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'I was wrong': Why MLB's restructuring of the minors turned out mostly better than expected

Written by 
Published in Baseball
Friday, 28 January 2022 07:07

In November 2020, Peter Davis, proud proprietor of the Missoula PaddleHeads, was two years into life as a minor league baseball owner when disaster struck.

The PaddleHeads, who had been a farm team for the Arizona Diamondbacks, were now "de-affiliated," one of 43 teams jettisoned into life as an independent club. The Diamondbacks had been responsible for paying PaddleHeads players and coaches, and that money was now gone. As was the financial value that came with owning an affiliated team.

"We'd lost all the equity. Disappeared overnight," Davis says. "We had no clue what we were going to do at that point."

But the PaddleHeads learned they could swim. They stayed in the Pioneer League, newly independent for the 2021 season, and won the championship.

"We had a great season, and we had a blast doing it," Davis says. "You really were hamstrung as an affiliated team ... yes, we loved being an independent team."

In 2020, before realignment, ESPN spoke to dozens of minor league officials, many of whom predicted disaster as MLB moved to reduce the number of affiliated teams from 160 to 120, four for each major league club. Recently, we reached out to more than 50 teams to see how they fared -- especially those teams that lost affiliation.

For some clubs, the reconfiguration was indeed a disaster. Eight teams that lost affiliation either folded altogether or did not play in 2021 (one because of an unfinished stadium), and some of those teams are suing MLB for breach of contract and tortious interference. Officials from teams that remained affiliated expressed general satisfaction, although some said they wouldn't air gripes publicly for fear of angering Major League Baseball.

But for the owners who lost affiliation -- those who felt they had the most to lose -- a number were like Davis. While they lament their team's loss of value and worry about MLB's long-term commitment to their new leagues, they say the reorganization worked out better than they expected.

"I was wrong," says Jeff Katofsky, the owner of the now-independent Northern Colorado Owlz and a vocal critic last year. "I thought fans cared more about affiliation than they actually do. ... I'm encouraged. I would've told you it was going to be a s--- show, and it wasn't."

The Owlz were one of the eight that didn't play because their stadium was incomplete, but they plan to resume this year.

Come spring, if major league owners and players have not resolved their labor impasse, both affiliated and unaffiliated minor league baseball will be the only professional game in town. The lockout only affects players on MLB teams' 40-man rosters, and the minor league seasons will begin on schedule, pandemic permitting. Minor league owners see the potential for a banner 2022 season.

"The first initial reaction was 'change is bad, change is bad, I want status quo,'" says Andy Shea, the CEO of two teams that lost affiliation. "Now that I've realized it, the quality of baseball is better, the name recognition is better, and there's still that autonomy that we have."

The de-affiliated teams that survived joined either independent professional leagues or MLB's new amateur Draft and Prospect leagues, which use college players swinging wooden bats.

MLB officials say they're mostly pleased with how their plan to restructure the game has gone.

"None of us would have chosen to have Year 1 be in a global pandemic," says Morgan Sword, MLB's executive vice president for baseball operations. "That obviously muted the impact and obviously prevented us from progressing as quickly as we wanted." But all in all, he says, "we were really happy about how things went."

One thing is clear: Major League Baseball is now in complete control of the minors, all part of commissioner Rob Manfred's vision for "One Baseball," with his office in New York the center of all levels of the sport.

"What I've learned is that Major League Baseball is really powerful at getting what it wants," says one minor league owner on the condition of anonymity. "Before, MLB had to ask, and now they can tell. They'll ultimately get what they want."

What MLB wanted was stability and control that officials felt had been lacking under the old minor league system, which was a patchwork of leagues that worked through the mostly autonomous Minor League Baseball offices in St. Petersburg, Florida.

Before, major league clubs had to renew agreements with affiliates every two to four years, sometimes ending up with geographical nightmares like the one the New York Mets had for six seasons when their Triple-A team was 2,500 miles away in Las Vegas. The new system allows clubs to choose affiliates without negotiating.

MLB teams wanted improvements to many minor league facilities, some of which are publicly owned. Owners were told they would lose their affiliation if those upgrades weren't made.

For some ballparks, that tab can run several million dollars. MLB officials also said that reducing the number of teams would allow major league clubs to improve the infamously poor pay for their minor leaguers.

The affiliated minor league owner, who didn't like MLB's "take it or leave it" approach, says now that the goals were worthwhile.

"A lot of that was needed," he says.

Owners who lost affiliation say a positive turning point was an agreement a year ago that established four independent leagues, including the Pioneer, as "partner leagues" with MLB. The arrangement means MLB covers initial administrative costs of up to $500,000 per league for the first three years, and it provides scouting technology for MLB teams to keep tabs on players.

To Davis, the biggest thing the agreement provided his PaddleHeads was a sense of security. "As long as I knew the Pioneer League was going to stick together, I knew we were going to be good," he says.

MLB says it is also trying to make good on its promise that no town would lose baseball because of de-affiliation; an official says that by 2023 there should some form of minor league ball in five of the cities where teams didn't play last year.

"I'm probably in the minority from some of the operators, [but] I've got to at least appreciate the fact that MLB has done everything they said they were going to do in bringing summer league ball to these markets," says Chris Allen, the president of Boyd Sports, which owns the Double-A South's Tennessee Smokies and four teams in the Appalachian League that lost affiliation. "We were at their mercy when we lost our team. It was either try this, see how it goes, or we're out of a business. It's worked out OK for us. I know other leagues and teams have had more of a challenge than we have."

For some teams that moved to independent ball, freedom is just another word for having way more in expenses. The PaddleHeads' Davis had to come up with money for things the major league teams used to provide -- $300,000 for players "and trainers and all the baseball expenses, baseballs and bats and all that other [stuff]. This year we had to do it all ourselves, which is actually fun. It was expensive, but it was really fun," he says.

Teams like his no longer have to pay fees to MiLB or the major league clubs, although some owners say their total expenses are higher.

Among the clubs that converted to independent professional teams, owners say their biggest issue is that even if their franchises were successful for a season, they lost significant value when they lost affiliation. It's like having a beautiful house that is worthless on the market; it's fine as long as you don't intend to sell.

"The equity difference is massive," Davis says. "I mean millions of dollars. So that's everyone's huge concern and that's why the rest of the league wants to be affiliated, so they can get their money back."

The Binghamton (New York) Rumble Ponies, who remain as the Mets' Double-A affiliate, were sold last year for $10 million, which several sources say is consistent with the market before contraction. The Vermont Lake Monsters, on the other hand, lost affiliation and sold for about $1 million, far short of the $8 million that other teams in their league had sold for previously.

"Well, it hurt," says former Lake Monsters owner Ray Pecor Jr. "It hurt in a lot of ways. I was there for 26 years or more. I was hopeful for something special in the community, and all of a sudden they took all of that away from us."

Pecor says he only sold once he knew the buyer would keep the team in Vermont.

Of the 43 teams that lost affiliation, three are suing MLB for claims including breach of contract and tortious interference, essentially saying that MLB bullied them out of business. Some of the eight owners who didn't operate last year couldn't sue: They also own teams that kept affiliation, and when they signed agreements with MLB they waived that right.

Another MLB official, speaking on the condition of anonymity, denies that the clubs or MLB violated any contracts.

"We had a contract with a group that expired," the official says, referring to the Professional Baseball Agreement between MLB and MiLB that expired Sept. 30, 2020. "I think that's a tough road for them to argue. If you take it to a logical extreme, what they're saying is, once you're here, you're here forever."

The plaintiffs also filed a federal lawsuit in December challenging MLB's antitrust exemption. A separate class action lawsuit filed this month on behalf of minor league players also challenges MLB's antitrust status by claiming MLB and its teams conspired to keep pay low. MLB has long argued that without its antitrust exemption, which allows it to control team territories, minor league teams would constantly move and create a state of chaos.

One of the plaintiffs is Nostalgic Partners, LLC, which owned the Staten Island Yankees. They're suing for $20 million.

"We were totally wronged by MLB and the New York Yankees and we're going to win this suit," says Glenn Reicin, a partner with the firm.

The owners of the Salem-Keizer (Oregon) Volcanoes, formerly a San Francisco Giants affiliate, and the Tri-City (New York) ValleyCats, formerly with the Houston Astros, are the other two plaintiffs. The owner of the Norwich (Connecticut) Sea Unicorns joined the three plaintiffs on the federal lawsuit.

One formerly affiliated owner says the $500,000 MLB is giving his new league isn't enough to cover what was lost, and he doesn't have faith that it will continue to support baseball in that league's communities.

"They did the absolute rock-bottom minimum that they could. I expect them to participate for three years and then they'll be gone," he says. "There's no negotiation. How do you negotiate when there's nothing to negotiate with?"

That owner also said he didn't want any of that attributed to him, because he's hoping that someday MLB will restore his affiliation.

Even Boyd Sports' Allen, who says MLB came through on "95%" of what was promised, says he has concerns for the long run.

"You can't expect them to pay for this 20 years down the road. You do wonder what the sustainability of the [Appalachian] league is," he says. "Yeah, I am concerned. I know our community is concerned. What is the plan if they do pull the financing? If they pull the financing, some of these teams won't be able to make it. I think ours would survive. But some of them would not."

Teams that learned in 2020 they were keeping affiliation were relieved, but even they had concerns about what life would be like under direct MLB rule.

"At the very beginning, when this all took place, there was a lot of cynicism. Eventually -- I'm not going to say it's all gone away yet -- the cynicism tended to dissipate a little bit," says Ken Young, who is a part-owner of four affiliated teams. "It doesn't mean it was good. I mean, obviously, we had attendance restrictions. We had all kinds of various problems that were more COVID-19 than anything else."

Overall, according to Baseball America magazine, attendance for affiliated clubs was down 1,000 fans per game. Some of that is attributable to pandemic restrictions at some parks, fan fears of the virus and games canceled because of team outbreaks. All clubs say they had a significant drop in revenue from corporate sales, but are optimistic companies will buy bulk tickets in 2022.

Outside of COVID-19, Young says, affiliated teams' biggest concern was that MLB would take over teams' marketing and financial plans, robbing them of their autonomy.

"At least for the first season, I would say that it was satisfactory in that we were permitted for the most part to operate normally," he says.

Another change was MLB's decision to sign 10-year agreements with affiliates, rather than the two-to-four-year deals that left major league clubs playing "musical chairs" as they negotiated for minor league clubs. And with that new stability among affiliated teams has come a new kind of minor league owner: a number of firms and private equity funds are seeking ownership of affiliated teams.

Endeavor, which has grown from its original business as a talent agency, recently announced it was creating a subsidiary called Diamond Baseball Holdings and buying 10 affiliated minor league clubs, with more acquisitions to come.

"I think the attraction to it now versus prior is the stability of the system," says Peter Freund, the CEO of Diamond and a veteran minor league owner himself. "Minor league baseball is sort of in the most secure possible place it could be. Now we can grow the brand from a national standpoint. [The opportunity] wasn't there before."

(The MLB Players' Association told Endeavor agents they would have to divest from the company if they want to represent baseball players, The Athletic reported this month.)

Seeing Endeavor get into the market "was sort of shocking," an MLB official says on the condition of anonymity. "The general thesis is there's a lot of untapped potential. I take it as a compliment that large companies are suddenly interested in being part of the minor leagues."

The opportunity is there now, Freund says, because MLB's minor league office can coordinate national marketing and merchandising efforts in a way the old MiLB office in Florida and the disparate league offices couldn't.

Endeavor and other affiliated owners will try to expand the minor league game's national appeal with marketing and improved broadcasting. Freund says he would like to see, for example, major league broadcasts cut away to minor league games to show the organization's best prospects at work.

While MLB officials say they're pleased with Endeavor's entry into ownership, they also expressed concerns about letting one owner become too powerful. MLB recently adopted a rule that no one may own more than 24 minor league teams or more than nine within the same minor league level. That rule is to be reevaluated in the years to come.

"The model here, what we like to see, is wealthy people who made money elsewhere and want to own a team where they live," the MLB official says. "That's our ideal minor league owner."

Freund agrees that the local connection is important, and that despite Endeavor's efforts to nationalize minor league marketing, he has been preaching local control.

"We'll still operate in ways fans have become accustomed to with local leadership, whether it's presidents and GMs, relationships with local foundations and businesses," he says.

The teams Endeavor has pursued underscore a point that newly unaffiliated owners have made: Affiliation is crucial to the value of a club.

"The strength of minor league baseball is based on the strength of Major League Baseball and its affiliations," Freund says. The clubs Endeavor pursued, he notes, are affiliates of teams with national followings: They'll have one each from the Cubs, Cardinals, Giants and Dodgers, two of the Yankees' four teams and all four of the Braves' affiliates.

"To affiliate as closely as possible with Major League Baseball is the gold standard. It's just disingenuous for anybody to say the relationship with MLB is not better than any alternative," says David Freeman, lead owner of the Jackson (Tennessee) Generals, who did not play in 2021 and face an uncertain future. "The 120 weren't necessarily thrilled with every aspect, but the acceptance rate was 120-for-120; that speaks for itself."

Even newly independent teams that are succeeding say they want back in if an opportunity presents itself.

"Make no bones about it, we'd prefer to be an affiliated part of Major League Baseball. It's the goal, eventually," says Curtis Haug, the vice president and general manager of the Kane County (Illinois) Cougars. "It's a different world. So far, so good. The fans have embraced it. The beer's still cold, the hot dogs still good."

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