NEWSLETTER
Every business has been hit hard by the effects of COVID-19, but the timing for some has been worse than others. Minor League Baseball (MiLB), for example, had been fighting off Major League Baseball’s (MLB) attempts to reduce the number of official team affiliates across the country this winter when the pandemic hit the U.S.
But with the unexpected hiatus and pervasively ugly financial outlook, things look ever worse for MiLB, and the situation may dictate a resolution in the negotiations with MLB. It’s become accepted at this point: before the 2021 season, Minor League Baseball will eliminate the Major League affiliation of 40 teams across the country, taking the total from 160 down to about 120.
But how do you pick which teams are safe and which get the axe? And what happens to those that are leftover? Which minor league teams wind up with which big league organizations when there are only four levels of the minor leagues?
Well, that’s where things begin to get tricky … and a little beneath board:
This story today tries to explain why multiple MiLB operators described the current situation as the "Wild West."https://t.co/IDG8UT0RMr
— JJ Cooper (@jjcoop36) May 20, 2020
Due to the ongoing negotiations between MLB and the Players Union about starting the big league season, the MLB and MiLB negotiating committees haven’t actually met since April 22nd. And, indeed, their next meeting is pending a resolution on restarting baseball. That’s simply the priority, and given that there’s not going to be a normal minor league season this year in either case (if there’s even an abnormal one), that much is understandable.
But when they do get together, MLB is dropping a major hammer.
According to Baseball America, MLB is expected to provide a term sheet laying out which 120 MiLB teams will be part of full season baseball in 2021, as well as which league those teams will play in, and a new process by which big league and minor league teams form affiliations. There is also an expectation that MLB will eventually be taking control of all affiliated Minor League Baseball operations.
• 40-team reduction (down to 120)
• General league restructuring
• New process to form affiliations
• MLB taking over operations
But while each of those line items pose their own questions, risks, and considerations – especially MLB taking full control of MiLB (I can see that being great … or terrible) – it’s the reduction and re-affiliation process that has been the most absurd. As Baseball America explains, some have called it “The Wild West.”
In short, teams across the country are scrambling to get their name on the safe list (120 names) and are bending – maybe even breaking – the rules to do so. Here’s how.
Already, MLB officials have been contacting MLB teams to get something of a wishlist for their minor league affiliates. And while each team does not expect to get everything for which they ask, they clearly have a hand in steering the direction of their ship. In fact, the new process discussed above has been characterized as providing “much more leeway to determine” a team’s affiliation than the current set of rules.
Needless to say, MiLB teams recognize this reality and are doing their best to swing deals with the big league clubs that suddenly have more power and say. Normally, such discussions are not allowed (or wouldn’t be until September), but everyone seems to be turning a blind eye under the cover of chaos: “But since there is expectation that [the previous agreement will not exist] after this season, MLB appears to be adopting a hands-off approach as MLB and MiLB teams try to find pairings.”
There’s more.
According to BA’s sources, a number of teams that expect to be dropped from affiliated baseball are trying to get a big league club to buy into their team, in the hopes that would protect them from missing the boat. In some cases, it seems that partnership is being offered at below market value … or even for nothing. And that would spur some legal and tax-related questions (the type of which I’m not qualified to discuss).
I can explain, however, that the hope is clear and the reasoning tracks logically: Giving a big league team, say, 50% of your company for no dollars in return isn’t really giving it up for free at all. Some would say it’s an investment in the long-term future of your business. If missing the 120-team boat means the death of these teams, is there an equity price too high to pay? Who’s to say?
And just so you don’t think I’m overstating the importance of having a big league ownership stake, consider that of the 33 teams currently on the initial contraction list, just one is owned by an MLB owner. By contrast, of the 118 teams on the initial “safe” list, MLB owners have either a majority or minority stake in 30-40 of them (opaque ownership structures in MiLB teams made this a difficult number to pinpoint, but the point remains).
So now I ask … how ugly is this?
MLB already wanted to reduce the number of MiLB affiliates for … reasons, but weren’t having much luck. Then, as soon as things turn sideways in the world (COVID-19), they’re given an opportunity to go forward with those plans. Then, the league gives its owners the power the pick their MiLB affiliates, and turn a blind eye when those MiLB teams break rules to hand deliver equity at below-market costs to the people deciding their fate in the HOPE that it’ll allow them not to close permanently (or avoid a slow death).
And to top it all off, MLB is proposing to take control of the newly-reduced, newly-restructured, newly-more-MLB-owned product that they don’t seem to love in the first place. Vertical integration can be a good thing, but at the risk of squeezing out more people who want to carry the banner for your sport? Not so sure about that one.
