Scott Boras Tells Players They Should Not Agree to "Bail Out" MLB Owners Who've Financed Team Purchases

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Scott Boras Tells Players They Should Not Agree to “Bail Out” MLB Owners Who’ve Financed Team Purchases

Chicago Cubs

When Max Scherzer’s response to MLB’s financial proposal dropped overnight, and when Trevor Bauer mentioned super agent Scott Boras – Scherzer’s agent – being involved behind the scenes trying to steer this process, it was a fair bet that there was more under the hood.

Sure enough, the Associated Press obtained an email that Boras reportedly sent to players – it’s unclear precisely which players – arguing that they should reject any efforts by MLB owners to reduce player salaries this year, beyond prorated pay for games actually played. That was the agreement back in March, and, since then, MLB owners have argued that because it has become certain that fans cannot attend games, their losses will be too severe to justify paying players prorated salaries. The owners want the players to accept a further cut, proposing a severe sliding scale. The players are not going to accept it.

Boras’s argument against additional pay cuts primarily comes down to this idea: baseball owners by and large financed the purchases of their teams by taking on debt, rather than paying cash, and then subsequently paying down that debt from the proceeds they received by operating the teams. In Boras’s view, if the owners had not done that, they would easily be in a position to pay prorated salaries this year. For that reason, and since the debt ultimately benefits the owners, Boras argues those owners should either pay players from previous profits or take on additional loans to pay the players this year – i.e., the owners should simply pay the full prorated salaries and eat the losses this year.

Among his comments, Boras reportedly calls out the Ricketts Family, specifically, as an example of this kind of financing, and its impact on these negotiations. From the email the AP obtained:

“Throughout this process, [the Ricketts Family] will be able to claim that they never had any profits because those profits went to pay off their loans,” he wrote. “However, the end result is that the Ricketts will own improved assets that significantly increases the value of the Cubs — value that is not shared with the players.”

Boras asked clients to “please share this concept with your teammates and fellow players when MLB request further concessions or deferral of salaries.”

“Make no mistake, owners have chosen to take on these loans because, in normal times, it is a smart financial decision,” Boras wrote. “But, these unnecessary choices have now put them in a challenging spot. Players should stand strong because players are not the ones who advised owners to borrow money to purchase their franchises and players are not the ones who have benefited from the recent record revenues and profits.”

To be sure, debt financing is not uncommon around MLB, or even all major sports. To the extent you or the players needed this teed up, there you go. This may galvanize the players, but I don’t know that it is ultimately going to be an effective approach, because owners can simply respond that Boras is conflating two different issues, especially if team debt payments are not a huge chunk of their “expenses” this year. The owners would say they are simply aiming to reduce losses this year, and there are going to be able to show significant losses this year, even setting aside debt payments. (To be sure, I don’t know the *facts* of that – no one outside of MLB does – but I know that’s what the argument would be.)

In other words, if the owners can show it, they will simply point to projected revenues and projected expenses (even absent the debt payments), and say see, none of what Boras says even matters because we’re still losing this year.

But the team equity side of this conversation should not be entirely dismissed, at least as a discussion fans can have about how to think about this fight. Because cash coming in the door (or going out) is not the only way MLB owners get “value” out of owning a team. If the price of the team goes up and up, and if you didn’t have to dip into your own pocket to pay for that value (thanks to debt financing being paid by team profits), well then you might be getting substantial annual value as an owner even while your team takes a loss.

Depending on your perspective, you may have thoughts on this approach to team financing (and, specifically, how it relates to teams that say they make no profit and instead put all surplus, after “expenses,” back into the organization). Me? I’ve always thought it was understandable – you buy a business so that you can run it and profit from it, to some extent – but I also have thought you have to be very careful about your messaging on the topic because of the nature of your fanatical customers. You can’t pull on their goodwill without also being a little transparent about where the profits are going. For my part, I tried to lay out for years that the nature of the purchase of the Cubs – which was mandated by the Tribune Company, not the Ricketts Family – required significant debt financing by the entity. The Ricketts Family took on the risk that the Cubs entity would not be able to make those debt payments, but it also got the upside that so long as the Cubs stayed profitable, the debts got paid and the Ricketts Family got a more and more valuable piece of property, so to speak. (My understanding is that, unlike the renovation process needed at Wrigley Field, the surrounding developments – owned by a Ricketts entity – are financed entirely separately from the team.)

In a twist of timing that leaves me wholly unable to comment on what the nature of the team’s debt payments are today, the leveraged partnership the set up this ownership process ran through last year, at which point the Ricketts Family was able to buy the last 5% of the team from the successor to the Trib. So the world was entirely new in 2020 … and then this happened. Sorry. I don’t have any useful financial information for you at this time on the ownership side, or how it relates to any moral judgments you might want to make. Basically, I was going to have to let 2020 play out before I could evaluate the implications of the new structure. Now, I have no idea what that unpacking will look like. But I do know that it’s a conversation for another day.

So, then, how do we evaluate this stuff in the context of what Boras is saying as it relates to players?

Well, I think it’s a fair point, overall, to say that owners have seen the value of their equity in teams explode over the last decade, regardless of “profits,” and little or none of that makes its way to the players, clearly, as salaries have not seemed to keep pace even with revenue. I also think it’s fair to remind players and the public that when a team has “debt”, that sometimes means really that the owners have debt tied to the ownership of the team, and when the team pays or services the debt, it’s not really about helping the operation of the team entity so much as aiding in the purchase of the franchise many years later. Again, your mileage may vary on how you feel about that, but it’s how a whole lot of business acquisitions and operations go. They are a business, after all.

(Photo by Jonathan Daniel/Getty Images)

I also think it’s fair to note that owners of businesses are not entitled to profits or asset appreciation every year. There is no baseball god on high who commands that MLB owners do well every year. Sometimes, when you own a business, you get burned. You eat the downside now because the upside is what you hope for the next year+. And if it’s true that most or all MLB owners could pay this year’s operating losses out of their own pocket or with additional financing, then it isn’t like it’s impossible for the owners to eat the loss. (Again, I can’t speak to whether that part of Boras’s assertion actually *IS* true. I am just filling out his argument for clarity.)

So, then, what you’re really talking about is a business decision for these owners, and a moral decision about how they want to treat players: is it good and right (for the business and/or for just-being-good) to pay the players their full prorated salaries, even if you know it means deepening your losses this year? Or is it worth squeezing the players as much as possible to reduce losses this year, even at the risk of what comes next year and beyond when you want to improve relations with those players and your fans? I know which way I’d go, but hey, it’s not my money.

In a way, it’s the same decision these organizations have to make about paying minor league players. About paying employees. About paying ancillary businesses. About justifying the love that fans give to them.

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Author: Brett Taylor

Brett Taylor is the Editor and Lead Cubs Writer at Bleacher Nation, and you can find him on Twitter at @BleacherNation and @Brett_A_Taylor.