MLB’s Dodger Economics

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1:29Congratulations, you made the Varsity, the podcast. My name is John Aranda and I'm Puck's sports correspondent and host of the pod. And today, I'm pleased to be joined by Evan Drellick. Evan is a senior writer for The Athletic and breaks a ton of news about the business of baseball. We're going to talk about the Dodgers' four-year,$240 million deal for Kyle Tucker, the implosion of local team rights, labor talks. Evan's a great guest, and I'm really happy to have him on. But before we get to Evan Drellick, today is Sunday, January 18th, and here's what I'm watching. It involves the latest betting scandal to hit college sports.

2:08But first, a digression. I went to the dentist on Wednesday for a routine cleaning. I've been going to the same dentist for decades. Shout out to Dr. John Martin. And by now, we're friends, and my dental visits, they have a very social feel to them. So on Wednesday, our conversation veered over to college sports, and Dr. Martin, a St. Bona Venture grad, said that his fandom had waned. Because of things like the transfer portal and an NIL system with seemingly no rules, he's investing much less time in being a college fan. And he said his friends feel the same way. Well, less than 24 hours later, news broke that federal prosecutors handed down indictments accusing 26 men of shaving points in at least 29 college basketball games.

2:53It's the biggest sports betting scandal, just disguised in the scope of it, to hit the college ranks in a long time. All the network newscasts had stories on it, including CBS, where a reporter, Scott McFarlane, called me to ask whether this scandal would hurt fan interest in college basketball. And I gave Scott the exact same answer that I told Dr. Martin the day before. So far, there has been absolutely no effect. In fact, the opposite is happening. By every single business metric, sports, including college sports, is as popular as ever. Men's college basketball, its TV ratings are up 39 % so far this season.

3:33That's according to SBJ's Austin Karp. Attendance is up. Sponsorships are up. It's still a crown jewel sport. And it's not just basketball. Have you seen the get-in prices for the college football playoff championship on Monday? You're going to be paying$3 ,000 for the nosebleeds. The game itself, it's likely to have more than 20 million viewers. So could this be a problem? Yes, of course it could. I was talking to Adam Silver a couple of months ago, and he said these types of scandals keep him up at night. It has to be damaging to the brand if fans don't trust the outcome. My take, there are going to be more sports betting scandals, a lot more, and they all have the potential to do real damage to the reputation of pro and college sports.

4:17But so far, there's nothing to suggest that these scandals are having any negative effect. Now, let's get to Evan Drellick. Evan Drellick, a little inside baseball. I spent much of my day on Thursday trying to get Evan to appear on this pod because he's written so many good stories about Main Street sports and the collapsing of, we don't know if they're going to collapse yet, but the chaos over at Main Street sports, which of course runs the FanDuel Sports Network. He's had a ton of stories about the labor negotiations that have already started, even though we're still about a season away from that coming up.

5:00And then after Evan said yes, he would come on the pod, the Dodgers and Kyle Tucker sign a deal. Four years,$240 million. Just a big picture on this, Evan. And what does this mean to the labor negotiations? It's funny. I woke up to several texts just from friends and family complaining about the Dodgers. And my takeaway, as it often is in these situations, is it's good for baseball, in my opinion, to have these villains, to have the evil empire of the Yankees 20 years ago and not have the Dodgers do this again. But it does make it a lot easier. And my dear colleague, Ken Rosenthal wrote a column about it already to have calls for a salary cap.

5:52You're going to see now there go the Dodgers again. And you're going to have people angry about their spending and comparing their payrolls to some of the bottom feeding teams. And it's not pretty. And I think the saving grace for baseball in its current system is that it's a very random sport. It's actually a point that the commissioner acknowledged in a radio interview last week. But this will only inflame those conversations that we know are already happening. It's not like the idea of a salary cap and the possibility the owners are going to propose one just came out of the blue. But it's going to reinvigorate everybody who says enough is enough with the Dodgers.

6:32We want a cap. Yeah. So I read Ken's story and like Ken quite a bit, couldn't have disagreed more with the story. Speaking as a fan and speaking as an Oriole fan, the Orioles have been, I think, to two playoffs in the past decade. And the Dodgers have been in every playoff in the 2000s of sorts. And so I think that in the big markets, you have the Yankees, you have the Dodgers, you have the Chicago market.

7:08It's more okay there in those markets, I think. I think in the smaller markets, and I'll put Baltimore in that market and Kansas City and Minnesota. I mean, imagine being a Minnesota Twins fan and there's almost like no hope. And is it just a fact that you have a bad owner or is it a system that doesn't reward these small market teams, especially now with the other story that you've been doing of Main Street Sports with the local media revenue just tanking? The union position on this would be there are ways to incentivize teams to spend that do not involve a cap. Let's put that to the side. When you look at the baseball payroll disparity that exists, you still do have those big market teams that don't make the playoffs.

8:00I think that randomness ultimately means that pretty much anybody can find a way to compete. What I think is very true is that without a cap system, you're never going to be in a world where the Royals, I guess the Orioles just did it with Alonzo, that they have some ability. But the smaller market teams are never going to go out and sign the biggest name guys. And to the point you're making, in the middle of December or January, when these signings happens, that deflates the fan base. And the commissioner has talked about this as a perception problem, which is a really interesting phrasing. because it is indeed a perception that people have, well, my team just cannot keep up.

8:42It's a different statement than literally the team cannot keep up. And there are arguments on both sides about whether baseball has good competitive balance. How does parity playing baseball compared to the other sports? I think there are a lot of statistics that shows it's fine. The league has statistics that show it's not ideal. The Royals are the only bottom 15 teams to win since 2015. The union has a stat that there have been more individual teams to win in baseball than any of the other four major men's sports, three major men's sports since 2000. I think the number is 16 different teams have won in baseball.

9:21Put those arguments aside. What it comes down to for me is if you want to say there is a competitive balance problem in baseball without arguing out the whole piece there, does a salary cap solve it? It'd be one thing if you were to give every team the same salary, that's not going to happen. And it is very possible that none of this will happen if the players say, we're going to hold out for a year or more to avoid a cap. But if you bring in a cap, you're still going to have some band, some delta between the top spending and the lowest spending. What is that band? It's a very difficult thing for the owners to figure out what's going to work for those smaller market teams.

10:03and does it actually really rebalance things? The Dodgers will still spend at the top of that band. The Pirates will still spend at the bottom of that band. So in this new system where everybody would think, wow, finally parody completely and fully in baseball, how many more playoff appearances is it really going to mean for a team like the Reds or the Pirates or the Rays or the Marlins? And so where I wind up on this is, you know, you can kind of have five different arguments on your way to it. Is it the solution to the problem? If we agree there is a problem, and I'm not convinced it is, but that's, you know, at the end of the day, it doesn't really matter what we think.

10:41It's going to matter what the players and the players union think when the league inevitably proposes this in a few months. So let's take, let's take the owner's viewpoint here. And this is where, where I will admit that I don't know what's going to happen. Nobody knows what's going to happen, but I especially don't know because they want an increasingly, an increasing number of owners want a salary cap to come into play. And they seem, they seemed at one point really willing to push it, even go without games and, you know, and have a lockout in order to have that happen. In 2028, as we've all been writing for, you know, the past several years, you know, the the media, the MLB's media deals come up and they are sitting on, they're going to have all their deals come up.

11:34And after looking at what happened to the NBA, the NFL, the potential for this to be a massive deal for MLB is significant. And there's been, I've gotten, I don't know if I'd go so far as to call it cold feet, but there certainly has been some pause about like, well, do we really want to go into these negotiations after losing a season or after losing a significant portion of the season and alienating fans. And I'm not quite sure where the owners are going to fall on this. What's your take on that? I think there's some merit to that concern where if you do have a prolonged work stoppage and you've turned fans away from baseball in a significant way, If you miss a week, it's different than you miss a season or half a season.

12:29The problem baseball and any sports league has to contend with these days is compared to 94, 95, the last time regular season games were actually missed because of a work stoppage in baseball, there are so many more entertainment options literally in your pocket. I did an interview with Rob Manfred in 2019 that I always think back to where we were talking about the health of baseball. And he held up his phone for me and said, this, this is a problem. it's netflix it's any streaming service that you can access at any time and so you know if you go into a workshop let me interrupt you for a quick second even more than that it's tiktok it's those quick like those quick you know 30 second videos even more so than watching streaming a show actual show on netflix yeah right exactly and so that would not help you in a negotiation uh for 29 and beyond, right?

13:18The national media deals expire. They run through 28. And so we're talking about a lockout that would be in 27 most likely, and presumably, hopefully, would not go beyond that. But that's still damaging, right? If you're in the first season post-lockout when you're negotiating these deals in 28, you don't want that. Now, the flip side of that is if they were to get a salary cap, the owners, the franchise values would instantly shoot up, all of them. Yeah, they couldn't all sell them at once, but that is a real carrot for them. And they could say, you know what, even if these national media deals aren't exactly what we want, maybe it's balanced out by what we would get in franchise value there.

14:01They've got to kind of figure out what they want to do with these media rights to some degree going into bargaining. They can't really wait until 28 because structurally, I mean, look, they could. You could always reopen the CBA theoretically, but ideally you are figuring out what you want to do with those rights in a general sense now because revenue sharing in baseball, how the league distributes media money between the teams is collectively bargained. That has to go through the players union. So whatever Rob Manfred wants to do, and we can talk about what we understand he wants to do, is going to have some sort of revenue sharing component to it.

14:38And so the big grand plans for 29 and beyond, those negotiations that presumably take place in 28, they're kind of underway now where they got to figure out internally, what do they want to do with their media rights? Do they want to have the big markets and little markets all pull in all their local rights together and split that money evenly? If so, how do you convince the big markets to do that? Well, a salary cap is one way to maybe make them happy and get everybody on the same page. Okay, now you've got your own house in order if you're the league. what do you got to convince the players?

15:10It's a very difficult set of steps that the commissioner has to take here.

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16:55Evan, that answer was so great. There are probably a dozen questions and offshoots that we can go there. But before I do that, you gave a good answer about the owners and what the owners are doing. I want to hit the players now and the idea of a salary cap. And we know that the superstar players, the top what, 5%, 10 % want no salary cap whatsoever for obvious reasons. there does seem to be from what I'm from what I've been reading this is far I cover the business I don't necessarily cover the players but there does seem to be uh the rank and file players that are saying like well why are we potentially going to be doing something that's going to help out Bryce Harper or Juan Soto or you know or uh Chris Tucker or Kyle Tucker uh why don't we end up uh you know why don't we agree to a salary cap moving forward?

17:50How is this playing among the players? It's really the big question is, could player sentiment now be different than it was 25 years ago? And I think if there's any shot of that, certainly within the union leadership, that is not the case. They remain steadfast. A cap is bad for us. Why do owners want it so much? Because it's good for them and not for us. And could the league pick off younger players and kind of convince them, hey, you're going to do better in this cap system? The cap system is for Bryce Harper. It's the type of argument that's existed for a long time. The question is, does it take?

18:34You know, the union position is we can get more money to younger players without a cap. But if you're the league, presumably the most attractive offer you could make to players if you want to change the system would be one that, A, gives them kind of a high percentage of the revenue split, right? A cap system and floor includes a fixed percentage of revenue that would be split between the two sides. And that could be negotiated in every subsequent negotiation. But you presumably come with an attractive starting number there. but B, do you find a way, and I don't know if this would work economically, this is hypothetical, can you double the minimum salary?

19:15Can you get all those younger players, because baseball has skewed younger, to believe along with their agents that, hey, this is actually going to be better for us in the long run? Historically, the answer has been no for decades. That doesn't mean in this generation of players where they've grown up looking at the NBA, NHL, NFL, that it is literally impossible. It's not. Whether the league has created enough of a groundswell to do that, or whether in the midst of a lockout, that could be somehow a tipping point for players. That's the billion-dollar question to be seen. We all expect the cap proposal will come.

19:55The question then becomes, well, how long does it linger around? If the players say no So up until March, when it's really the drop dead point to play a full season. Okay. How long does everybody stay to their positions? Who caves first? Who blinks first? Which is the kind of reality of any labor negotiation. So what you're talking about, John, I think is unlikely, but not impossible. And that's that kind of hope that the league has is we can change hearts and minds that have always been fixed in a different spot. the um the hot stove league this season this offseason how would you describe it it seemed like it started slowly to where you know the some of these concerns that that we've been talking about you know the uh you know local rights money going down and it it looked like it was going to be a really tough um well not a hot stove league what would you call it lukewarm stove league uh Recently, over the past couple of weeks, it has picked up.

21:02How would you describe it? I did a story a week ago where the commissioner was kind of reviving those calls for a free agency deadline. And that, talking to agents and I think just kind of even listening to fans, I think the industry sentiment is this has been a generally slow off season for the top tier guys. Scott Boris made the point that relievers, it's not been slow universally all around. Relievers did seem to move more quickly, but those kind of top names, the fact that Kyle Tucker just signed, it didn't go as fast as people would like. And that does get to that discussion of, well, wouldn't there be a way to invigorate it with the deadline, which the league and the owners want?

21:46The players say, we're going to end up with deals that we don't want to take. And so that'll probably, not probably, and the commissioner said it on the radio a week ago, that there will be another proposal for a free agency deadline. But I think the consensus is it's not been the slowest anybody's ever seen, but it hasn't been, you know, you're not leaving tire marks on the street running through this offseason. Well, it's coming off of a postseason and a World Series that, you know, set records. that didn't set records, but it was up, certainly from last year, from the past couple of years. A lot of excitement going into this offseason.

22:30Why is it the hot stove league not so hot right now? You know, I asked that question to Scott Boris, simply why? Why has it progressed like that? And his answer was, sometimes markets just go that way. And he likes to harp on, and look, Scott Boras has as much an angle as anybody, the idea that teams like to respond to other teams. It's actually a good thing if you have this much time in the offseason so one owner can kind of decide later on, you know what, I've got to move in this direction or that direction. I think I'm ducking your question here. I don't know the exact reason. And certainly there's a anecdotal sense that when you're approaching the expiration of a CBA, it's going to move slower.

23:18And then that right after in the early years of a CBA, when everybody kind of knows the system they're in, they're comfortable with the money that's going to be coming in. People can move more aggressively. You know, if the Dodgers are handing out four years and 240, it's still moving. Right. It's, you know, P. Alonzo, it's still moving. just not at the pace people would like. So you can get into conspiracy theories. By the way, Evan, you answered the question, which better than I asked it, because I did ask it under the CBA terms. Like there's a bidding labor problem coming up. Is that having an effect on it?

23:55And basically, it generally does, but we don't know yet. Well, there's always, I mean, here's kind of the bottom line truth here. Whenever free agency moves slowly, the player side and the agent side, even if simply off the record will wonder, hmm, what's going on here? Is this a, you know, I have not heard once truly this offseason. Anybody say collusion in past offseasons, including last offseason? Did I hear people say that? Yes. That is a very strong word that ownership feels very strongly about. It's a very dangerous and dirty word in baseball. You always get whispers and people wondering why is this happening or not happening?

24:34And I don't know that we have a clear explanation. I do think that the pending expiration of a CBA is always going to maybe give people a little bit of pause. I asked a bunch of GMs at the GM meetings in November, and everybody said it's business as usual. Is it truly business as usual? I don't know. Okay, so we've gone through the labor. We've gone through the idea of the salary cap. I'm going to ask you to put your neck on the line here and make a prediction on a salary cap. Are we going to see anything like a salary cap based on, you know, you've covered these labor deals before, obviously, especially with baseball.

25:14My gut instinct is no, for the reason being that barring new evidence that the players, as we were kind of just talking about, have been flipped. The kind of standard thinking here is that it would take a major work stoppage to get to a cap. is it worth it for the owners to go through with that work stoppage to you know to basically try to break the union and say we don't care we're missing a year at games last time around five years ago the last lockout you know the players have been angry for 10 years some of them some in the executive subcommittee which is a group that deals closely with union leadership did not want to accept the deal that ended up getting accepted by the wider group.

26:02Even then, after 10 years of the players saying, we're getting screwed on this, this, and this, everybody found a way to play. The industry, I'm going to guess going into 27 after this season, the 26 season, probably the league will be around 13 billion. It was 12 billion after 24. That's a lot of money and everybody likes money and everything you and I write about John comes back down to money. And so unless there's this great change of heart on the player side, I just, I'm not convinced that, you know, it, it, it would take, it would be the, the, the logical position and that the owners think it'd be logical position to, to miss a year of games that said they could decide to do it.

26:51And that, that is certainly their right. I do think that the owners are taking a look at the value of, you know, NHL teams that are comparable to a lot of MLB teams. They're seeing the Lakers go for more than$10 billion as to the value of, you know, the NBA team in Los Angeles. And they're saying, you know, what you're saying is right, but there's a lot of money there for the owners as well. The question is whether they can all move together as one to do it. Let me ask you one other question, though. Let's say you're wrong. Let's say that the salary cap does get into place. Is there any chance of a salary cap getting into place without a salary floor?

27:37Or is one with the other? It's always with the other. It's funny. You'll see fans suggest, well, I don't think baseball needs a cap, but I do think there should be a floor and vice versa. And it just, bringing both into baseball seems unlikely, but it truly is impossible to see a world in which one exists with the other because, you know, the players would never grant a cap without a floor if they would ever grant either. And the owner certainly would never grant a floor without a cap. It just, it would not happen. And a little bit to the point you were just making, we were, we're talking about this is a new group of owners or at least there's an infusion of new owners right the david rubinstein's of the world the steve cohen's of the world um you know mark walters made his franchise a powerhouse we don't know how these ownership dynamics are going to play out dick monford of the rockies was the chair of the labor committee last time he remains the chair this time there's been some changes under him there and manford also has his executive committee which is you know another group that's principally involved with everything that happens here but But the idea of either side kind of cohesively sticking together, missing whatever its share of that$13 billion would be for the length of the season, it's tough to fathom.