MLB could face a painful lockout when the employment contract expires, and that’s just the beginning

If the 99-day lockout by MLB owners seemed painful in 2022, the dividing lines will become clearer in 2026, when Major League Baseball’s current employment contract, not only between owners and players, but between owners and owners, expires. In less than a year, significant changes have already sent the league’s owners into action.

Who has “won” an employment contract is in the eye of the beholder. Regardless of whether an agreement goes in favor of one side or the other, both will end up saying that they didn’t get everything they hoped for. The latest CBA set the tone for the future, and that future is looking bleak for fans.

It was reported this week that the league has set up an economic reform committee to study several factors. There will certainly be recommendations – some that can be made unilaterally, others that require player approval. At the very least, it will provide fuel for battles between owners and future battles with players. Here are some important issues that are on the horizon.

The regional sports network model is changing, creating additional economic inequality

The league stares at the barrel of the regional sports network model being turned on its head. 19 Sinclair-owned Bally Sports RSN near bankruptcy, and Warner Bros/Discovery-owned AT&T
RSNs have cut payments to Astros, Rockies and Pirates. More than any other sport, baseball relies heavily on local media rights. While the NFL, with its small number of high-demand games, sees rights fees evenly distributed through a centralized model, MLB has always let individual clubs write their own media rights deals. With a large market and big brands at an advantage, the RSNs have created economic inequality. As subscribers have abandoned traditional linear television in favor of streaming, the RSN model is on the verge of collapse.

The league is poised to rescind Sinclair’s rights to all or some of Bally Sports’ RSNs for direct-to-consumer (DTC) delivery via the league’s MLB.TV streaming service. Blackouts would be dropped and fans would be able to select teams individually in the market. The problem here is that the DTC model will certainly generate lower revenues than what has been achieved through bundled traditional cable or satcaster distribution. And this issue of economic inequality increases under this model. Clubs like the Yankees, Dodgers, Cubs, and Red Sox would certainly do better than the league’s Pirates, Rockies, Rays, or A’s.

While MLB has also said it is looking into producing games through the MLB network that could be sold to cable and satellite providers for traditional television, there’s little doubt that as subscribers continue to decline, the amount generated from those deals has fallen by comparison to what is taken will decrease clubs will receive.

Increased revenue sharing and growing centralized revenue

The dramatic change in the media landscape opens the discussion about increased revenue sharing. For MLB commissioner Rob Manfred, moving from the concept of increasing revenue shares from high-revenue clubs to lower-revenue clubs presents two challenges. First, getting these large revenue streams to increase revenue for lower-revenue clubs. The other challenge is that revenue sharing is part of collective bargaining with the MLBPA. With the likes of the Mets’ Steve Cohen driving the free agent market up dramatically, there’s sure to be some debate as to whether rising revenues have any tangible benefits for small growers. After all, more than one complaint has been filed against several clubs, alleging they failed to use those funds to make their MLB teams competitive on the field.

The only thing the league can do unilaterally is increase centralized revenue through sponsorships and other avenues. While the league hasn’t said if the concept is being considered, corporate naming rights for jewel events are an idea. Would it surprise anyone to see a postseason series like The American League Championship sponsored by “ to see?

Dealing with declines in participation

Major League Baseball saw attendance declines for nine straight seasons and was down nearly 6% in 2022 compared to 2019, the last season before the pandemic. Before the media rights explosion, the goal was the league’s biggest source of revenue. As media rights became a huge cash cow, attendance figures became less of a strain.

With the shift in the RSN model, clubs will certainly focus on how to bring fans to the stadium where not only ticket revenue is generated, but also concessions, merchandise and often parking revenue. If there were some concerns about fans gathering in large numbers in 2022, just as the pandemic was beginning to subside, 2023 should offer an atmosphere more closely consistent with how fans behaved in 2019, before the pandemic.

Why there could be a protracted lockout and possible pay compression in 2026

While the owners squabble with the owners, make no mistake, Manfred & Co. will be trying to get concessions from the players. As part of the negotiations for the current labor deal, which began in 2022, several concepts were included in deal packages that hit near-sacred mechanics that players were entitled to. In one bid, the owners offered to scrap salary arbitration in favor of an entirely new system. Players turned it down as a non-starter, but if that was before the looming economic pressures of changing the RSN model, why not return to such or even more radical concepts in 2026 when the current CBA expires?

And while some may question whether a push for a salary cap is coming, it seems more likely that Manfred would try to work around the edges of what that would entail in order to achieve salary “compression” rather than develop a system that looks more like the NFL, NBA or NHL. After all, there are still owners who were present during the ’94-’95 strike who know that nothing stirs up players more than the topic of the cap system.

Instead, look for the owners who come back with a soft-bottomed counterattack with a drastic reduction in the luxury tax threshold. While that was part of negotiation sessions in 2022 and was rejected, owners may be more willing to hold the line this time, at the cost of game losses.

The only thing players could do to react to this kind of hardball is this: the RSN model was in jeopardy before the pandemic. Owners knew Bally Sports was in financial trouble last year when it needed a $600 million cash injection to stave off bankruptcy. And yet the 2022-23 off-season was a veritable frenzy of free agent signings, with clubs appearing as if financial hardship never loomed. “No one held a gun to the owners’ heads and forced them to spend money,” could be a response from MLBPA leadership.

In other words, there will be pressure on owners to manage economic disparity through revenue sharing and centralized revenue, rather than a mechanism that locks MLB into what isn’t largely a free market.

Other problems

  • In other areas, too, league owners’ spending is rising, namely whatever the first-ever contract involving players in the minor leagues will be. This could put additional strain on MiLB owners as MLB seeks to defer costs.
  • While the league will no doubt try to bring more fans to the game, they will have to offset increased costs due to inflation. Somehow, somehow, everything comes back to the fans, and inevitably there will be some cost increases.
  • Perhaps the issue that’s popping up in some clubs but that could benefit fans is this: whether it’s Netflix
    , Hulu, Disney+ or any of the other streaming services, if you don’t offer great content, consumers tend to walk away. Isn’t sport just entertainment content? Owners will be under increasing pressure to provide value that will attract fans and keep them there. And what is the largest character element? Win. MLB will look to make winning easier in 2026 by adding two more playoff teams into the picture. Owners should sit back less often when using underperforming teams. Whether it’s high-revenue clubs, MLBPA watching how they’re being spent, or the pressure to lure fans to streaming services, clubs that have lived on welfare through the revenue-sharing system may not be able to ​anymore ​work as they have it.

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