Baseball Takes a Hit, but Hits Back!

April 27, 2020

By James Jacaruso

Baseball is in the midst of its first work stoppage in 25 years.  Major League Baseball players were on strike from August 12, 1994 until early April 1995. The strike would be the longest work stoppage in baseball history, including the first cancellation of the World Series since 1904 when New York Giants Manager John McGraw refused to play the upstart American league’s Boston Americans, now the Red Sox. Yes, all you Yankees fans, the Red Sox were the first American League Baseball dynasty, winning five titles from 1903 to 1918.

The 1995 season was about to start with replacement players, but the Major League Baseball Players Association (“MLBPA”) went to court and an injunction by District Court (and future Supreme Court Justice) Judge Sonia Sotomayer led to a shortened spring training and season. The strike officially ended on April 2 with the regular season starting on April 25, requiring players to get into baseball shape in three weeks.

This work stoppage is different, caused by a global pandemic that hit the United States hard, wreaking havoc followed by state-imposed shutdowns and shelter-in-place mandates.   Historically, sports is an outlet during a crisis; make no mistake, we are in the midst of a crisis. President Roosevelt allowed baseball to play on during World War II, albeit with fewer stars because so many joined the war effort.  MLB created the All American Girls Professional Baseball League, which started as a four-team league in 1943, and expanded to 15 teams through its 12-year run that ended in 1954.  Then-NFL-Commissioner Pete Rozelle decided the National Football League would play its seven scheduled games two days after the assassination of President John F. Kennedy.

MLB also suspended play for ten days after the September 11 terrorist attacks.  The first sporting event in New York after the terror attacks was on September 21, 2001; the Mets against the Atlanta Braves.  Mike Piazza lifted up a solemn New York City with a two-run homer in the bottom of the eighth to lead the Mets to a 3-2 victory.

A little more than a month later, the whole nation seemed to be rooting for the New York Yankees as they represented a resilient New York City in a classic World Series.  Game tying home runs in the bottom of the ninth inning are not commonplace in baseball lore, but the Yankees did it on two consecutive nights and eventually won both games to take a 3-2 series lead. Derek Jeter followed up Tino Martinez’s two-run 9th inning blast in Game 4 with a tenth inning home run; the game started on Halloween and finished after midnight, becoming the first game played in November and earning Mr. Jeter the moniker “Mr. November.”

Times, they-are-a-changing; we do not have sports as an outlet.  The NHL, the NBA -- the first to shut down, leading the way in social distancing -- the NCAA’s “March Madness,”, and the PGA have all suspended play.  The American people do not have sports as an outlet.

However, new heroes have emerged! Americans are recognizing the doctors, nurses, health care professionals, police and fire personnel and EMTs as the true heroes they have always been. We are orchestrating parades and outbursts of appreciation by any means possible:

  • drive-by birthday parties led by firetrucks and police honking their horns for children and adults of all ages, especially elderly who are experiencing extreme loneliness;
  • banging of pots and pans (an act from a by-gone era) to celebrate our health care professionals;
  • fundraisers for personal protective equipment (“PPE”) for the first responders and those on the front line against this scourge;
  • donation drives to fund and purchase meals for our hospital personnel;
  • athletes, entertainers and business of all sizes digging deep into their pockets to help the cause; and
  • sports apparel, particularly jersey material, used to make masks.

The financial impact on baseball, which is immeasurable, is trickling down from ownership to the stadium vendors.  Teams have the money from their season ticket purchasers, but their revenue streams have stopped:

  • national and local television and radio revenue
  • walk-up ticket purchases
  • luxury suite sales, some with player appearances
  • food and beverage sales (at those inflated prices)
  • apparel sales
  • programs and souvenirs of a stadium visit.

Restaurants, pubs, outside vendors and parking facilities have also lost their revenue stream, which means their seasonal employees, most likely, have lost their salaries and employment.

MLB and the MLBPA, working together to limit the pain, have taken drastic and innovative steps:

  • MLB agreed to advance the players $170 million dollars over the first 60 days of the original schedule, which covers players on the 40-man roster and the injured list through May 31. The standard contract language allows salary suspension during a national emergency.  The players agreed to this as a hedge against the loss of a season’s worth of wages, expected to be about $4 billion dollars.
    • Veteran players will receive $4,775 per day for a total of $286,500 (over the 60-day period).
    • Less veteran players will receive a smaller amount: a total of $16,500, $30,000 or $60,000.
      • Minor leaguers with some MLB experience will receive $500 per day ($30,000)
      • Minor leaguers that have exhausted rookie status will receive $1,000 per day ($60,000)
      • The criteria for $275 per day ($16,500) is not clear, but it may be minor leaguers at certain levels with no major league experience.
  • Minor league players will receive their meal allowance in a lump sum and weekly payments of $400 through May 31.
  • A joint $1 million donation to be split evenly between Feeding America and Meals on Wheels
  • Players will receive pro-rated service time for games played, when considering the accrual of years of service. (There are approximately 187 days in the season; a player receives a full year of service time if he is on the active roster or injured list for 172 days. Service time is essential in determining arbitration and free agent eligibility.)
    • If there is no baseball in 2020, players on MLB rosters will receive the same service time in 2020 that they earned in 2019.
    • If there is a short season, as expected, players will receive a pro-rata number of service days.
  • A transaction freeze is in place, limiting player movements through options to the minor leagues or trades.
  • Players who do not complete suspensions in 2020 will not have their suspension carry over to 2021.

Furthermore, MLB has the right to move the June 2020 draft back to as late as July 20, with a signing date as late as August1. The scenario, as of the date of this writing: The number of rounds may be limited to five or ten, rather than the usual 40. Bonuses to drafted players would be deferred with a maximum up-front payment of $100,000 within thirty days of an approved contract; 50% of the remaining value would be paid July 1 of the following year, the balance on July 1 two years later.  2020 bonuses to undrafted players would be capped at $20,000.

  • If the draft is only five rounds: Players that would have been drafted in the sixth round would have received bonuses ranging from $318,200 to $249,000 for the highest to lowest pick. Instead, if the draft is comprised of only five rounds, as mentioned above, sixth-round picks would receive a maximum bonus of $20,000.
  • MLB may shorten the 2021 draft to as few as 20 rounds and move it to the same dates. The same bonus payment rules will apply for the 2021 draft.

Although MLB has accomplished its goal of saving money, the main reason for these draft rule changes is to set the stage for a draft system restructuring during the next collective bargaining agreement negotiations. In this deal, MLB is the big winner and the MLBPA has bargained away the rights of amateur players whom they do not represent. Unfortunately, amateur players were not privy to these negotiations.  Last month, MLB was praised for paying minor leagues $400 per week, but have now changed the salary landscape significantly for entry-level undrafted players.

Teams and players are also taking steps to assist the baseball community.  Here are just a few of the amazing contributions:

  • Each MLB team committed $1 million to assist ballpark employees: vendors, ushers, greeters, concession staff, ticket takes, etc.
  • The Mets have committed $1.2 million for eligible game-day staff who worked at least 15 days in 2019 or anyone who lost work after the season was suspended.
  • The Yankees established a COVID-19 Disaster Relief Fund for eligible part-time and full-time employees impacted by the pandemic, including Legends Hospitality and New York City Football Club staff.
  • The Tampa Bay Rays along with the Tampa Bay Rowdies soccer club, through their foundations, have donated one million meals to “Feeding Tampa Bay,” further pledging to match 1.5 million meals of all donations on the virtual food drive website.
  • The Astros Foundation has donated $400,000 for PPE to support hospitals within the Texas Medical Center system.
  • Texas Rangers outfielder Shin-Soo Chin, who struggled at the AAA level, has pledged $1,000 to each of the 191 players in the Texas Farm System.
  • Bryce Harper has donated $500,000 to assist those most in need in his hometown of Las Vegas and his second hometown of Philadelphia.
  • The Gerrit and Amy Cole Foundation will make “significant” donations to Direct Relief for PPE.
  • On April 3, the Oakland Athletics surprised workers at Kaiser Permanente, the A’s health care partner, delivering 300 personal pizzas from Round Table Pizza to the Oakland Medical Center.
  • NY Mets pitcher Steven Matz, a born-and-bred Long Islander, donated $32,000 to purchase PPE for the hardest hit NY area hospitals.
  • Houston Astros pitcher Justin Verlander and his wife, supermodel Kate Upton, will donate his weekly paycheck to a different organization each week.
  • The Cal Ripken Sr. Foundation donated $100,000 to Feeding America’s Strike Out Hunger campaign.
  • The Colorado Rockies raised $502,425 for food charities by telecasting a virtual home opener on rockies.com and AT&T SportsNet that combined the best innings from home openers in Rockies history. The team donated $300,000, second baseman Daniel Murphy donated $100,000 and 1,134 online donations added another $102,425 with all proceeds going to “Feed the Rockies” food banks in Colorado and Wyoming.
  • MLB is now staging “MLB The Show,” which is a virtual players league with one player from each MLB team competing for a $25,000 donation to the Boys & Girls Club affiliate in their community. This is in addition to a $5,000 donation on behalf of each participant.  Each player will play 29 games, one against each participant, with the top eight players advancing to the post season.

As of now, no one knows when, if at all, this baseball season will start and how the season will unfold.  MLB and the MLBPA are discussing contingency plans, including:

  • Shortened spring training.
  • Shortened season.
  • Playing in empty stadiums, which would, most likely, result in salary reductions for the players.
  • Playing all games in Arizona; realigning divisions commingling National and American League teams with a 108 game regular season schedule. Chase Field, home of the Arizona Diamondbacks, and ten spring training facilities are all within 20 miles of each other (with the exception of Surprise Stadium in Surprise). Arizona provides weather certainty and, although Florida has two Major League Stadiums, the 11 Florida venues are spread across 280 miles.
  • Having teams stay at their Arizona and Florida spring training sites, realigning divisions in both locations and with no crossover games between Arizona- and Florida-based teams, resulting in a World Series between teams that did not play against each other for the first time since 1996.
  • Being patient and picking up the regular season schedule in July, playing approximately 100 games
  • Doubleheaders with each game being seven innings, requiring expanded rosters.
  • Expanding playoff format to include 14 teams, up from the usual ten teams.

Of course, the season will only unfold if the stadiums can meet CDC hygiene standards and provide a safe environment for the players.  There are, of course, other obstacles; pitchers spit on the ball, players spit on their hands, players slide and get abrasions, they bleed, they shake hands, the make contact with each other and they all touch the same ball that is in play.  How creative will MLB and MLBPA get with player safety?

In a speech, Robert Kennedy once said “Like it or not, we live in interesting times. They are times of danger and uncertainty, but they are also more open to the creative energy of men than any other time in history.” I have to assume he could not have thinking about this pandemic, but he was certainly hitting the ball out of the park.  

About James A. Jacaruso Jr.

James A. Jacaruso Jr. is a Personal Wealth Advisors Group Director with more than 25 years of tax compliance and planning experience focusing on personal and fiduciary income taxation, gift taxation and wealth transfer planning.