Coronavirus Scrambles Already Difficult MLB-MiLB Negotiations

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

Like everything else in the world, the negotiations between Major League Baseball and Minor League Baseball toward a new Professional Baseball Agreement have been scrambled, delayed and altered by the novel coronavirus pandemic.

With both sides facing the financial concerns that come from the need to delay the start of the baseball season, many involved in MiLB are hoping for a pause. As they see it, it makes sense to extend the current PBA by a year or two to allow all sides to get through the current pandemic, return to financial health and then sit down to hash out the structure of Minor League Baseball for years to come.

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That is unlikely to happen. MLB has no desire to extend the current agreement by two years, a year or even a month. Come Sept. 30, 2020, the current PBA will expire. And with it comes another reality. Whether the 2020 season is played or not, it’s almost assured that a significant number of current MiLB teams will not be playing affiliated professional baseball in 2021.

The PBA is what governs every aspect of the relationship between MLB and MiLB. In it, MLB agrees to provide and pay for players who play for MiLB teams. MiLB teams are their own separate businesses (although some are owned by their parent clubs) and MiLB teams are governed separately by both MiLB’s own offices and by their individual leagues.

The reporting for this story has been gathered through numerous conversations over the past months, but almost none of them has been on the record because officials are not willing to speak candidly about the issues in a public forum.

When the two sides do return to the table (likely in a virtual manner because of the current health environment), they will find that one of the most contentious negotiating points will have already largely been settled.

MLB began the negotiations by proposing to cut the number of MiLB teams from the current 160 to 120. MiLB has strongly opposed such a cut, which would eliminate one-fourth of its members. Last week, while negotiations between MLB and MiLB were put on hold for coronavirus, MLB finalized an agreement with the Major League Baseball Players Association to reduce the 2020 MLB draft from 40 rounds to as few as five. MLB and the MLBPA also agreed that the 2021 draft can be limited to as few as 20 rounds, half of what it was in 2019.

MiLB was in no way a party to the negotiations about the draft. But other than the amateur players who will now go undrafted, it’s hard to think of a group that will be more affected by the decision. A year ago, more than 950 players entered the minors through the draft. This year, that number could be reduced to around 160.

With so many fewer players, the rationale for having short-season and rookie clubs (the ones that are largely on MLB’s chopping block) becomes much more tenuous. The Yankees signed 30 players in the 2019 draft. If this year’s draft is limited to five rounds, they will get to sign three.

The decision to dramatically reduce the draft rounds does not immediately kill short-season and Rookie-level clubs. If there is a 2020 MiLB season, the current PBA requires MLB to provide players for the current 160 MiLB teams. Teams will hold onto some players they may have released in other years. And they will sign undrafted free agents as well as released players to fill out the rosters as needed.

But it may make one of the most contentious portions of the PBA negotiations a fait accompli. If MLB is going to bring in so many fewer players, the reasoning for teams to have as many as four domestic short-season and Rookie-level clubs goes out the window.

Before the coronavirus outbreak shut down baseball, the parameters of a deal between the two sides seemed to be starting to firm up. Both sides agree to the need for increased facility standards (although working out the exact details of penalties for failing to meet standards and ways to fund those stadium improvements can be tricky). MiLB had shown a willingness to work with MLB on reorganizing leagues and schedules to reduce travel.

There even was momentum to come to some sort of resolution on the number of MiLB teams. The numbers Baseball America was hearing was the possibility for between 128-138 total clubs in a new PBA.

That was a significant reduction from the current 160 clubs. MLB has long held the right to eliminate the 10-team Appalachian League as long as it gives six months notice—there was a realization around MiLB that it would be hard to save the league.

Beyond that, there seemed to be a growing agreement that not all 150 remaining teams could be saved. MLB has promised to ensure that baseball will continue to be played in those cities (whether through new independent pro leagues that MLB sets up, summer college wood-bat leagues or existing independent leagues). If MLB and MiLB could hammer out compensation for owners of eliminated clubs, there seemed to be a path toward an agreement.

Before the coronavirus outbreak, MiLB’s best argument for going beyond 120 teams (which is four full-season clubs for all 30 teams) seemed to be to make the case to allow teams the option to field a short-season club. No team would be required to field a short-season team, but teams would not be prevented from doing so.

Such short-season leagues would not be guaranteed a certain number of PDCs. But if enough MLB teams opted to have short-season clubs, a league or leagues could be saved. If a league ended with an odd number of teams, it would rely on co-op teams (where two or more MLB teams each send a smaller number of players to the team) or even independent teams filled with non-affiliated players. Such a system was in place in the minors throughout the 1970s and 1980s.

It’s not clear whether that’s still seen as an option or whether the financial effects of the coronavirus will reduce the number of clubs even further.

Everyone in baseball recognizes that the financial picture is much different than it was when the 2019 season ended (and PBA negotiations began). Multiple MiLB decision-makers noted that the coronavirus’ effects might organically provide the cuts that MLB desired.

The reality is that there are MiLB teams across the country that will struggle to survive this baseball shutdown. In numerous cases, teams have been operating on a break-even or worse basis from year to year, although the franchise appreciation has meant that the overall value of the club continues to climb.

This year, many of those teams will lose significant amounts of money. No one in MiLB seems confident that all 160 teams will make it to Opening Day. In such a situation, for some owners the idea of being contracted may seem less onerous than it did six months ago, especially if there is a plan developed to provide compensation for the lost franchise, either now or in the future.

The CARES Act, recently passed by both branches of Congress and signed by the president last week could provide some help to struggling MiLB clubs. It provides forgivable loans to businesses of 500 or less employees (all MiLB clubs have less than 500 employees) to help them meet payroll. But even there, the uncertainty that some MiLB teams face could be an impediment.

For the loans to be fully forgiven, businesses must continue to employ the same number of employees for the two years following the loan. If not, some portion of the loan is not forgiven and is required to be paid back over a 10-year span. A MiLB team that is potentially on the chopping block cannot feel comfortable that it will still employ the same number of workers two years from now.

There are a number of ways that compensation for eliminated teams could be funded. The fees that will come whenever the minors expand (along with MLB expansion) could be shifted to a fund to eventually compensate eliminated MiLB teams. Ticket tax money that MiLB teams collect and send to MLB clubs could be shifted to do the same. Or MLB clubs could fund a portion of the compensation themselves (although that seems less likely now that MLB teams are also losing money from a suspended schedule).

MiLB’s options in the negotiations seem more limited now than they did before the coronavirus struck. Many of its clubs are in more perilous financial straits. And its strongest counterweight to MLB in the negotiations has been political and public pressure, but that’s potentially more difficult to mobilize during a global pandemic.

But the biggest hurdle for MiLB is time. The coronavirus has understandably delayed talks and any potential resolution. Throughout these negotiations, MiLB has faced much more pressure than MLB to get to a speedy resolution. If negotiations linger into the summer, which now seems possible, MiLB faces the ever-increasing difficulty of trying to hold together different factions with very different needs and desires. Almost all Double-A and Triple-A teams are protected from elimination under MLB’s plans (and they are the clubs that have the largest valuations in most cases). Those owners and teams see the need for some sort of resolution to begin planning for 2021 and beyond. Keeping them in line to protect short-season and Class A clubs (especially ones that may struggle to survive financially anyway) will grow more difficult if negotiations stretch into June and July.

And if the PBA does expire at the end of September, the ramifications are much more dire for MiLB than MLB. With no PBA, MLB no longer provides players to MiLB teams. Without a new deal at some point, each MiLB club would be required to sign and pay its own players if it wanted to continue to operate in 2021.

For MLB, there is no similar pressure. MLB wants to resolve the PBA negotiations before they have to jump into even more significant Collective Bargaining Agreement negotiations with the MLBPA in 2021. But in a worst-case scenario where there is no resolution, MLB would face no significant direct effects from not having a deal done before the current one expires at the end of September.

In 1990, when the most contentious PBA before this one went down to the wire, MLB teams had begun planning to operate their own minor league teams at their spring training complexes and potentially at college baseball stadiums. For MLB, a similar plan in 2021 would cause significant political and public blowback and would create a long list of logistical hurdles for developing its players.

But those hurdles are extremely modest in comparison to what it would mean for MiLB teams, which could lead to a massive rise in costs, a significant reduction in income and almost assuredly dramatic reductions in franchise valuations.

Even before the coronavirus pandemic scrambled plans for everyone involved in baseball, MiLB faced a very difficult negotiation. To be successful as a business, it needs MLB to be a partner, which is how the two sides have viewed each other at times during the past three decades of relatively peaceful relations (and multiple new PBA agreements). It’s a relationship that has developed organically over more than a century.

From the start of these negotiations, MLB has presented itself as more of an adversary than a partner. From day one, MiLB has had no significant requests for alterations to make the new PBA more advantageous for its teams. It’s been negotiating instead to limit how far it has to go to meet MLB’s demands.

MiLB’s path to keeping the minor league system somewhat similar to what it has been for the past three decades was already quite difficult. The current pandemic has made it nearly impossible.