The State of Minor League Baseball

Late last week, I listened to a podcast on the state of MLB and MiLB from Baseball America’s Kyle Glazer and JJ Cooper.  Baseball America has some of the best baseball journalists anywhere, and I have not yet found any baseball journalist who is more up on the subject of the state of MLB and MiLB than JJ Cooper.  I try to read everything he publishes.

The National Association of Professional Baseball Leagues (NAPBL), which trademarked itself as Minor League Baseball (MiLB) in the 1990s, was founded in 1903. NAPBL was the governing body directing minor league baseball operations.  MiLB has always been independent of MLB, which has provided players and coaches to minor league teams through affiliation agreements. Under this arrangement, MLB teams pay the costs of the players and coaches, and minor league teams handle the business of operating games and providing facilities.

As it happens, after decades, that contractual system of Professional Baseball Agreements (PBA) between MLB and MiLB came to an end on September 30, 2020, when MLB declared they would be taking over the management of MiLB.

Under the proposed system, MLB would take over governance and all aspects of the day-to-day operations of the minor leagues. The current PBA system would be replaced by one in which MLB operates the minors. MLB would deal with individual minor league owners on a franchisor-franchisee system, similar to how many hotel and restaurant chains operate.

MLB is dictating policy changes that MiLB owners need to comply with or move on. With an antitrust exemption that protects it from allegations of anti-competitive behavior, as one minor league owner explained before an Aug. 27 negotiation session: “This isn’t a negotiation. It’s the terms of surrender.”

What is the next step?

The two sides need to design and agree on the economics of a new development system.  These discussions are considered a Best Alternative Negotiated Agreement (BATNA).  MLB will have their BATNA and the MiLB owners will have their BATNA.  MLB has already laid out a system in which it would run the minor leagues at a guaranteed lower cost to minor league teams. Where have I heard that empty promise before?  MLB is also promising the expectation of higher revenues for minor league clubs.  Words have meanings.  You might be able to promise an expectation, but that expectation is not a promise.

●Under prior PBAs there was a Ticket Tax system whereby an 8% tax on ticket sales was allocated to MLB and a .5% tax on ticket sales went to the NAPBL offices in St. Pete.  Under the new proposal the tax will not change, but since there will no longer be a separated MiLB governing office, the full 8.5% will be allocated to MLB.  What will go away will be the per-level fees paid to MiLB’s national office as well as assessments and shared expenses.  That is how MLB is “promising” lower costs.  But there is another side that we will get to.

●There will be some sponsorship/broadcasting/licensing/digital rights changes granted to MLB on a national basis.  The MiLB club will still retain those rights locally.  The revenues generated via MLB will be split 50/50 with minor league clubs.

●MLB would be responsible for handling scheduling, umpire assignments and development, league governance, dispute resolution and the many other day-to-day tasks that MiLB and individual league offices previously provided.

●MLB’s proposal does include a minor league executive council which would have representatives from MLB as well as minor league owners. The executive council would have significant power to drive rules changes for the minors, but it would be in an advisory role. It would make recommendations for adoption by the MLB commissioner’s office, but the commissioner’s office would have final decision-making authority.  We now know that the executive from the Commissioner’s office will be 44 year old Ivy League educated (Harvard) Peter Woodfork.  At least Woodfork did play baseball at Harvard.  Woodfork will report to MLB executive vice president Morgan Sword in the baseball economics and operations department. Woodfork will oversee the player development system, including licensed affiliates, partner leagues and club player development departments. He will have responsibility for governance, scheduling, umpiring, license compliance and administration of affiliated teams.

●No on to how those operational savings will be spent.  MLB will dictate that the quality of travel and hotel accommodations must be enhanced.  This is a plus for the players, but the cost will be borne entirely by the MiLB affiliated licensee, and it will get costly.

●Also under the new plan, each of the minor league facilities will need to meet updated and upgraded standards.  It is still under negotiation as to who pays for those facility enhancements.  Lighting, HVAC, trainer rooms, clubhouse, pitching & hitting tunnels…will all need to meet more stringent standards, and that will cost.  Again this is good for the players, but at what cost, and who pays?  Under the new MLB proposed plan, capital improvements at MiLB parks paid for by MLB teams would be permitted. MLB clubs also could become minority investors in teams. Those two aspects could be linked, as it is conceivable that MLB teams would in some cases fund facility improvements (which benefit the MLB club’s minor leaguers and allow the minor league club to be in compliance with facility standards) and in return receive an equity share in the minor league team.  But if the MLB team does not want to pay for the required upgrades, and the MiLB owner cannot afford the costs, they will not be granted a license, and they will be out of the affiliated system.

●License agreements would replace current affiliation agreements, which have led to affiliation swaps every two years.  The licenses would run for a maximum of 10 years which is shorter than the 15-20 years the MiLB owners wanted.  The licenses could run shorter depending on the required facility upgrades.  MLB’s proposal would have terms as long as 10 years for many teams, but for other clubs, the terms would be shorter with automatic renewals to lengthen the term if certain upgrade requirements are met.

●The maximum 10-year term is a concern for many MiLB owners, who note it would be difficult to get municipal help on funding stadium upgrades without longer terms that stretch closer to the length of municipal bond terms. Such an issue could likely be resolved by simply allowing MLB teams to waive their rights to opt-out until 20 years or longer has passed.  If MLB parent teams do not want to pay for the upgrades, the MiLB owners need the municipalities to assist with the cost of the upgrades. 

●Just like MLB, MiLB affiliates are value driven and not operationally driven.  Under the proposed plan, if  the licensee is in compliance and loses its affiliation at the end of a license agreement, that MiLB owner will receive a guaranteed buyout.  The new affiliate will be required to pay compensation as part of their license agreement.

●While it is not cast in stone, the overall consensus is that the decision is to create a Minor League Baseball Program consisting of 120 teams and one team owned complex rookie league team.  This 120 affiliated teams will consist of:

• AAA – 30 teams (Dodgers currently OKC – Pacific Coast League)
• AA – 30 teams (Dodgers currently Tulsa – Texas League)
• A+ – 30 teams (Dodgers currently Rancho Cucamonga – California League)
• A (full) – 30 teams (Dodgers currently Great Lakes – Midwest League)

The Dodgers would have their complex rookie league team play in the Arizona League.

●It is almost an absolute that all MLB teams will have a cap on MiLB players at 150.

●JJ Cooper believes that the framework of a final agreement can (and should) be made this month.  The 120 affiliates need to be identified and licensed ASAP so that schedules can be drawn, and teams can sell tickets and sponsorships.  With reduced 2020 revenues at the MLB level, and projected reduced revenues for 2021, there will be less financial support coming to MiLB teams from MLB owners.

●MLB will not compensate non-affiliated MiLB club’s for the players/coaches compensation if they are not part of the proposed 120 affiliates.  If the owners want to compensate minor league clubs not part of the 120 affiliates they are free to set up a system.  Do not see this happening.

Now the question as to why has it taken so long to get an agreement. Cooper surmises that they had to wait for the election.  It had nothing to do with the Presidency, but more to do with local municipalities and to where the candidates fell on the subject of their local MiLB team.  The local legislators may not have wanted to chime in on their views of local MiLB ownership and whether those municipalities needed to help fund the facility upgrades.  It might also require state legislators to chime in.  Regardless, MiLB stadiums were not going to be topics for local politicians.

Of course Manfred is saying all of the right things by advising that it is MLB’s INTENT to ensure that “some sort of baseball” will remain in the communities that are not part of the 120. Again, words have meanings.  Intent does not mean absolute.

Below is the podcast I listened to, and it is a very good discussion on the State of MLB and MiLB.

https://www.baseballamerica.com/stories/podcast-the-state-of-mlb-minor-leagues-negotiations/

Baseball America has a couple of excellent articles on the subject. 

https://www.baseballamerica.com/stories/mlb-lays-out-proposal-to-run-minor-league-baseball/

https://www.baseballamerica.com/stories/current-professional-baseball-agreement-between-mlb-milb-nears-end/