Last week, Major League Baseball formally invited 120 minor league baseball organizations to join the league’s revamped player development system in 2021 with a 60-page document that defines the terms and conditions for club affiliation. Conversations with a quartet of MiLB owners whose teams received a golden ticket from the commissioner’s office revealed feelings of both tremendous optimism and extreme doubt about a long-term future under MLB control.
Our Take: The pessimism originates from MLB’s approach to recent negotiations with MiLB representatives. Three of the four owners we spoke to—each granted anonymity because they feared retribution by MLB—said the league’s heavy-handed style was far more indicative of a group seeking economic domination than a “win-win” partnership. The talks “didn’t have the feel of a collaborative relationship,” one of the owners explained. “This should be your classic franchisor-franchisee relationship. [But] in a [successful] franchisor-franchisee relationship, the more attractive the franchisor makes it for the franchisee to sell [the product], the better everybody does. I’m not sure this deal reflects that orientation.”
The other two owners who expressed dissatisfaction with the MLB’s approach were a bit more blunt, suggesting that the offered contracts, which would lock teams in for 10 years, seemingly minimize the MiLB clubs’ standing. They theorized that MLB was trying to suppress the economics of minor league baseball teams so they could eventually acquire them on the cheap. “These are [in many cases] multimillion businesses that right now would not be sellable because you have nothing to really sell; you have no guarantee of future rights to anything,” one said. While the concern may sound far-fetched, “the G-League (then the D-League) initially had independent operators just like us. Today, all of the teams are controlled by NBA clubs,” the other owner pointed out. For the record, MLB said it has no intention of buying out or taking over MiLB clubs. “There are minor league teams all over this country that provide baseball to their communities and are great partners to our Major League clubs in developing the next generation of stars,” said Morgan Sword, MLB executive vice president for baseball economics and operations. “We look forward to working with them to grow this game for generations to come.”
In theory, it makes sense for MLB to have a robust, independently operated minor league system (at least if the goal is to drive attendance in non-MLB markets). But one of the MiLB owners said it’s not clear that “MLB views the current MiLB experience as important to their overall development.” In fact, he said the offered deal indicates that the league views the minor leagues as “nothing more than a cost center. [They] need a place for their young guys to play games, to develop, and [they] want to do that at the lowest possible cost.”
Not everyone we spoke to was down on the contract terms. It’s hard to argue that the old system wasn’t fundamentally broken. Just a single single-A club was, as one owner put it, “making any money” (the Dayton Dragons), and teams across the minor leagues have been operating in the red. A recent lawsuit indicated the Staten Island Yankees (formerly a short-season single-A affiliate of the Bronx-based MLB club) were losing $500,000 to $1 million a season. “Under the current setup, [many teams] were not really making any money, because the minor league baseball national association [didn’t] understand sports or how to run a business,” said this owner, the most vocal proponent of change among the owners we spoke to. “They [didn’t] even understand what media rights were or how to monetize them. They didn’t understand the value of social media. The world has moved on from 30 years ago when the local pizza place put up a sign. We were analog players in a digital world. While MLB is certainly acting in its own best interest [in taking over MiLB], at least we have a fighting chance at success with Major League Baseball as our partner.
“Financially sophisticated investors who have bought [teams] to make money [as opposed to the owner-operators of previous generations] welcome change because the old model was doomed,” the owner continued. Remember, MLB’s $3.75 billion extension with Turner Sports just increased the value of its media rights by 40% despite all of the existing industry headwinds. There’s no reason the league couldn’t package up MiLB content, leverage some of its other assets and create significant value that is currently not being realized. For perspective, Little League World Series rights are worth north of $10 million per year.
Two other MiLB owners we spoke with agreed that if Major League Baseball and the Minor League Baseball owners truly collaborated in a business- and community-focused manner, they “would [both] obtain a lot more value, provide a better product and be a more positive influence in the communities.” While it may be hard to envision after 18 months of contentious negotiations, should their optimistic outlook come to fruition MLB just might see the value in their minor league partners, securing their future.
The truth is, MiLB owners really have no choice but to lean into the partnership and hope for the best. As one of the owners noted, it’s not as if they have an alternative: MLB provides MiLB with their players.