The Private Equity for Families Blog

Minor League Owners and Congress Balk At MLB Pick Off

This is the time of year when you can actually find child like joy in your Major League Baseball (MLB) teams. Take the Cleveland Indians with their small market budget as an example. Not-withstanding, their loss of an important starter, Mike Clevinger, the Tribe has actually secured a playoff spot by dominating the division leading Chicago White Sox in a 4- game series. They have done this with a Cy Young worthy start from Shane Bieber, great relief performances and walk off home runs from Jose Ramirez and Jordan Luplow.

Tom Hamilton’s call “Hit Hard to Left, Way Back, Gone” three nights in a row has created hope for all of us who have been waiting since 1948 for a World Series crown.

The excitement of MLB playoffs in a 60 game season with 8 teams from each league has actually made me forget about hockey, basketball and football, all of which are providing their own excitement and relief from the stress of 2020.

Minor League Bargaining Position Has Deteriorated

However, as September 30 approaches, the joy in the MLB is not resonating in small towns across the country like Batavia,  Lowell, Idaho Falls and Billings. I wrote in November 2019, about how the Professional Baseball Agreement between MLB and Minor League Baseball (MiLB) was set to expire September 30, with a threatened contraction of 160 minor league teams to 120 teams (https://capitalworks.net/major-league-baseball-will-cut-42-minor-league-teams/). Since that blog, the situation has worsened due to the cancellation of the 2020 MiLB Season. The Office of the Commissioner of Baseball is negotiating less and dictating more and most MiLB owners expect MLB to have complete power and authority over the surviving MiLB franchises.

I guess you can take the position that MiLB owners are all “fat cats” who bought play toys with “pin money”. They took a capitalist risk in buying a MiLB franchise and lost!

MLB Made A Nice Pick Off Move

However, this is not the whole story. MiLB league owners were duped by the MLB in 2018 into supporting the “Save America’s Pastime Act” congressional legislation.  Politicians from both parties like Chuck Grassley, Republican Senator from Iowa, Tom Tester, Democrat Senator from Montana, understood these important small-town assets and wanted to encourage MLB to keep the minor league experience alive for towns like Lowell, Massachusetts whose voters could not afford Red Sox tickets but could afford a whole lot of Spinners games. As a Red Sox Class AAA affiliate, many hoped they could see the next Mookie Betts swing a bat at a park in Lowell. 

That legislation allowed the MLB to pay minor league players a $7.25 per hour federally guaranteed minimum wage with favorable work rules even though state minimum wage and hour rules were often significantly tougher, especially in states like Arizona and Florida.  Even savvy political operative like Chuck Schumer, Democratic Senator from New York, fell for the sales pitch and he and cross-aisle supporters like Shelley Moore Capito, Republican Senator from West Virginia, were quite astonished that two years later there was a proposed 25% reduction in the number of minor league teams. In the rear view mirror it sure looks like crony capitalism prevailed at the expense of small-town America.

More importantly, the Save America’s Pastime legislation reinforced the antitrust exemption for MLB at a time when meaningful wage and hour lawsuits were pending against MLB for past wage, hour and benefits discrimination. In my prior blog this is how I described the serious contingent liability facing MLB owners:

Whenever something does not make sense to me, I always say “FOLLOW THE MONEY”.   In this case the real money at risk is when the world learns the MLB pays these 42 teams, and the rest of the minor leaguers about $3.75 per hour for a full year of work.  This is the average contractual wage based on contract responsibilities, and it is currently being challenged as a violation of Fair Labor Standards Laws as below Federal minimum wage and overtime rules.  That lawsuit (Senne v. The Commissioner of Major League Baseball), has been pending since 2014 and has been tied up in dilatory appeals by The Office of the Commissioner of Baseball.”

Minor League Teams Have No Value Right Now

My joy for the Tribe is truly muted by the future fate of a town like Montgomery Alabama. I have visited it and its downtown visitor experience is built around a Riverpark Stadium where the Montgomery Biscuits, a Class AA affiliate of Tampa Bay play their games. WhileIMontgomery is not currently on the closure list its minor league team is emblematic of the small town roots of American baseball. Losing the Biscuits would devastate their wonderful downtown experience.

A friend of mine who owns several MiLB teams thinks a new agreement will be announced soon. It does not look like the MiLB owners will have much influence or authority and the value of their MiLB teams – once trading in a range of $10 million to $50 million – is completely speculative right now. As the “boys” of a Covid-19 summer begin their innovative bracket play this week the lesson about the power of a congressional monopoly is fully understood by all the MiLB owners who won’t open for business in April 2021 as locally controlled and operated anymore.

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Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records Founder and chairman of CapitalWorks, he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CapitalWorks or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.

Private Equity for Families Blog | CapitalWorks Private Equity Cleveland Ohio

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