Sports Business Simulations Inc. Calls for New MLB Collective Bargaining Agreement After 2006

Internet Sports Simulation Firm Claims that Baseball Should Concentrate on Combining Television Rights Fees Into One "Super Contract" and Phase-Out Local Revenue Sharing

Oakland, Calif. (July 24, 2003) ­ Some have hailed the recently adopted Major League Baseball Collective Bargaining Agreement (CBA) as a great start toward true revenue sharing. But Sports Business Simulations (SBS), which produces web-based business simulations of sports organizations, takes a different view. "It will be the foundation for future player / owner salary disputes, as it encourages a constriction of the revenues that are used to pay salaries," says SBS CEO Zenophon Abraham. "In short, baseball is cannibalizing itself."

When SBS developed the Oakland Baseball Simworld, the objective was to represent the fiscal and socio-economic behavior of the Oakland Athletics and the regulatory, regional economic and political environment around the organization. That includes the CBA.

SBS contends that Major League Baseball should work on a restructured CBA for introduction just before the expiration of the current system in 2006.

The Internet simulation firm observes that there are 24 Regional Sports Networks (RSNs) paying rights fees to the teams of Major League Baseball. MLB should work to retire those contracts and replace them with one "Super Contract" containing the merged and reshaped RSNs of all of the organizations. "Over seven years, that Super Contract could be valued at $10.5 billion or more," said Abraham, "with each team receiving from $40 million to $60 million annually from television. The fair market value is greater than that. But it's expected that the RSN's would be forced to combine their bids, and more new competing "lone-wolf" RSNs would push up the total bid, leading to this eventual outcome. What MLB should consider is essentially bundling its rights and negotiating with all of the RSN's at once, thus forcing, for the purpose of an agreement, a simplification of the terribly complex web of competing RSNs in each region."

SBS realizes that this would centralize contract negotiations and strategy with MLB but insists that's the only way to really cause each team to receive close to the fair market value for TV rights fees in their RSNs.

The new Internet firm does agree that the adjustment would be painful for some teams, but not the majority of teams. Moreover, it would not impact the local radio contracts or other "non-conflict" agreements each team could structure.

In the firm's view, the current design of local revenue sharing essentially taxes organizations who make excellent negotiations for television rights in their RSNs, and fails to provide fiscal comfort to small market teams. The result is an incentive to "hide" local revenues from estimation in the revenue sharing formula. SBS contends that MLB should apply a "laser focus" to the development of a "Super RSN TV Contract."

The Potential Impact on The A's and Giants

To determine what the impact of a new Super Contract would be on all Major League Baseball teams, SBS constructed a spreadsheet that combines available 2001 MLB per-team fiscal data with the first year of the seven-year, $10.5 billion Super Contract, where each team would receive $40 million in revenue.

In 2001, the Oakland Athletics posted a $7.1 million loss. With the new Super Contract, were it adopted in 2001, the organization would have a healthy $23.4 million fund balance.

The estimates are even better for the San Francisco Giants. In 2001, the organization had a $19 million fund balance; under the proposed plan that would grow to $41.8 million, the second highest balance behind the Milwaukee Brewers ($48 million).

Overall, Major League Baseball would realize a $396 million revenue balance, rather than the $232 million loss reported by Commissioner Selig in 2001.

Try The Scenarios Yourself

You can actually run a simulation of a team and test different versions of the Collective Bargaining Agreement. SBS' Oakland Baseball Simworld is available for you to run at www.sportsbusinesssims.com. There's a free trial you can use to run the simulator and better understand how different CBAs not only impact a professional baseball organization's bottom line, but effect business decisions made by executives. In this case, you are the executive running the organization.

You can also download a copy of the spreadsheet presented at the SBS site. Just go to the SBS Press Center, or contact SBS at info@sportsbusinesssims.com.

About Sports Business Simulations

Based in Oakland and established in January 2003, Sports Business Simulations, is a private Delaware company, which has designed and developed a network of web-based simulators, based on actual sports organizations and environments. The “SBS World” contains its first two products, the XFL Simworld and the Oakland Baseball Simworld.

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