651 days. If you’re counting, that’s how long before the current labor agreement between Major League Baseball and the players has till it expires. At 11:59 pm, on December 1, 2026, either a new deal will be in place, or the owners will impose a lockout as was the case with the last collective bargaining agreement.
All of this may seem so far off as to not be worth discussing. But, it’s clear that the stage is being set for what could be a painful and protracted labor dispute as the looming threat of owners seeking a salary cap is spoken of publicly. If regular season games of any significance were lost, it would have financial implications for the league right at a time when attendance is seeing a resurgence, interest in the postseason is at a high, and the league is seeing a record $12.1 billion in gross revenues.
On Tuesday, Manfred spoke in Arizona as Spring Training gets underway. The Dodgers, who, according to Cot’s Contracts, projects to have a $402.3 million Luxury Tax payroll for the upcoming season, would blast through the Luxury Tax and could see a penalty of around $150 million. Last season, their Luxury Tax payroll was $353 million with a $103 million tax penalty. Given the Dodgers have largely won the off-season free agent wars, not just this off-season but last year with Shohei Ohtani being the centerpiece, the topic of financial imbalance got brought up.
“[The Dodgers] have gone out and done everything possible, always within the rules that currently exist, to put the best possible team on the field,” Manfred said. “I think that’s a great thing. That type of competitive spirit is what people want to see.”
“It’s clear we have fans in some markets that are concerned about the ability of the team in their market to compete with the financial resources of the Dodgers. If we’ve been consistent on one point, we try to listen to our fans on topics like this. And I have heard people, believe me.”
If you’ve been following Manfred’s comments around the Dodgers recently, these talking points were said before. At the end of the Owner’s Meetings earlier this month, when the press asked about the Dodgers, he said that what they have done “is consistent with our rules” and that his “emails certainly reflect that there are fans in other markets who are concerned about their team’s ability to compete. And we always have to be concerned when our fans are concerned about something.”
Two things stand out here. Manfred is making it clear that the Dodgers doing Dodgers things is “within the rules” and that he’s “concerned about fans.”
Starting with the latter, the league hears from fans about issues they dislike. From increased netting to sponsor patches on jerseys to the rule changes such as the pitch clock, those issues seem to be something that is taken with a grain of salt, whereas now, the issue is used to bolster a position within the owners’ ranks.
In terms of “within the rules,” this is done for effect. Some owners see the rules as needing addressing, namely through the implementation of a salary cap.
“I wish it would be the case that we would have a salary cap in baseball the way other sports do, and maybe eventually we will, but we don’t have that now,” Baltimore Orioles owner David Rubenstein told Yahoo Finance at the World Economic Forum in Davos, Switzerland. “I suspect we’ll probably have something closer to what the NFL and the NBA have, but there’s no guarantee of that.”
How A Salary Cap Battle Would Impact TV Deals
Within the baseball industry, a cold reality has set in that, for the foreseeable future, the owners will lock out the players at the end of a given labor deal. This occurred before the current labor deal when a lockout lasted a little more than three months and pushed the start of the regular season from March 31 to April 7 of 2022 while still being able to squeeze in a full 162-game schedule. Pulling the lockout lever is a form of leverage for the owners. Early in the season, attendance is lower, which could benefit some low revenue-making owners with a lockout, while enacting one prevents the potential for the MLB Players Association to call a strike closer to the postseason, such as in 1994, which would leverage the owners.
“The reality is salary caps don’t guarantee ‘competitive balance,’” MLBA executive director Tony Clark recently said in a statement. “Salary caps are about ‘competitive perception.’ They are about the increase in franchise values and growth of separate revenue streams that will never be to the benefit of those off the field or the fans who come to watch them play. Salary caps are ALWAYS one-sided relationship.”
Indeed, Steve Greenberg, who represents many MLB teams when they come up for sale, spoke to what a cap would largely provide to the owners.
“The perception around baseball is that without a salary cap, its values will lag, at least behind the NFL and the NBA, and that’s been the case,” Greenberg said in a feature story on Rob Manfred by The Athletic. “We’ll see what happens in Rob’s final negotiation.”
But anyone watching this unfold would see that advancing into a real effort for a cap would mean loss of regular season games and, in doing so, would come at an unwelcome time for the league’s partners. Whether a cap did or did not come to fruition, it would mark a clear escalation in labor confrontation, harkening back to the ’94-’95 strike. Already, ESPN and MLB are considering opting out of their deal that includes Sunday Night Baseball, the Home Run Derby festivities, and the Wild Card Series when the 2025 season ends. That deal pays MLB $550 million annually, while FOX and TBS would be dealing with clawing back rebates for games lost in 2026 through a labor battle and having that instability in the back of their minds when their broadcast deals expire in 2028.
How A Work Stoppage Would Impact Borrowing
Currently, Fitch gives the league a “stable” outlook on rates of MLB Trust Notes ‘A’ on $155.7 million of series 68 and $6.45 million of series 69 senior secured notes, and MLB Facility Fund notes ‘A-‘ to the issuance of $20 million of series 10 senior secured notes. As a risk, Fitch notes that “The league borrowing programs are supported by large contractual revenue streams from investment-grade media counterparties including ESPN, FOX and TBS.” A lockout over a cap would imperil those streams in the near term. While MLB is allowed to stretch paying back lost games to their broadcast partners over a period of time in the forms of rebates, it could lead to the partners being trigger-happy in a delicate time for media rights as streamers are taking a larger position, but currently offering lower revenues than traditional TV partners.
Two items that Fitch cites as factors that could lead to a negative action or downgrade include:
Material changes to the core foundation that materially change the competitive landscape or economics;
A substantial change in individual and corporate spending or demand for MLB-related content.
While a protracted fight over a salary cap might lead to one, history has shown that the players could be galvanized as they were in the ‘90s and stop it from occurring. Either way, there is little doubt that near-term impacts would be felt due to fan alienation and a souring by sponsors, potentially enough to garner a downgrade by Fitch.
In 651 days, we’ll find out if a lockout is more like 2022 or a battle rages like 1994-1995.
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