For the first time, there are numbers attached to the amount of money lost in 2020 by minor league baseball, and it’s going to take a lot of ticket and hot dog sales to close the gap.
“I think the average team, revenue-wise, will have lost $5 million,” Larry Botel, a New York real estate mogul who owns three teams with partner Gary Green, said in an interview.
That’s $800 million total for the 160 teams that were still in business last season. Now, 40 of those teams are out of business, having not been given a Player Development License (PDL) by Major League Baseball this year to remain an affiliated franchise.
The remaining 120 teams now are faced with the issue of how to cope with those lost revenues, which according to Botel, were offset somewhat by a pair of federal PPP loans, staffing furloughs, and creative use of various ballparks this past summer for socially-distanced events.
In those cases, he added, the average operating loss for each club was between $2 million to $3 million last year.
“But $2 million to $3 million in minor league baseball is a lot of money,” said Botel, who has one team each in Triple-A, Double-A and Single-A.
Like all minor league teams, those clubs didn’t play a game last season because of the coronavirus, and have had the start of the upcoming campaign delayed until the first week of May at the earliest.
With MLB shouldering no liability in the new PDL against those monetary losses, Botel and Green came up with the idea of a private lending fund operated by Oaktree Capital Management, described on its own website as “the largest distressed securities investor in the world and one of the largest credit investors in the world.”
Minor league baseball, which is also mandated under the PDL to invest in the next couple of years up to $3 million a team to upgrade individual ballpark and training facilities, is a distressed investor at this point.
“If somebody doesn’t comply with what they want, MLB can literally remove the PDL from that team,” Botel said. “That’s a pretty heavy hammer in place where there was none before. It’s or else. The or-else is there now.”
A spokesman for MLB said the commissioner’s office declined to respond to questions about these issues, although Botel noted he has kept MLB apprised of his loan program and has approval for it.
The terms of the loans from $1 million to $10 million are pretty onerous: two to five years and an interest rate of 8% to 12%. But that’s where minor league owners are right now.
“There’s never been good financing in the minor league baseball business,” said Botel, who has owned teams in Omaha, Richmond and Montgomery for 15 years. “There are a few local banks that will lend money. Maybe one or two with a lot of tight reins on it.
“It’s tough. And now we’re having to ramp up again into the season. To start selling again, to start staffing again, bring back employees who were furloughed. A lot of teams are still trying to figure out how much money they need and what we’re going to have to do moving forward to mitigate the losses and return to normal.”
The Triple-A season was targeted to open in early April with the lower levels a month later. MLB, which now operates the minors under the one baseball banner, has the right to unilaterally delay, postpone or even cancel the upcoming minor league season because of the ongoing pandemic.
And that’s without financial regard to the minor league teams.
“Correct,” Botel responded. “So when you lose another month of gate, it’s tough.”
MLB exercised that right by pushing back the Triple-A season with the possibility of adding those games to rear of the schedule, taking it into October for the first time.
“Losing games in April in Omaha is not the worst thing in the world,” Botel said. “It’s freezing cold. We’re losing money game by game. It’s disturbing and it’s unfortunate because it just adds more uncertainty, but losing April is not bad. Losing May would be worse.”
Minor league games in May are not guaranteed.
Traditionally, the minor league season ended Sept. 1 with the playoffs to follow. But there’s nothing traditional to the way either MLB or MiLB is being operated right now. The season as slated, if it happens at all, limits travel and offers long homestands between the same two teams.
“What may happen is until the players are vaccinated there may be no minor league baseball,” Botel suggested. “That’s been the backdrop. It’s a pretty awesome task for them to scatter their prospects among 120 teams and cities and try to keep them safe. That ain’t easy. I think there’s going to be a lot of hand-holding and back and forth for when the season really starts.”
The new 10-year individual PDLs signed by each minor league team replaced the old umbrella agreement, which had been in force for decades. Each MLB team was instructed it could maintain only four minor league clubs, one at each level including high and low Single-A.
This arrangement offers some stability in both the Majors and minors, replacing the old two-to-three year contracts that used to loosely attach minor league affiliates to their MLB clubs. Under the new system, MLB abolished the old league setup and their individual offices and presidents.
“There was really a lack of leadership and structure in minor league baseball,” Botel said. “When the contract expired, MLB took a very extreme approach. They wiped everything out and started over the way they wanted to. From Gary and my perspective, we have a lot more faith in MLB figuring it all out than the minor league office doing it at this point, after 15 years of living with it.”
The season, though, is still on the brink. MLB could unilaterally mandate that every minor league player absent from the 40-man roster of an MLB team be vaccinated to play ball this year. At the MLB level, vaccinations for players must be negotiated with the MLB Players Association, and that choice would remain up to the individual, multiple sources said.
Because of the MLB Basic Agreement, which is in its last of five years, the big-league season will start April 1. Botel thinks they’ll be playing minor league baseball by June.
“Until COVID is not an issue, they can’t push too hard,” he said.
Until then, the loan program will give some teams a chance for funding before revenue starts to flow.
“We have been pretty worried about the money, and we’re proactive about it,” Botel said. “The revenue loss was so substantial relative to the value of teams, the amount of money they have access to, and the ability of each owner to write checks, we saw an opportunity to raise a fund and provide needed capital to minor league baseball teams.”