'The Wild West:' MiLB Teams On Chopping Block Scramble To Find MLB Partner
Editors note: The story has been updated to reflect MLB's term sheet spelling out the 120 full season teams is for the 2021 season.
With Major League Baseball’s office deeply involved in negotiations with the Major League Baseball Players Association, there has yet to be any official meetings between MLB and Minor League Baseball’s negotiating committees since they met online on April 22.
But while the negotiations for the future of Minor League Baseball may be largely on hold until the fate of the 2020 MLB season is resolved, the environment around the minor leagues has gotten significantly more complex in the last couple of weeks.
When the two sides meet again, there is an expectation that MLB will have a term sheet, laying out which 120 teams will be part of full season baseball in 2021, and which leagues they will play in. They also will spell out the details of the license agreements that they are proposing to replace the current player development contract (PDC) process by which MLB teams and MiLB teams currently form affiliations.
MiLB teams are jockeying for safe landing spots in advance of the expected changes. While no agreement has been reached between Major League Baseball and Minor League Baseball, both MLB clubs and MiLB owners are nearly universally operating under the expectation that there will be 120 full-season affiliated teams in 2021 whenever an agreement is reached. That would mean some 40 current MiLB teams will no longer be part of affiliated ball after this season.
Multiple MLB front office officials and multiple MiLB owners also said it is also their expectation that MLB will be in charge of directing affiliated Minor League Baseball in 2021 (even if no such agreement has yet been reached).
With everyone viewing the elimination of 40 or more teams as a fait accompli, many teams are working to try to find a spot among the 120 that will remain in affiliated ball. Some MiLB teams that fear they will be eliminated from affiliated ball in 2021 are looking to make deals to try to save themselves. MLB clubs have also begun discussions looking at preferable affiliation situations for them as well.
Multiple MiLB owners and officials described the current environment as the “wild West.” That is in part because no one is sure if anyone will be punished for making such contacts.
Major League Baseball officials have contacted MLB teams to get their opinions on their preferences and desires for affiliates. While MLB teams do not expect to receive all their requested affiliates from their wishlists, the balance of power in affiliation agreements between MLB teams and their minor league clubs will clearly shift. MLB teams will have much more leeway to determine their affiliation in the franchise license agreements that are expected to replace PDCs in 2021 and beyond. Those license agreements are expected to be lengthier than the current two-year PDC agreements.
The open season for discussions has created incentives for teams to skirt around or even directly violate current rules. According to the Professional Baseball Agreement that governs the relationship between the minors and majors, MiLB teams and MLB clubs who are not currently affiliated are not permitted to have discussions about potential future affiliations outside of the player development contract negotiation window at the end of every other MiLB season. The next open window would be this September.
But since there is expectation that there will no longer be PDC’s after this season, MLB appears to be adopting a hands-off approach as MLB and MiLB teams try to find pairings. It is being viewed by many as a necessary step since all affiliations may be set long before the normal PDC negotiating window opens in September.
MiLB has also not stepped yet to stop these discussions.
“We haven’t had any clubs report any inappropriate negotiations,” MiLB senior director of communications Jeff Lantz said. “It’s clearly against MiLB rules to negotiate with another affiliate before the PDCs expire.”
While there could be further negotiations, it is viewed among everyone Baseball America has talked to as likely that MLB will largely determine who are the 120 teams that go forward. Anytime a new team is moved onto the list of 120, it creates potential multiple additional effects to other teams and leagues, so there isn’t much flexibility in further changing the list.
With that term sheet looming on the horizon, many MiLB teams feel significant pressure to find partners. According to a significant number of sources with knowledge of the situation, multiple MiLB teams that expect to be dropped from affiliated ball before next season have talked to MLB teams about the possibility of getting the MLB club to buy into their team. The idea is that the MLB team would then be able to protect the MiLB team from being contracted and provide long-term security.
Of the 33 teams on the initial contraction lists in leagues with Player Development Contracts, only one (Grand Junction) was owned by an MLB team’s owner. Of the 118 current MiLB teams on the initial “safe” list, MLB owners either are the majority owner or a minority shareholder with 30-40 of them. (Different sources provide different numbers for how many teams have MLB ownership and the ownership shares are opaque enough that it is a difficult number to pin down precisely.)
For MiLB clubs (and to some extent MLB teams) the perceived danger of sitting back and waiting for decisions to be made is viewed as riskier than running the risk of violating MiLB’s current rules. MiLB teams expecting to be eliminated from affiliated ball see plenty of upside in finding a MLB suitor.
For any team that moves from being on the cut-list to being safe, another team will have to be added to the list of teams dropped from affiliated baseball. So that first wave of discussions between MLB and MiLB teams led some MiLB teams who considered themselves safe to also consider discussions to ensure they have a safe landing spot.
If an MiLB team gave an MLB team an ownership stake in its club for no compensation or at well below-market value value, it could raise legal questions, according to multiple MiLB owners. But determining fair market value right now is quite difficult. With the MiLB season currently suspended because of the novel coronavirus pandemic, MiLB teams are facing significant financial losses. It has put the economic viability of some teams into question.
At this point, many MiLB operators expect that the minor league season will officially be cancelled at some point after the 2020 MLB season plan is finalized. In preparation for that likelihood, some MLB teams have already begun furloughing minor league coaches. Many MiLB teams have laid off or furloughed staff as well.
A further wave of layoffs and furloughs by many MiLB front offices is expected by the start of July. Many MiLB teams received Payroll Protection Program funds. To have those loans forgiven, teams had to keep employees on their payroll for eight weeks. MiLB teams across the board are expected to meet those terms to reach loan forgiveness by the end of June. After that, the expectation is that teams will make further significant cuts to payrolls.
That difficult economic environment already has likely depressed franchise values. The expected contraction to 120 teams for the 2021 season clouds franchise values further.
While an MiLB team simply giving away equity to an MLB team (in exchange for protection from contraction) could lead to lawsuits, multiple MiLB officials said it would be hard at this point to determine what fair market value is. Unlike MLB clubs, MiLB teams are not permitted to borrow against the value of their franchise, which limits teams ability to raise funds to meet expenses at a time when almost no income is being received.
If a MiLB club that is having trouble covering its current expenses sold a 50 percent stake to an MLB club for far below what their previous franchise valuations would indicate, a case could be constructed that such a deal is reasonable during the current difficult economic environment..
The upshot of all these negotiations is no one in MiLB is fully sure what teams are still on the slate to be eliminated from affiliated baseball for 2021 and which teams may have gone from being safe to being on shaky ground.
Even the very structure of the expected MLB proposal isn’t 100 percent certain. A number of sources indicated that three West Coast teams have expressed to MLB that they would prefer to keep their current low Class A affiliations rather than move to the Northwest League, which is expected to field six low Class A teams for West Coast MLB clubs.
There are only eight West Coast clubs, so if three balk at moving to the Northwest League, the geographical advantages of a West Coast low Class A league could become a liability--East Coast and Midwest teams have frequently complained in the past about being stuck in minor league cities on the West Coast, something MLB has worked to avoid in their discussions on reorganizing the minor leagues.