Minor League Owners Unhappy With MLB’s Plan, But What Will They Do?

MLB is asking each organization to sign a nondisclosure agreement and waive its right to sue. If a minor league franchise agrees to do so, it can then continue forward with MLB’s process toward signing a 10-year Professional Development License (PDL), which is MLB’s replacement for affiliation agreements under the prior Professional Baseball Agreement.

A few teams have already signed nondisclosure agreements. Most, though, are waiting, and leagues are expected to meet later this week to discuss next steps.

It’s important to remember that while MLB publicly identified and invited the 120 teams it hopes to include in its new development system, nothing is finalized. Signing an NDA and waiving the right to sue is considered just the first step in a process that could take another month. Once teams sign the NDA, MLB will send the Professional Development Licenses to teams. Teams will have 30 days to sign the PDL. Teams that do not sign within that 30-day deadline will face the possibility of being dropped and replaced by other teams. So it is possible that the final structure of the 2021 minor leagues will not be known until late January or early February.

Most minor league owners Baseball America talked to over the last week expect that nearly all of the 120 teams will sign NDAs by the Friday deadline. After all, teams are not agreeing to a 10-year license by signing these agreements; they are just agreeing to continue the process. And for teams invited to be part of the 120, the idea of suing MLB always seemed unlikely.

But that doesn’t mean everyone is comfortable with the state of the PDLs as summarized. There are a large number of minor league owners who were upset or disconcerted over details in the summary.

On a number of the most contentious issues, MLB’s summary avoids direct answers.

 

 

Minor league team owners have long said they are concerned about franchise valuations. More specifically, they are concerned about what would happen if an MLB team opted not to renew the PDL license after the 10-year term expires.

Previously, MLB had said in its discussions that if a minor league team was in compliance with MLB’s PDL standards and an MLB team opted to not renew their license after the expiration of the 10-year term, the minor league team would receive a buyout at an, as of yet, unspecified multiplier of team revenue as measured over the average of a few years.

But in the summary delivered to teams last week, MLB laid out a plan that will postpone any decision on the matter for several years.

The summary states the issue of compensation would be determined by the Executive Board three years before the expiration of the 10-year licenses, meaning teams will not learn further details until 2027.

The Executive Board will be a nine-person committee with four minor league owners (one from each classification level), two MLB team officials, two MLB league officials and one independent member with no ties to either MLB or minor league team interests.

It is this Executive Board upon which many minor league teams’ hopes will rest.

The Executive Board will handle disputes between PDL holders (minor league teams) and MLB teams, advise on the licensing, marketing and sponsorship sales around the minor leagues and give recommendations for tweaks and alterations to the PDLs. If given significant power, it is possible the Executive Board could provide a way for MLB and minor league owners to collectively resolve joint issues and continuously improve the structure of the minors, taking feedback and making alterations.

But there are concerns among minor league owners that, as it is currently summarized, the Executive Board will largely have an advisory role, with the MLB Commissioner’s Office holding final decision-making authority over most issues.

The league presidents of various minor leagues met Dec. 13 and discussed how aspects of MLB’s summary of the PDL terms failed to lay out everything MLB had previously agreed to in long-running discussions between MLB and MiLB. There is an expectation that some of those issues could be resolved with further clarifications from MLB.

 

It’s clear there is discomfort and a significant amount of dismay around the minors at some of the terms spelled out in the summary. It’s less clear what teams and leagues are going to do about it.

Most teams are in a wait-and-see mode, looking to see if anyone will take the lead in trying to get aspects of the PDL agreements altered, according to multiple minor league owners interviewed by Baseball America.

Almost everyone agrees that it would take group action to get any tweaks.

Now that invitations have been sent, it’s clear that individual teams have very little power to alter the structure of the PDL. With teams like Trenton, Frederick, Lowell, Lexington, Kane County and others left out of the 120, any one team that balks at signing a PDL can easily be replaced. MLB has plausible replacements for one team or a couple of teams at all levels of the minors.

Turning to replacement teams would be messy for MLB and would likely leave some MLB teams unhappy because their affiliation plans would be altered by such moves. But the threat of easy replacement with a viable alternative makes it very difficult for any one minor league team to try to negotiate alterations to the PDL.

There were financial terms in the summary that many minor league teams saw as onerous, too.

Most notably, teams were unhappy with a provision that minor league teams would need to carry $25 million in an umbrella insurance policy. Multiple minor league owners said they carry between $2 to $5 million in such coverage currently, and such a significant increase would incur tens of thousands of dollars in increased costs with little, if any, perceived benefit.

Teams are also concerned about how much money they will receive from MLB’s national marketing and sponsorship deals. The promise of this new system has been that MLB will save money in operational costs for minor league teams while providing significantly more money in revenue from Internet rights, sponsorships, marketing and other revenue-producing deals. Minor league teams are still hopeful this will happen, but they worry they are potentially giving up local revenue they can count on for speculative revenue that may or may not actually arrive.

There were carve outs in marketing and sponsorships that, while not entirely unexpected, raised concerns. MLB’s summary said minor league teams would be allowed to have an exclusive local soda contract and minor league teams would be able to select two additional categories in which they could sign exclusive local sponsors. But for all other categories, MLB will be able to sell national deals that would guarantee their sponsors presence in minor league stadiums around the country.

That creates issues for minor teams that already sold a local sponsor exclusivity as part of a significant sponsorship package. For example, if a team has a large sponsorship deal with the local Honda dealers, but automotive is not one of the two categories the team selects for exclusivity, the team will have to go back to the Honda dealers and explain that in the future there may be a Chevrolet parked in a prominent spot in the stadium as part of a national deal, even if the local team is going to keep promoting Hondas.

There are teams who have five, 10 or even 15 exclusive deals currently. There are concerns that once that exclusivity is lost, some of those local sponsors will balk at further deals.

But that was an expected friction point. There were other items in the summary that caused issues that were unexpected.

For example, under the details outlined in the summary, minor league teams would be required to license their local digital customer data from MLB, and MLB would retain sole ownership of that customer data. That means that at the end of the 10-year PDL term, a minor league team could lose the right to market to its own ticket-buying and merchandise-purchasing fans.

Triple-A teams, especially ones who believe their cities have a shot of ending up as MLB expansion candidates, are also interested in territorial rights. In the summary, MLB teams would be required to pay the minor league team it is supplanting in that territory the average of the sales price of the past three teams sold at that classification level. If the minor league team remains in the territory after MLB expands into the territory, the minor league team would receive 75% of the average sales price of the past three teams sold at that classification level.

Overall, there is a lot that minor league teams do not like in the summary of the upcoming Professional Development Licenses. It is much less clear what they are going to do about their discomfort.