One of my most widely read essays was written in 2012, called MLB’s Customer Alignment Problem. In that article, I explained how increasingly, MLB’s revenues and franchise values were strongly tied to cable and satellite network fees. That was a problem because:
- cord cutting was shrinking the cable and satellite TV network industry
- live sports like MLB was the only thing propping up the cable and satellite TV network industry
- this indirect income stream disconnected the industry from direct feedback from their real customers, the fans
- without direct feedback, MLB would likely be slow to react to needed change, both positively and negatively
It seemed like a Ponzi scheme to me, or a house of cards, or a Jenga tower, pick your favorite metaphor. Every cord cutter takes a block out of that Jenga tower with them when they go. You never know when the tower is going to fall over, you just know that eventually it will.
That was eight years ago. Cord cutting has continued apace. It’s not so much that old fans cut the cord. It’s that they die, and aren’t replaced by young fans. Young people simply don’t buy cable TV. The average age of a baseball fan in 2007 was 53. In 2017, it was 57.
So now you’re starting to see articles asking things like Are Millenials Killing Baseball? The answer, of course, is NO, THEY’RE NOT. MLB simply isn’t reaching them, because MLB’s incentive structure stops them from meeting Millenials where they are.
Of course, last we checked, baseball isn’t dead. Last year, MLB’s revenues were fine, ratings were fine, attendance was fine, everyone was making money. And over the last eight years, most of those regional TV networks who had such a wobbly mutual dependence with MLB have gotten themselves folded into much larger corporate conglomerates.
But what happens if we pull some really big blocks out of that Jenga stack?
In the time of the pandemic, the trend has become clear — cord-cutting is happening faster. While widespread stay-at-home orders have catapulted the growth of streaming, the coronavirus pandemic has accelerated a parallel trend: a sharp decline in subscriptions to the cable bundle. Pay-TV providers are coming off their worst quarter ever, shedding more than 2 million subscribers in the first three months of 2020, or around 3% of the customer base. That’s equal to roughly 40% of the total losses pay-TV providers suffered all of last year.
None of us know the inner financial workings of any MLB teams. Nor do we know any of the inner workings of any of the Pay-TV providers. It’s easy to sit on the sidelines and say as many people do on Twitter, “You’re billionaires, suck it up.” But I think that attitude is based on an outdated idea of some sole Scrooge McDuck owner who sits on a pile of gold coins in his vault somewhere, where the price of a ballteam is a pittance for them. But nowadays, most MLB teams are so expensive that there are very few Scrooge McDucks who can own a team by themselves and pay for it with cash. Most teams are owned by an assembled group of people who pay for it using loans secured with collateral. These ownership groups really don’t want their collateral touched. That’s especially true if it’s some large publicly owned conglomerate on the stock market. Covering losses is not anywhere near as simple as asking McDuck to pull another coin out of his vault. Instead, getting any sort of decision made is a big giant mess of regulations and internal politics.
All of which is to say, this pandemic is creating a lot of pressure on MLB teams from a lot of different directions. And the first sign of that pressure is when the weakest link in the MLB value chain starts to break. And that weakest link is…drumroll please…the minor leagues.
Minor league teams and minor league players have a strongly dependent relationship with MLB, with absolutely no leverage at all. They are a source of cost for MLB, with very little direct revenue coming back to MLB. So when MLB revenues start to get squeezed, where do you think they’re going to look first to cut costs? The place with the least resistance to those cost cuts and the least effect on revenues, of course.
So now all of a sudden, the minor leagues are going to be reduced from 160 teams to 120. The draft is going to be reduced from 40 rounds to 5. What could the minor leagues and the new potential minor leaguers do about it? Nothing. They’re the weakest links in the chain. It was inevitable that they would be the first to crack.
You wonder, then, if this pandemic drags on for another year or two, what are the next-weakest links in the chain? Who will be the next group of people that MLB’s structural issues will collapse on top of?
* * *
Nobody could foresee this particular pandemic coming at this particular time. But the fact that some negative externality could lead to financial problems within MLB: that was entirely foreseeable. It’s been built into MLB’s business model for over a decade now.
One thing this pandemic has made clear: we are terrible as a society, and perhaps as a species, at dealing with slow-motion disasters. There are so many problems we can see coming from a long ways away, but we don’t do much about them because they’re a long ways away.
Until they’re not, and then it’s too late.
There are many slow-motion disasters that we aren’t doing anything about. Pandemic preparedness, in hindsight, was an obvious one. Climate change is another, of course.
Interestingly, the Republican Party has the *exact* same slow-motion disaster happening to them as MLB. Their whole business model, like MLB’s, depends on cable TV networks keeping old white people attached to what they’re selling. Their problem, like MLB’s, is that their demographic keeps getting older and dying off, and the young people don’t have Cable TV, don’t watch their schtick, and so they don’t buy into what they’re selling fast enough to replace the old ones who die off. It’s a slow demographic train wreck happening for them, and you can see it coming. The Republicans *know* it’s coming, that’s why they keep trying to hold that demographic train wreck at bay on the backs of America’s politically weakest links by restricting minority voting access and cutting immigration. That may work for awhile, but at some point in the next decade or so, demographic shifts will cause some big states like Georgia and/or Texas and/or Florida to flip, and then it’s game over. Their only advantage over MLB is that they only have one incompetent competitor to worry about, while MLB not only has to fend off their rival sports to stay afloat, it also has to fight new innovators like Netflix and video games and social media for attention.
The pandemic has added urgency to Republican dilemma, too, because if the economy doesn’t recover by November, that demographic train wreck might happen this year instead of 10-20 years down the line. So you’re seeing Republicans putting a lot of pressure on decision makers to “open up the economy” as soon as possible. But that, in itself, is another slow-motion disaster about to happen. The shelter-in-place orders have lowered the R0 of the disease from 2.5 to about 1.0 or even below 1.0, but as soon as it opens up again, the R0 will jump back up again. It probably won’t jump all the way back up to 2.5, because many people will be cautious and avoid high-risk activities, but it will probably jump back up to something like 1.5. And that means the death rate will look like it’s holding steady for a month or three, but then the exponential growth will start to take effect, and we’ll get a surge of illness and deaths in August or September or October that will be as bad or worse than the first one. But this time, the fall guys won’t be the politically weakest links as much as the physically weakest ones, who just happen to be the kind of old, sedentary people who spend a lot of time watching baseball and Fox News.
And then what?