareholders? Oftentimes it does not. To them, a team that feigns competitiveness and lucks its way into the playoffs – like the Marlins this year – is better than a team destined for the RNG-fest that the playoffs often are.
To that end, that is why we have also seen an increase in “tanking” teams. The thought is that by being intentionally bad for several years “rebuilding,” a tanking team will get better draft picks. Tanking will allow them to get build-around type players like a Juan Soto or Ronald Acuña Jr. It has the added benefit of providing cheaper labor, as younger players’ salaries are artificially suppressed until they hit six years of service time. Last year, Soto drew a salary just north of the $555,000 major league minimum salary while Josh Donaldson put up about as much WAR for the Braves as Soto did for the Nationals, but took home $23 million. If you’re a finance bro who doesn’t actually care about baseball, which player would you rather have?
Are MLB team owners really that cheap? They sure are, and that was true even before the finance and analytics guys took front offices by storm over the last decade. An arbitrator ruled that MLB owners colluded on three separate occasions from 1985-87, ultimately resulting in a $280 million settlement with the MLB Players Association. The owners collaborated with each other, agreeing not to make offers to free agents. As such, players mostly stayed put with little to no increase in pay. When scant offers were made to free agents, that information was shared in an “information bank” among the owners to reduce the players’ leverage. There have been whispers of collusion among owners in the time since, including recently, but nothing substantive has been proven yet.
MLB owners and their front office underlings are willing to break the rules or at minimum live in ethically gray areas to save money. Manfred works for the owners. Contrary to common belief, he isn’t a middleman between the owners and the players. A majority of owners had to approve him when he replaced Bud Selig in 2015, and a majority of owners recently approved his five-year contract extension. While Manfred has a vested interest in the continued good health of the sport, his motivation first and foremost is whatever the owners want, which is more money. Thus, everything Manfred says and does should be viewed through this lens.
Along with greasing the owners’ wheels for a cheap offseason, Manfred talking about these issues now is a ploy for public sympathy. Many fans have been hit hard by the pandemic in myriad ways such as job loss, healthcare bills, illness and death suffered by loved ones, anxiety and depression, etc. Some of those fans may even be small business owners. Small businesses have also been hurt badly by the pandemic. It’s quite easy for Manfred to frown and cry poor on behalf of the owners to summon fans’ sympathy which gives the owners cover to remain dormant when players hit free agency this offseason. But make no mistake: the owners were already dormant in free agency long before the pandemic.
If Manfred wants sympathy, and if the owners’ thriftiness is to be justified, then the owners need to open up their books. To date, only the Braves have publicly-available records because their parent company, Liberty Media, is publicly traded. The Red Sox may soon become public if Henry merges Fenway Sports Group with RedBall Acquisition Corp. Other than the Braves, the teams’ finances are a mystery. Some publicly available information allows us to make educated assumptions, but nothing concrete. It’s a double-edged sword for Manfred: when things are going well, like they have been for the last 17 years, the subterfuge allows the owners to be dishonest to justify being cheap. However, when they may be legitimately hurting financially, like now, it’s tough to trust them enough to give them a sympathetic pat on the back. It’s like The Boy Who Cried Wolf. The owners falsely cried poor so many times that no one believes them when they may actually be poor(er).
Manfred’s interview with Sportico should be taken with a huge grain of salt. If he doesn’t like that, he is welcome to get the owners to open up their books and prove to us just how much sympathy they need in these trying times.