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The looming financial squeeze facing every MLB team

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Fred Manrob spoke in detail about MLB’s 2020 books. It was not a good speech.

Kansas City Royals v Cincinnati Reds Photo by Joe Robbins/Getty Images

All 30 Major League Baseball teams host 81 home games every season. At those home games, they entertain a wide range of paying patrons, from the seven or so Cubs fans in PNC Park for Pittsburgh vs. Chicago in late October to the routine 56,000 strong Los Angeles welcomes to Dodger Stadium pretty much every time they don their home whites.

Not this year, of course. There were no 81 home affairs, and no fans at all in the stands for the ones that were played. No concessions, no parking fees, none of it. And while the brand reputation, TV broadcasts, ad sales, and partial ownership of regional sports networks still maintained a filthy rich money stream to these franchises this year, it’s undeniable that the year-in, year-out business model on which baseball has existed for years took a massive uppercut to the chin this year.

Of course, the multi-billion dollar industry that is Big League Baseball creates its own significant line of credit, one that it appears they leaned into quite hard during the woes of 2020. As MLB commissioner Rob Manfred revealed earlier this week, that resulted in a boon to nearly $3 billion in debt by the franchise collective, a number that’s quite staggering regardless of the future expectations of revenue from the sport in the future. MLB Trade Rumors has a pretty thorough compilation of Manfred’s initial comments, some parallel points, and a bit of analysis on the topic.

There is certainly a debate to be had about the moral, ethical, and rational actions of the people who claim ownership of these billion dollar behemoths franchises and the decisions they’ve made in the wake of their business model disruption. There is certainly something fishy about laying off entire swaths of salaried staff members up and down the organization while paying the 12th reliever in the bullpen $4 million to pitch to a 5.38 ERA, after all. But in an effort to keep this a readable baseball blog post, I’ll try to keep this as bottom-line-baseball as I can for the moment.

With that in mind, it’s that 12th reliever in the bullpen who’s slated to make $4 million after pitching mediocre-to-poor that we’re talking about here. It’s the player front offices begin to identify as ways to save money, and fast. The reality is that there will end up mostly being three kinds of franchises that emerge in the short term from this fiscal disruption.

There will be the damn the torpedoes, full speed ahead clubs. Two, three, maybe five of the franchises that have the right mix of big market, big pockets, and the knowledge that they have a legit chance to win a World Series in 2021 might just spend money something akin to usual this year. Winning a World Series even in times of financial distress is in itself an incredible revenue-generator anyway. They’ll incur a bit more debt and wait out the storm while cornering more of the market than they already had, simply because they can. This is the Yankees, the Dodgers (who doled out a fortune to Mookie Betts already despite the uncertainty), and perhaps another club who chooses to be opportunistic.

There will be the hold-tights. I’m anxious to see where the Cincinnati Reds fall in this spectrum, but I’m hopeful they land here. They might not dive into the deep waters of free agency out of fiscal prudence (or fear), but they’re not in a position to sell off and flee. They’ll maintain what they’ve got, hunker down, and hope things get back to normal quickly, trimming their loose hairs and searching the bargain-bin for a hopeful diamond in the rough, but no more.

There will be the run like hells. Clubs with poor finances, large debt servicing requirements, and rosters with ticking time-bombs might well call time early, even if 2021 had promise in an otherwise normal year. They’ll consider themselves opportunists, too, if they can swap a star now for uber-talent for 2022 and beyond, doing so while prioritizing funds over wins. That could mean Oakland, who might try to land five future stars in lieu of paying Matt Chapman his arbitration raise, or it could see the Rockies move Nolan Arenado and his huge contract.

What it will mean for all three of those types of franchises, however, is that if you aren’t a star or regular, odds are you aren’t going to get paid anything relative to what you would in years past. In particular, it will almost certainly mean a cull of arbitration-eligible players being non-tendered in a fashion we’ve not ever seen before. In particular, a huge bulk of arb-eligible players - read: players making more than league minimum - are either insurance guys or players who haven’t yet reached their full potential but are being kept around in hopes they reach it soon. The latter, in this year’s new financial world, will most likely get time called on them early.

The result will be a free agent bargain-bin this winter that’s more full than it has ever been, something that may entice a huge number of teams to shop there instead of the deeper end of the market since inevitably there will be more diamonds in that rough. From a Players Association perspective, that’s a double-whammy in that it will depress the free agent market while also culling the arb-eligibles, something that will absolutely factor into the pending Collective Bargaining Agreement negotiations that will have to take place in 2021 before the current agreement expires.

Lovely.

Purely from a Reds perspective, this won’t mean they’re shedding stars. Jesse Winker, Amir Garrett, Luis Castillo - none of them are going anywhere when it comes time to tender contracts. Peripheral guys like Travis Jankowski, Robert Stephenson, or even a luxury like Brian Goodwin, however, might see their market squeezed, however, especially as active rosters move back to just 26 after resting at 28 for the 2020 season. Add-in that MLB’s overhaul of the entire minor league system will lop off some 40 franchises in order to ‘streamline’ development, and it’s looking increasingly likely that even stashing bench bat, insurance guys, and would-be middle relievers with service time at the upper-levels of the minors won’t be part of the looming changes to the MLB business model at all going forward.

Teams will still shop in those sections, of course. They’ll be on the hunt for the next Scooter Gennett, the next Edwin Encarnacion. They just won’t pay them up front and wait to find out anymore, at least not until the virus, the pandemic, the fans, the business model returns to anything close to what it was before, even for the damn the torpedoes, full speed ahead clubs.