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MLB teams whose TV revenues are hurting have a little help on the way: the money collected from teams that spend above the luxury tax.
The Athletic has learned that Major League Baseball and the Players Association have agreed to alter the collective bargaining agreement so that the league can use its portion of competitive-balance-tax proceeds to give teams losing TV money up to $15 million each — with an estimated limit of $75 million in those payments leaguewide.
Teams “whose local media revenue declined from the year prior (2023) or from the two years prior (2022)” are eligible for what’s being called a “media disruption distribution,” largely intended to deal with the problems of the Bally-branded regional sports networks and RSNs formerly operated by Warner Bros.-Discovery. The arrangement is good for one year, and is the product of months of negotiations, after MLB approached the MLBPA about the idea early in the year. The union agreed to it on the belief that teams will now spend more on players.
“We believe this agreement should positively affect the player market by softening the impact of revenue declines, by increasing the number of clubs who have monies to spend, and by undermining the ability of clubs to weaponize recent developments in RSN markets,” the MLBPA wrote in a memo to players.
MLB and the MLBPA declined comment.
MLB and the players have always essentially split luxury-tax proceeds, with half of the money going to clubs in some form, the other half to player retirement funds. Per union memos, over $107 million from 2023’s CBT proceeds is headed toward retirement accounts, marking the second straight year players took more than $100 million from their split of the CBT.
In the last round of collective bargaining, the “Supplemental Commissioner’s Discretionary Fund” was created to handle the league’s portion of CBT proceeds. The fund was designed to reward teams that both receive revenue sharing — often smaller-market teams — and also grow their revenues in areas aside from media.
The MLBPA didn’t like the way the CBT proceeds were functioning previously.
“Prior to the current CBA, roughly half of the taxes paid by clubs who exceeded the CBT were given to clubs as a reward if they kept their payrolls below the CBT threshold — effectively creating an incentive to suppress spending,” the MLBPA wrote in its memo. “In the last CBA negotiation, we made it a priority to eliminate this ‘reward’ for failing to spend on players. We accomplished that goal…”
Now, as the sports television landscape wades through perpetual turmoil, both the league and union believed it was worth expanding the use of the fund.
“This year, with the fund expected to total near $150 million, MLB proposed to expand the universe of clubs that are eligible to receive monies from the fund,” the MLBPA wrote in a memo to players. “Under MLB’s proposal, the clubs that have been affected by declining local media revenues caused by regional sports network (RSN) developments would benefit from this expanded flexibility. All clubs with declining local media revenue are eligible to receive monies from the fund, regardless of revenue sharing status, market size or payroll level.”
Some restrictions are in place. Commissioner Rob Manfred will determine how to parcel out the distributions. Overall, MLB is capped at using half of its allotment of the supplemental fund to alleviate media-revenue loss — roughly $75 million, if the union’s projection holds up. But it’s possible the total amount distributed won’t reach that maximum. Individual teams, meanwhile, can receive a maximum of whichever is lower: $15 million, or the amount of revenue lost.
Teams can also receive a distribution from the supplemental fund both for TV revenue losses and for the fund’s original purpose. Teams are required to use supplemental-fund money “in an effort to improve … performance on the field.”
About one-third of the league might be eligible for a media disruption distribution: The San Diego Padres and Arizona Diamondbacks both were dropped by Diamond Sports Group in the middle of last season, with MLB taking over the teams’ broadcasts. Manfred last week touted the reach of the broadcasts the league handles, while noting those teams make less than they used to.
“We think that reach is a really important change,” Manfred said. “San Diego is kind of the leader in the clubhouse there, approaching 40,000 subscribers, which is a really good number. Having said that, from a revenue perspective, it is not generating what the RSNs did. The RSNs were a great business, lots of people paid for programming they didn’t necessarily want and it’s hard to replicate that kind of revenue.”
Three other teams, meanwhile, negotiated pay cuts in one-year deals with Diamond for 2024: the Cleveland Guardians, Minnesota Twins and Texas Rangers.
And four teams underwent a major change when Warner Bros.-Discovery pulled out of the RSN business last year. The Colorado Rockies, like the Padres and Diamondbacks, are broadcast by MLB this year.
Three other teams that were with Warner Bros.-Discovery, the Houston Astros, Seattle Mariners and Pittsburgh Pirates, are not being broadcast by MLB, but could be receiving lowered pay in the wake of Warner Bros.-Discovery’s exit.
On Wednesday, Diamond Sports Group, the company that carries 12 MLB teams’ telecasts through its Bally brands, asked for another delay in a long-running federal bankruptcy case. Diamond’s future beyond 2024 is uncertain, and so is MLB’s overall TV landscape. MLB and the union could agree to extend the new supplemental-fund arrangement if they choose.
(Top photo of MLBPA head Tony Clark and commissioner Rob Manfred: Daniel Shirey / MLB Photos via Getty Images)
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