Coronavirus Pandemic Creates ‘Disaster Situation’ For Some MiLB Teams

Image credit: (Photo by Mike Janes/Four Seam Images)

This past offseason was considered to be the toughest most Minor League Baseball teams had ever faced. Roughly a quarter of all MiLB teams were on the chopping block in an MLB proposal that headlined negotiations between MLB and MiLB on a new Professional Baseball Agreement for 2021 and beyond.

Those issues, while still significant, have faded into the background. They have quickly been replaced at the forefront by the novel coronavirus outbreak, which has quickly waylaid MiLB’s (and all of sports) 2020 season plans.

The PBA negotiations have been paused by both sides as they work to figure out how to adjust, adapt and answer the many questions raised by the suspension of the season.

As of mid-March, the long-term effects health-wise of COVID-19 in the U.S. are not yet apparent. MiLB owners and operators all speak of their concerns for the actual health of their communities. But while that is seen as a future unknown, the financial ramifications are already becoming quite clear.

MiLB teams already know that this season will be the most challenging financially that they have ever faced. The numbers vary, but without significant help from the government or others, estimates from people inside MiLB range from 10 to 40 MiLB clubs that may struggle to make it through the season.

Minor League Baseball bills itself as being a vital part of communities where teams are present. When cancellations began to roll out across the country, MiLB teams went from advertising for Opening Day to posting public service announcements which showed their mascots dispensing hand-washing advice to kids. Teams used their social media accounts to spread information about local businesses that had adjusted hours and attempted to be a community bulletin board in many cases.

MiLB teams abruptly began trying to help their communities deal with the quickly spreading health crisis, because that’s what they could do to help. But MiLB teams are hurting in this as well.

In conversations with more than a dozen owners, GMs and league presidents across the country, there was a near universal recognition that some MiLB teams may have trouble surviving this unexpected calamity.

“You couldn’t sit down and say let’s devise a disaster situation any better than this,” said one low Class A owner who requested anonymity to speak freely.

When the novel coronavirus forced all full-season Minor League Baseball teams to delay the start of their seasons, the trepidation that many MiLB teams had already faced because of the expiring Professional Baseball Agreement was replaced by the dismay at how to deal with a nationwide crisis.

“The reality is it’s bad. We’re a small business. There are going to be some really hard decisions made in the next 30-60-90 days that are very uncomfortable,” Memphis Redbirds owner Peter Freund said. “We are realistically looking at a situation where we may not operate this year. I can’t imagine a scenario where our season begins before June. What are the implications for all the people who work in the ballpark—the ushers, the grounds crews? It’s so upsetting. There is only so much we can do as a small business owner to keep the lights on. There are some very harsh realities.”

Every MiLB full-season team knows that it’s going to lose part of its season. Every MiLB team is unsure what the economic and emotional state of its community will be in whenever the COVID-19 pandemic starts to eventually abate.

“It’s a challenging time for everybody,” Frisco RoughRiders president Andy Milovich said. “That extends beyond MiLB to everyone throughout our communities. We become part of the fabric of the community. We support our non-profits and local businesses. When the community is hurting, we’re hurting and vice versa.”

Many leagues have suspended league dues payments for the time being. For teams that rent their stadiums from their local municipalities, there may be some flexibility in paying rent payments in the short term. But for teams that own their ballparks, mortgage payments are still coming due, and payroll, insurance and various other monthly expenses will come due whether the team is playing games (and generating revenue) or not. 

At the MLB level, there are a variety of revenue sources, including MLB Advanced Media and television contracts. If there comes a point where MLB teams can play games without fans, they would likely do so for the television revenue and the ability to get the games going. With no significant income from media contracts, fan-less games would only add to MiLB teams’ financial issues—they would have none of the income but some of the costs of putting on a game.

 

While MiLB teams’ values have grown to the point where clubs change hands for millions of dollars, that valuation, much like that of some MLB teams, is often based more on scarcity (there are only 150 available affiliated MiLB franchises that can be purchased) than the numbers on a financial balance sheet. A number of MiLB teams break even, lose or make a little money each year, depending on how well they sell that year and how lucky they get with the weather.

“Teams will budget for two, three or four rainouts a year. You can take that to the bank. And you hope they are on a Monday or Tuesday. Having 8-to-10 rainouts is the difference between being in the red or being in the black for a lot of clubs,” said MiLB Senior Director of Communications Jeff Lantz. “We need butts in the seats and gates open for our teams to make money. Obviously that’s not going to happen for at least six weeks. It’s looking like (it could be) much more than that.”

At least one owner suggested that the issues will be spread through all levels of the sport. While some of the teams with smaller attendances may have less cash reserves, there are larger teams who have 70-person staffs and large payrolls to meet.

“There are teams who can weather this no problem, but there are a lot of teams who have serious concerns. Everyone has to think about staffing and how we can get through this. And you don’t know what to project,” International League president Randy Mobley said.

Even when MLB has lost games for strikes, MiLB games continued. No one currently working in MiLB has ever faced a significant loss of games as is assured in 2020.

“I’ve been in the front office when we went through the aftermath of 9/11. During the recession in 2008-2009 I was opening up the Bowling Green ballpark, selling a new ballpark when the economy was going the wrong way. Those are blips compared to this,” said Erie Seawolves President Greg Coleman.

Not diminishing the possible health aspects in any way, but economically, the timing of the nationwide shutdown could not have been worse for MiLB teams. If the pandemic had struck earlier in the offseason, open staff slots would have been frozen and purchasing would have likely been curtailed in preparation for a difficult business environment.

But coming just weeks before Opening Day, the shutdown occurred at the point when MiLB teams have already spent significant sums of money in preparation for the season, but the revenues that the season brings have only just started to trickle in.

So from a cash-flow perspective, it’s the perfect storm. For full-season clubs, the uniforms, bats, balls, ticket stock, banners and a thousand other necessary details have all been purchased. 

But most of MiLB teams’ revenue is received during the season. There have been some season-ticket sales (which often are paid for in a series of installments) and some sponsorship money has already been received. But many of the wall signs and other advertisements are usually paid over the course of the season. Those advertisements were sold with the expectation of 70 home dates—now there will be fewer. Some of the businesses that sold those signs and bought the group ticket packages or season ticket packages are now unlikely to have the money to pay when the bills come due. And with no season assured, spending ticket revenue is spending money that might have to be refunded.

“You want to do the right thing by your season-ticket holders and your sponsors,” Freund said.  “We want to wake up and do the right thing. In the end that’s how you will be remembered,” Freund said. “The right thing is to refund tickets. It’s to work with your supply chain. You want to pay your invoices. But that’s going to be at the expense of people’s livelihoods. I’m never looking for a handout, but I think the government is a big piece of this. Our partners of MLB will have a hand in making sure that MiLB can survive. It’s somewhat ironic (considering the contentious PBA negotiations) but the reality is, we need our MLB partners. They are critical to our survival.”

 

The lost dates also will have a financial impact for team employees. While full-time staffers continue to work, the part-time gameday staffs only get paid for games they work.

“What rattles me is what’s the effect on so many people? The players are not getting paid. The guy who sells beer and peanuts, we’re missing games. How do we help them? Years ago people worked at ballparks on a part-time basis for walk-around money. Now a lot of our gameday employees are doing it to pay their electric bill. This has far-reaching implications,” said Richmond Vice-President/Chief Operating Officer Todd Parnell.

If MiLB lost its April and May dates, that would be 3,004 lost dates. Those dates drew 11,427,699 fans, which was 27 percent of the total attendance MiLB drew in 2019. A July 1 start date would mean that MiLB lost 4,850 dates and 18,923,687 fans. That was 46 percent of MiLB’s total attendance in 2019.

“That is crushing,” an industry source said. “I wouldn’t be surprised if some teams are looking into small business loans. That’s the way to survive right now.”

The lost dates will also affect restaurants and other businesses around ballparks that rely on gameday traffic. Those businesses are also being massively affected by the bans on groups instituted around the country.

“There are zero answers right now. Once these bans are lifted are people going to flock or are people going to be scared. Some of our sponsors are shut down, especially the restaurants. It’s rough. They don’t know when they can start working again. There are a lot of restaurants and bars around the ballpark that depend on us too,” Asheville Tourists President Brian DeWine said. 

For now, teams are working on figuring out cash flow and payroll. They are having countless conversations with sponsors and ticket buyers, promising that once there is more certainty they will figure out a way to make sure everyone is satisfied. But after the season ends, there will be another looming deadline. Unless the requirement is waived because of the current circumstances, all MiLB teams have to verify soon after the season ends that they have fully paid all outstanding baseball expenses for the just-completed season. This year, that’s going to be a much tougher deadline than it has been in past years for many teams. And as soon as the offseason arrives, the cash flow issues that are a problem now will return as teams will have to figure out a way to make it through next offseason with less income during the 2020 season than projected.

But at some point baseball will return. And when it does, MiLB teams want to be the community meeting place they’ve been for decades.

“I do see this as not that dissimilar to the 9/11 moment. I remember going to Yankee Stadium after 9/11. There were still people fearful of being in a large crowd, but the reality was that the spirit of the American psyche and connectivity—that was the most special night I have had at the stadium,” Freund said. “When we have 10,000 people in AutoZone park and when the Cardinals have 40,000 in their stadium, it will be an incredible moment when we all come together. Sports are one of the first things that come back and are critical to our society being successful and vibrant again. I look forward incredibly to that moment.”