MLB Could See A Painful Lockout When Labor Deal Expires In 2026, And That’s Just The Start

Apr 12, 2023

MLB commissioner Rob Manfred is grappling with a dramatic change in the media rights landscape that ... [+] is likely to alter the way the league does business, and set the stage for nasty labor negotiations with the players when the current CBA expires at the end of the 2026 season. (Photo by Mike Carlson/MLB Photos via Getty Images)

The dividing lines are already forming ahead of the 2026 expiration of Major League Baseball's collective bargaining agreement, and the differences are not what you think. The players and owners are at odds over a number of issues, but the owners of big-market teams and smaller-market teams are also not seeing eye to eye.

Who "won" a labor deal is in the eye of the beholder. Whether an agreement appears to be in favor of one side or the other, ultimately both will say they didn't get all they hoped for. The latest CBA set the tone for the future, and that future looks grim for fans.

This week it was reported that the league has created an Economic Reform Committee to examine several factors. There will assuredly be recommendations out of it – some that can be done unilaterally, some that require acceptance from the players. At the very least, it will provide fuel for battles between the owners and future battles with the players. Here are some key issues that are on the horizon.

The league is staring down the barrel of the regional sports network model being upended. The 19 Sinclair-owned Bally Sports RSNs are on the verge of bankruptcy, and Warner Bros/Discovery-owned AT&T T RSNs shorted payments to the Astros, Rockies, and Pirates. More than any other sport, baseball leans heavily on local media rights. While the NFL, with its small number of games with high demand, sees rights fees evenly distributed through a centralized model, MLB has always had the individual clubs work their own media rights deals. With large market, big brands having an advantage, the RSNs have created economic disparity. As subscribers have accelerated leaving traditional linear television in favor of streaming, the RSN model is on the edge of collapse.

The league is prepared to take rights back from Sinclair for all or some of the Bally Sports RSNs and with it, go direct-to-consumers (DTC) through the league's MLB.TV streaming service. Blackouts would be dropped and fans would be able to choose teams individually in-market. The issue here is that the DTC model will assuredly see lower revenues than what has been garnered through bundled traditional cable or satcaster distribution. And that matter of economic disparity increases under this model. Clubs like the Yankees, Dodgers, Cubs and Red Sox would assuredly fare better than the Pirates, Rockies, Rays, or A's of the league.

While MLB has also said that it's looking into producing games through MLB Network that could be sold to cable and satellite providers for traditional television, there's little doubting that as the aforementioned decline in subscribers increases, the amount garnered from these deals will fall compared to what clubs have been receiving.

The dramatic change in the media landscape is opening up the discussion of increased revenue sharing. For MLB commissioner Rob Manfred, going from concept to increasing the amount of revenue shared from large revenue clubs to lower comes with two difficulties: one is getting those big revenue makers to increase revenues to lower generating clubs. The other challenge is revenue sharing is part of collective bargaining with the MLBPA. With the likes of Steve Cohen of the Mets driving the free agent market upward dramatically, there will assuredly be a discussion as to whether increasing revenues to the small-generating ones have any tangible benefits. After all, there has been more than one grievance filed against several clubs claiming they have not used those funds to make their MLB teams competitive on the field.

The one thing the league can do unilaterally is to grow centralized revenues through sponsorships and other avenues. While the league has not said whether the concept is being considered, corporate naming rights for jewel events is an idea. Would it surprise anyone to see postseason series be something like, "The American League Championship sponsored by <insert corporate name>"?

Major League Baseball has seen attendance decline nine straight seasons and was down nearly 6% in 2022 compared to 2019, the last season before the pandemic. Before the media rights explosion, the gate was the league's largest revenue generator. As media rights became a huge cash cow, less strain was placed on attendance numbers.

With the RSN model shifting, clubs will assuredly focus on how to get fans to the ballpark where not only ticket revenue is made, but concessions, merchandise, and often parking revenue. If there was some tailing concern about fans gathering in large numbers in 2022 with the pandemic just starting to wane, 2023 should provide an atmosphere more closely aligned with fan behavior in 2019 ahead of the pandemic.

While the owners lock horns with owners, make no mistake, Manfred & Co. will look to get concessions out of the players. As part of bargaining for the current labor deal that started in 2022, several concepts were in offer packages that hit on what are nearly sacred mechanisms the players earned the right to. In one offer, the owners offered up to dissolve salary arbitration in favor of a whole new system. The players balked at it as a non-starter, but if that was before the looming economic pressures of the RSN model changing, why wouldn't they come back to such concepts or ones even more radical in 2026 when the current CBA expires?

And while some may ask whether a push for a salary cap is coming, it seems more likely that Manfred would look to skirt the edges of what that would involve in favor of extracting salary "compression" rather than a system that looks more like the NFL, NBA, or NHL. After all, there are still owners that were around with the ’94-’95 strike occurred and know that nothing galvanizes the players more than the topic of a cap system.

Instead, look for the owners to again come back with a drastic lowering of the luxury tax threshold with some counter that would seek a soft floor. While this was part of the 2022 bargaining sessions and rejected, owners may be more willing to hold the line this time around at the expense of losing games.

The one thing the players could respond to this type of hardball with is this: the RSN model was in danger ahead of the pandemic. The owners knew Bally Sports was in economic trouble last year when it took on a $600 million cash infusion to stave off bankruptcy. And yet the 2022-23 off-season has been a feeding frenzy of free agent signings with clubs spending as if no financial hardship was ever on the horizon. "No one held a gun to the owners’ heads and forced them to spend," might be one way the leadership of the MLBPA could respond.

In other words, there will be a push for the owners to deal with the economic disparity through revenue sharing and centralized revenues rather than through some mechanism that ties MLB into something that isn't largely a free market.