Vast majority of MiLB club revenues derive from gate revenues

Affiliated minor leagues facing unprecedented number of game disruptions in 2020

Virus outbreak hit after many clubs have already completed and paid for offseason development projects

Less than two months ago, Minor League Baseball was facing the existential threat of mass franchise reductions amid a highly difficult contract negotiation with Major League Baseball reaching new depths of acrimony.

But now, as the global Covid-19 pandemic continues to grow, MiLB and its member teams face another all-consuming crisis: how to stay financially afloat and viable when there is no definitive timetable when play might be able to resume.

Though MiLB is deeply rooted in communities throughout North America through its 160 member clubs, it does not have many of the fiscal pillars enjoyed by the upper echelons of the sports industry. While many MiLB games are now available for streaming through the clubs’ pooled digital rights and a smaller set of games are televised on various local outlets, there is not a major, multi-billion dollar TV contract underpinning the property.

And while MiLB also has a growing national sponsorship business with rising ambitions, that component remains a developing initiative.

Rather, MiLB still depends very heavily on gate attendance to make ends meet, and most of its clubs are small businesses in the full sense of the phrase. And with the gates closed indefinitely, that has quickly raised concern about some clubs’ financial viability.

“It’s really tough for a team when 50, 60, 70 per cent of your gross revenue, your cash flow, comes from those 70 [home games],” says Pat O’Conner, now early in his fourth term as MiLB president. “To not have those games for the start [of the season], and to not know when you’re going to have them, is a little daunting.”

Asked bluntly if this could be death knell for some clubs, O’Conner responds, “Without some kind of assistance, that could be the case. We were basically under intrinsic threat to the system prior to this, from MLB. And this is worse, because the virus doesn’t care what kind of list you were on [for franchise contraction]. There is a concern on the solvency of some clubs.”

Beyond the indefinite delay itself, there is also the timing of when the Covid-19 pandemic hit the US in force. Widespread shutdowns around the country arrived less than a month before Opening Day, a spot on the calendar that club operators said was about as bad for them as possible.

“There’s a cadence to the offseason. And if you were to pick somewhere on the calendar for something like this to hit, I don’t think the timing could have been worse for us than what is was,” says Jeff Goldklang, president of The Goldklang Group, which owns two Class A affiliated the teams, the Hudson Valley (New York) Renegades and Charleston (South Carolina) Riverdogs, as well as the independent St. Paul (Minnesota) Saints.

“With the season coming right up, all of our offseason decisions and implementations have already been carried through. Had this happened in September, October, November, we certainly could have reacted, whether that be capital improvements, any number of items that we undertake during the course of an offseason and obviously have an expense attached to them. We could have reacted. In this scenario, cash flow is now grinding to halt, and without those games, there’s a trickle-down effect,” he says.

And that concern continues as Goldklang looks ahead toward an uncertain future.

“I can’t speak for other clubs…We’ll still be standing and we’ll be operating at the end of all this. But the big question is how much pain we’re going to need to encounter. There’s concern for every partner of ours as we get through this,” he says.

Adds Ken Babby, founder of the Fast Forward Sports Group that owns the Class AA Akron (Ohio) RubberDucks and Jacksonville (Florida) Jumbo Shrimp: “No doubt this will have a catastrophic impact on 2020 results, and I think people would expect that.”

Uncertain Times

MiLB’s central office has already looked to ease the financial strain on individual clubs, such as suspending the collection of some league dues, and aiding in the dissemination of resources such as information regarding small business loans and components around potential government assistance. Some teams, particularly those playing in publicly-owned ballparks, are getting extensions and other relief for rent payments.

There is also the slight benefit of the dates being initially lost to the pandemic are April ones that, outside of the celebratory Opening Day, are typically the lowest-attended of the season, particularly in the US Northeast and Midwest, where cold Aprils are common.

But the perhaps the biggest problem for the minor league club operators is the continual and profound uncertainty surrounding the pandemic. Since there is no way to know when or how MiLB clubs can come back to action, it makes weathering the current storm that much more difficult.

Much like at the MLB level, there already have been a variety of internal discussions around potential resumption scenarios for MiLB that would include moving games around the schedule and doing things like staging more doubleheaders to get as many games in as possible before the fall. But none of that talk is attached to any sort of certainties.

“It’s not that no wants to make the decision [about when to come back]. No one is able to make that decision,” O’Conner says. “And that’s what’s frustrating. Baseball guys don’t like the unknown. We can deal with pretty much everything, and have. But we don’t like the unknown. And this is right in the wheelhouse of that uncertainty, and with about as much seriousness as can be.”

While MiLB over the years has faced a wide variety of game postponements due to natural disasters and even larger issues such as the terrorist attacks of September 11, 2001, the affiliated minors have never faced a potential loss of this many games. Even when MLB lost significant time during labor disputes, such as in 1994, MiLB kept playing.

And playing in an empty facility upon resumption of games would be an even worse outcome for most MiLB teams, as that would incur the cost of staging the game but without garnering any of the gate receipts that make up the majority of club revenue.

Babby says his clubs are open for business from a remote standpoint. But overtly pushing tickets and sponsorships is currently very low on the priority list.

“We’re still finding our way in what the new normal is,” Babby says. “We’re a business, and like any business, we have a need to drive revenue. And that clearly has paused for the duration. But we’ve also made a commitment to these communities, and we’re going to get through this.”

Silver Linings

Despite the economic concern around the industry, the virus outbreak has created some unexpected positives in and around MiLB. League and club executives in particular are quick to laud the sharp increase in communication through videoconferencing, both internally with staff, and externally with fans and corporate partners, again at a time of year when Opening Day preparations would normally preclude many such conversations from happening.

And not only is the quantity of communication increased, but the quality as well, as nearly every conversation is beginning with an extended check-in on everybody’s well-being.

“The daily conversations we’ve been having remotely, with the ability to analyze different pieces of the business, this situation has opened up a new level of dialogue and allowed us to discuss things that we wouldn’t have had the opportunity to do otherwise, particularly because of where things normally are at this point in the calendar,” Babby says.

“We’ve had a lot of great ideas emerge out of all that. And when we’ve all struggled with work-life balance, particularly at this time of year, being home and having that additional time with family has also been really important,” he says.

O’Conner similarly said the current strategy for MiLB is to “overcommunicate with the clubs”.

Though any timetable for a resumption of play is still speculative at best, team operators are also hoping for a rapid and intense re-embrace from fans once games do restart.

“We’re really going to need to the great American game more than ever,” Babby says.

And those fractious Professional Baseball Agreement negotiations with MLB? Those have essentially been put on hold for the foreseeable future. The current 10-year agreement runs through the 2020 season, leaving both sides time to resume negotiations later this year.

“Even a month ago, the PBA was definitely the number one thing on everybody’s mind around Minor League Baseball,” Goldklang says. “Right now, it’s not even even in the top 15 or 20.”

O’Conner similarly says those talks by mutual consent have been pushed to the side.

“Right now, the most important things are the clubs, the players, the fans, dealing with this virus and to work through what’s in front of us, all with an eye toward getting all 160 clubs through this in the best possible fashion,” O’Conner says. “There’s time to get to the PBA.”