Passan’s 20 questions – Why financial battle over 2020 MLB season is about to get really, really ugly

This week is going to be ugly. There’s no getting around that. Every negotiation starts at opposite ends of a spectrum, and the chasm between Major League Baseball and the MLB Players Association is wide enough that as they navigate a return-to-play agreement to set the stage for the return of professional team sports in America, a fight is almost guaranteed.

Where these discussions go, and how the principals involved steer them, mark the most consequential moment for the sport since it barely averted a work stoppage in 2002. The coronavirus pandemic is altering the world. Unemployment is historically high. The future is impossible to forecast. And Monday, as MLB owners rubber-stamped the league’s proposal that it intends to share with the union in a meeting Tuesday, the conversation focused on money.

What followed surprised no one. This is not how it had to go, but it was how it was always going to go, millionaires and billionaires pitted against one another in a game of chicken. Stake out a position. Refuse to budge. The coming days will reflect that intransigence until the reality of a ticking clock forces its abandonment. When that happens, when the posturing abates, the ugliness will burn off like the morning fog and there will be hope for a deal — for baseball.

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As the sport with the clearest path and greatest appetite to return, baseball has an opportunity to illustrate the importance of equitable, shared sacrifice, to be a model of togetherness amid division. All of that, of course, is merely talk — admittedly naive, unquestionably hopeful, ignoring what’s of greater import than rich people being a little less rich: that if baseball does relaunch, it does so with the health and safety of players, managers, coaches and all those in its orbit in mind. That it prioritizes what warrants prioritization.

What baseball needs, in the end, is neither words nor bluster. It needs substance, foresight, action. And over the next two weeks, as the season hangs in the balance, action there will be. It’s up to the leaders of both sides to decide what sort.

What is in the return-to-play proposal?

In broad terms:

• A 50-50 split of revenue from the 2020 season

• An 82-game schedule instead of the standard 162

• A mid-June “spring training” and early-July Opening Day

• A 14-team postseason rather than the typical 10

• Games played in home stadiums where allowed

• Designated hitters in the American and National League

• Games against only divisional and regional opponents — i.e., AL West teams, for example, play AL West and NL West teams

• Expanded rosters from 26 to as many as 30 active players with a 20-man taxi squad of minor league players and prospects

• No fans in stadiums to begin the season

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There are certainly more details to the proposal, including vital ones regarding health and safety. It’s also important to recognize this is an initial proposal that serves as a starting point for any return-to-play scenario and will necessitate a rigorous back-and-forth with amendments galore before it satisfies both parties.

What was the players’ reaction to it?

Was it that stupid a question?

Yes.

Why?

Because the first item — the 50-50 revenue split — is a non-starter for the players.

Before explaining, it’s essential to understand how revenue works in baseball. The NFL, NBA and NHL all have revenue splits. They also operate in salary-capped systems. Straight revenue splits, in which sport-related income is pooled and distributed according to formulas agreed upon in collective bargaining negotiations, historically have been the domain of capped systems. MLB operates with no salary cap.

In baseball, there are two streams of revenue: local and national. Local revenue includes television contracts, which range from around $20 million a year (Miami Marlins) to upward of $250 million (Los Angeles Dodgers), and in-game proceeds. MLB estimates that 40% of revenue comes from tickets, concessions and other gate-related income. Nearly half of local net revenue is pooled and shared. National revenue comes from television contracts for the postseason and games of the week, league-owned media entities (MLB Advanced Media and MLB Network), licensing, merchandising and corporate sponsorships. All national revenue is shared equally.

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The pandemic has turned off the revenue spigot. Whether local revenue accounts for 40% of teams’ incoming cash or a cut in the 30s, as past reports have suggested, the prospect of going a full season without fans — and potentially going fan-free, or at least fan-light, into the 2021 season — is daunting for teams’ bottom lines. Because all 30 teams’ revenue streams differ, it is realistic to believe some teams will lose money playing games without fans this season. Already, multiple teams are planning layoffs or furloughs starting June 1, according to sources.

Owners are looking to cut costs wherever they can — and nothing costs more than player salaries. So while the league and union in March agreed to pay players on a prorated basis — at 82 games, they would receive 50.6% of their expected 2020 salaries — the owners believe that language in that agreement allows them to renegotiate player wages in the event of games with no fans in the stands. The players vehemently disagree. (More on that later.)

How bad for the players would a split actually be?

Warning: This is going to be some very back-of-the-napkin math that attempts to estimate revenues. Ballparking revenues tends to be a fool’s errand. In short, a 50-50 split is a huge issue. But indulge me. It is more to make a point.

Forbes estimated that MLB’s industrywide revenues in 2019 were $10.7 billion. Club sources have suggested the number was lower but in that ballpark. Let’s use the higher number but use teams’ estimate that 40% of local revenue will vanish without ticket sales. That leaves $6.4 billion.

Sources have estimated that local television revenue is somewhere in the $2.2 billion to $2.5 billion range annually. Because teams under this plan would play only half the games, that’s half the revenue — say, another $1.2 billion haircut. And that does not account for regional sports networks, which pay local TV-rights fees, potentially asking for a discount based on the difference in the product, whether it’s because there are no fans in the stands or because teams are forced to play away from home thanks to local government regulations. Ignoring that possibility, we’re down to $5.2 billion.

National TV money is estimated at $1.7 billion a year. The point of implementing expanded playoffs would be to maintain that number, with the loss of half the Sunday Night Baseball games and the expected cancellation of the All-Star Game and Home Run Derby in Los Angeles. In the current system, MLB’s guaranteed number of playoff games is 26, and its maximum is 43. Expanded playoffs would swell those numbers to 36 and 59. That translates to hundreds of millions of extra dollars in postseason revenue, keeping the overall revenue number in the low-$5 billion range.

Losses in other areas are almost a given, dropping revenue under $5 billion. Which, admittedly, still seems high, especially if owners are claiming they could lose money this year. Still, it makes the prospect of a 50-50 split with players interesting financially. Player salaries for 2020 are estimated somewhere between $4.2 billion and $4.4 billion. Let’s go with $4.3 billion. At a prorated salary for 50.6% of the games, that’s around $2.18 billion. Half of, say, $4.8 billion would be $2.4 billion.

Could players really be guaranteed more money in a 50-50 split?

It’s possible, sources said, but looking at it strictly from a revenue perspective ignores three issues critical to the union.

1. Anything with even the slightest relation to a salary-capped system frightens players, even if this proposal doesn’t involve a salary ceiling or any other cap tenets. The mistrust between the sides has deepened in recent years — just look at their different interpretations of that March agreement, which is barely six weeks old — and the slightest whiff of a cap sends off Pandora’s box signals at the union.

2. Salaries do not grow commensurate with revenue gains. So now, in a year in which the game is struggling, it’s necessary for the players to share in the losses? That’s not how it works.

3. If a second wave of the coronavirus were to strike before or during the postseason and force the cancellation of games, postseason TV money would vanish. Even if the estimated revenues were $5 billion, they would crater with the cancellation of playoff money and leave the players with less than their prorated share.

To really understand what the players think about the revenue-split idea, one needed only hear what MLBPA executive director Tony Clark told The Athletic: “A system that restricts player pay based on revenues is a salary cap, period. This is not the first salary-cap proposal our union has received. It probably won’t be the last. That the league is trying to take advantage of a global health crisis to get what they’ve failed to achieve in the past — and to anonymously negotiate through the media for the last several days — suggests they know exactly how this will be received. None of this is beneficial to the process of finding a way for us to safely get back on the field and resume the 2020 season — which continues to be our sole focus.”

Damn.

Yeah. MLB commissioner Rob Manfred had to expect some sort of response to the 50-50 split, but that was a response.

So say all the “Kumbaya” pabulum you were spouting earlier about peace and love and harmony doesn’t come to fruition because the impediment of money is intractable. What’s the worst-case scenario here?

No season at all.

What? That doesn’t sound right to you? Turn back the clock 26 years, to 1994, when MLB wanted to institute a salary cap. The union refused, and in August, it went on strike. Baseball lost a World Series because the league sought a salary cap and the players refused to budge.

Since then, baseball has seen 25 years of labor peace, the most since the union was founded in 1966.

Hold on. You’re seriously saying they’d lose a season over this?

They could. In fact, for argument’s sake, let’s assume they do. What are the outcomes for each side?

Players:

• They don’t get paid beyond the lump sum of $170 million negotiated in the March deal, a problematic issue for the surprising number of players who live paycheck to paycheck.

• They lose a year of playing, an item of immense value for those who understand baseball is a profession with a short career span.

• The free-agent market after the 2020 season would crash.

• The MLBPA may dip into savings reserved for an emergency — such as a potential work stoppage after the current collective bargaining agreement expires after the 2021 season.

• Agents, on whom players lean for counsel, don’t receive commissions — and some accordingly are threatened with insolvency.

Owners:

• Their revenues shrivel to almost nothing.

• Mass firings and furloughs take place.

• Multiple bankruptcies are possible, if not likely, either prompting bailouts from MLB or forcing owners to sell.

• Franchise values, which have skyrocketed in recent years, plummet, because recovery from the financial hole created by a lost 2020 season could take years.

Whose outcome is worse?

I’m the one who asks the questions.

Sorry.

Whose outcome is worse?

They are both absolutely terrible! On one hand, the finite nature of players’ careers weighs very heavily. Owners tend to be in the game long term, and the recovery of the economy could eventually make up for the enormous losses. On the other: Firings, furloughs, bankruptcies and plummeting values are like the Four Horsemen of the financial apocalypse.

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There is a principle of negotiation called BATNA — best alternative to a negotiated agreement. When one side’s BATNA is better than the other’s, that side gains a significant advantage. If there is an advantage here, it’s not very big. Both sides’ alternatives feel positively ruinous.

And that’s not even taking into account the missed-opportunity cost of being the only team sport back during a time when fans are craving something to watch, as well as the narrative that would lay waste to the sport’s reputation and haunt it if money did, in fact, scuttle a season.

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Why are players so entrenched?

For one, union lawyers believe they’re in the right legally when it comes to guaranteeing players’ prorated salary. The March agreement contains a Player Compensation and Benefit section that does not specifically address a reduction in salary if games are played in front of no fans.

That said, on Page 1 of the agreement, the first point of the Resumption of Play section includes the words: “(T)he 2020 championship season shall not be commenced unless and until each of the following conditions is satisfied.” One of those conditions ends with: “(T)he Office of the Commissioner and Players Association will discuss in good faith the economic feasibility of playing games in the absence of spectators or at appropriate substitute neutral sites.”

The first sentence of the compensation section begins with the clause: “If and when the conditions exist for the commencement of the 2020 championship season … ” — language similar to that on the first page.

When asked by ESPN to interpret the language, four longtime labor lawyers who work for neither MLB nor the union adopted different positions. Two said the similarity in the language made it clear that those sections were meant to be tied together. One agreed with the union’s interpretation that anything about compensation changing should have been written explicitly. The fourth called any potential grievance on the matter a toss-up.

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Beyond the legal question, there is the matter of how it has been presented to players. Union leadership has been vociferous in saying players would be paid their full prorated salaries. Part of this could be strategic — as a rallying point that a group of 1,200 players of different ages, races and homelands with differences in opinion will not be exploited by 30 billionaires.

The tack does come with hazards. Promising something like full prorated salaries takes away a potential negotiating chip. If Clark cedes any money to ownership, he runs the risk of looking weak to players. Thus, he is incentivized not to give up money, even though it’s clear that money is an imperative part of any deal.

Do the players have an argument for their full salaries that goes beyond the legal interpretation of the March agreement?

Absolutely. They’re the ones who actually have to go out and work during a pandemic. Which is not to compare them to those who toil in hospitals or nursing homes or grocery stores. But it is to compare them to … owners. Who most certainly do not have to travel on planes, stay in hotels or simply leave their homes.

How big of an issue is health and safety?

It’s difficult to tell. If the players wanted to stay away from the compensation issue publicly and focus on health and safety altogether, it would be the easiest messaging win imaginable: “We want to play baseball, and we want to do so in the healthiest and safest way possible to protect our families, our more at-risk co-workers and ourselves.” Washington Nationals pitcher Sean Doolittle wrote the perfect playbook for this approach on Twitter after the details of MLB’s proposal surfaced.

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He asked about the frequency of testing and how non-players would be protected and whether there would be modifications to clubhouses. Any agreement, he said, needs “a proactive health plan focused on prevention and reactive plan aimed at containment.” Even though Doolittle, as a healthy 33-year-old, is not among those COVID-19 typically afflicts, his wife, Eireann Dolan, has asthma. As Doolittle said: “We need to consider what level of risk we’re willing to assume.”

For example: How do you deal with players who say they’re not interested in playing, whether because of preexisting conditions or family members whose health makes them more susceptible to COVID-19 or, very simply, because they aren’t comfortable with the risk, no matter how slim the chance of infection?

In addition to the actual health concerns, moral authority is up for grabs. If one side is the billionaires who want to save money and the other is the players who want to ensure that their families, older employees, outside workers and they themselves are as insulated from the coronavirus as possible, well, even the most dyed-in the-wool corporatist might have trouble maligning the players for focusing on that. If the sides can’t come to an agreement, it’s an awfully hard sell for the league to suggest it didn’t happen because … the players wanted too much testing?

It’s fairly clear what the league wants. How about the union?

Fact is, the union members want their money too, and Clark saying as much didn’t exactly bolster their ability to ride a health-and-safety platform.

Practically speaking, the players want information. Teams say they’re going to lose money? Fine. Let’s see how. Give us a financial audit.

Every year, MLB provides some financial information to the union. But in this case, with revenues so opaque, a clearer picture would give the players confidence that MLB is open to dealing in good faith. Considering how closely the league holds its finances, a robust audit would represent the sort of olive branch that could bring the sides together.

In terms of potential concessions, there are plenty. Service time remains a bugaboo. So does competitive balance. Maybe a change to free agency to encourage spending at a time when teams might be disincentivized to pursue players. The players could ask for more games so their prorated salary is higher. MLB’s proposal has most of the postseason in October, seemingly as a hedge against a potential second wave. The players could push for the playoffs to go deeper into November.

So are owners going to yield?

Well, most of them didn’t become billionaires by accident. Unless they have evolved overnight, they will push and cajole and hold out for the best deal, knowing that in the end, fans often side with teams over players. They can say that they’re losing money and want their workers’ salaries to reflect that, like it does in so many places across America, even if players already agreed in the March deal to a structure that will halve their salaries.

Then again, a truth underpins this entire negotiation: If ever there were a time for billionaire owners to do good — not in paying players, per se, but in avoiding the catastrophic fallout of baseball adding to a national unemployment rate approaching 15% — it’s now. And if ever there were a time for millionaire players to shed cynicism and adopt not a mien of war but one of mutually beneficial deal-making, it’s now.

You’re being naive and hopeful again.

Pretty much.

What’s the solution?

For starters, maybe make Tuesday’s meeting not about a 50-50 split or any finances. Try to answer Doolittle’s questions and those posed thus far by other players. To emphasize the plan about how to restart a sport in the middle of a pandemic. The meeting is scheduled for Tuesday afternoon, and the sides could spend hours talking without mentioning dollars and cents once.

Perhaps all that can come later and the burning of the morning fog is simply necessary. Get the wrong out of the way so a right can come of it. Or something like that.

There is no easy solution here. The pandemic can bring out the worst in baseball, expose all of its fragilities, if Manfred and Clark aren’t careful.

So, uh, that solution?

Oh yeah. Well, if cash-flow problems are that real for owners, players could defer a portion of their salaries with interest. While that does add debt that all 30 teams are trying to avoid, it would solve a short-term issue while showing a willingness to compromise. Yes, a deferral is technically a pay cut — it is cutting pay now — but remember: equitable, shared sacrifice.

As for owners, they can give service time more than lip service and stop the farcical manipulation they’ve used as a tool to keep players from free agency for years. They can put levers in place to ensure free agency resembles free agency and not some bootleg COVID version of it. They can raise the minimum salary next year leading into the negotiations on a new agreement.

These are smart people. If they want, they can find a deal. They just have to be willing to look for it.

What comes after that?

The league figures out how many governors are on board with the idea of empty-stadium baseball returning in their state — and, less comfortably, of teams from their geographical area of the country coming into town to visit. Manfred, sources told ESPN, has called governors around the country to lobby for MLB’s return in home stadiums. Ohio Gov. Mike DeWine and Maryland Gov. Larry Hogan both told ESPN they have spoken with Manfred but declined to characterize their conversations.

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Also on the list: a blessing from the White House and local and national health authorities. With Dr. Anthony Fauci telling The New York Times that he planned Tuesday to offer criticism for the country reopening too early, it’s clear that MLB could find itself facing similar disparagement. Nobody ever said coming back was supposed to be easy. For a business the size of MLB’s, with such a public profile, the standard will be higher — and warranted.

That’s a lot to do in not a lot of time to do it, right?

It’s not great, Bob.

How long do they have?

Four sources landed on the same time frame: about 2½ weeks, with a chance for a resolution — good or bad — sooner but not much later. In 15 days or so, May will be winding down, and figuring out the logistics of getting twice the normal-sized team’s worth of players to one location takes time.

Players want three-plus weeks to get ready, and if baseball is to begin on the Fourth of July — ‘Merica — then training needs to start June 10. That’s squeezing a lot of stuff into not a lot of time.

Ugh. Is baseball just falling apart?

No. Not yet. Remember, Tuesday’s meeting is the first to discuss the proposal. There are many more conversations to be had, ideas to be shared, bargains to reach. Any potential deal will go through iteration after iteration. A lot can get accomplished in 2½ weeks.

Yes or no: Does a deal get done?

I go back to the BATNA, and I think yes.

I go back to the strike, and I think the BATNA doesn’t mean anything.

The hope is that MLB learned its lesson from 1994. The truth is that we won’t know until a deal is struck or it all falls apart.

So here’s a little advice. Don’t get too hung up on this week. It’s easy to be a prisoner of the moment, to get high when it looks like baseball is coming back, to get low when the conversation turns to money. This is the beginning, and the beginning can be complicated and tumultuous and not particularly reflective of the actual state of play.

That’s coming soon enough. And when it does, it will say as much about the future of baseball as it does the present.