WHY IS MLB EXPANSION RARE?
The Oakland Coliseum, home of the Oakland Athletics. The A's dissatisfaction with the stadium is a major reason they are in the process of relocating to Las Vegas - a saga which has delayed expansion.
"Expansion is not purely additive, right, from the perspective of the existing owners. There are huge shared revenue streams that are diluted as a result of having 32 as opposed to 30 as your denominator.”
- Rob Manfred [1]
Related content:
What is MLB expansion?
When will MLB expand again?
How will expansion work?
How do cities win a team?
There are plenty of reasons that expanding is an attractive prospect to the league. But there are also some roadblocks to doing so. Some of these are short-term problems that should be resolved over the next couple of years. But some are deeper-rooted issues that reduce the attractiveness of expansion in general.
The roadblocks in the way of expansion ebb and flow over time; some problems that in the past might have been seen as deep-rooted no longer apply. For example, in the 1990s there was concern about additional teams decreasing the quality of competition.[2] But baseball’s talent pool has become so deep – particularly on the pitching side, with seemingly every bullpen stacked with 100 mile-per-hour fastballs – that this is no longer much of a concern.
SHORT-TERM PROBLEMS
THE LEAGUE WANTS TO FOCUS ON RESOLVING THE A'S AND RAYS' STADIUM SAGAS FIRST
Manfred has been clear that expansion will not happen until the Oakland Athletics and Tampa Bay Rays stadium situations' have been resolved - both franchises have been unhappy with their ballparks for a long time. In part this has been about prioritising the energy of the commissioner’s office; in part because MLB does not want to take any potential relocation cities off the table by giving them an expansion team.
Both situations are pretty much resolved. The A's have received approval to relocate to Las Vegas which, assuming everything proceeds according to owner John Fisher's plans, will happen in 2028 once its Las Vegas ballpark has been constructed.[4]
Meanwhile, the Tampa Bay Rays have announced an agreement for a new $1.3bn stadium in St. Petersburg, including approximately $600m in public funding. Their lease at Tropicana Field expires at the end of the 2027 season and the new stadium is expected to be ready in 2028.[5] [6]
There are still hurdles to overcome - even if the A's do relocate, which is not yet a done deal, it is unclear where they will play until their new Vegas stadium is complete - but the finishing line is mere steps away.
Tampa Bay Rays' new ballpark. Source: Tampa Bay Rays. Baseball Expansion claims no credit or copyright for this image.
Oakland Athletics' new ballpark. Source: Oakland Athletics. Baseball Expansion claims no credit or copyright for this image.
THE 2022-26 COLLECTIVE BARGAINING AGREEMENT
The latest collective bargaining agreement (CBA) between the players and the owners, covering the 2022-26 seasons and painstakingly negotiated during a process that involved a players’ strike, states that any decision by MLB to expand can be used by the players’ association to “reopen” the agreement “with reference solely to the effect upon the Players of such expansion”.[7]
This is not something that prevents expansion, but it does make it less likely. MLB are likely to be reticent to re-open the CBA before 2026, even in a limited way, knowing how difficult it was to agree something in the first place. More importantly, the owners are likely to want to use expansion as a bargaining chip in the next round of negotiations, knowing that more teams means more jobs for players and so it is something they would welcome. In 1990, when the league was thinking of expanding, “some owners wanted to stall until a new collective-bargaining agreement was negotiated…to use expansion to win other concessions” and a timeline for expansion was only released after the 1990 CBA was signed.[8] Meanwhile in 1994 it was “widely believed that the owners want[ed] to keep expansion as a hole card to help in their negotiations with the players.”[9] While the expansion process that would lead to two new teams in 1998 began prior to the 1994 players’ strike, it was structured so that it was only at the very conclusion of the process that the owners would confirm that they wanted new teams to join the league – which only happened after the strike had been resolved.[10]
DEEP-ROOTED PROBLEMS
EXPANSION WOULD INTRODUCE TWO FRANCHISES LIKELY TO BENEFIT FROM REVENUE SHARING
MLB operates two revenue sharing systems; the central fund and the ‘revenue sharing plan’. These systems are complicated - if you want to skip the technical explanation and only understand how they effect expansion in practice then ignore the next three paragraphs.
The central fund is the simpler of the two. Every year, each MLB franchise receives an equal proportion of the money in the fund. The fund is generated from the revenue accrued by the parts of the league run by MLB’s central office – for example, the proceeds from national TV deals, sponsorship agreements, merchandise and more.
The revenue sharing plan is more complicated. A simplistic explanation is that all teams pay 48% of their locally generated revenue into a central pot. This pot is then distributed equally between all teams, with the proviso that teams playing in markets of above average size cannot receive more money than they put in. Some teams pay more into the pot than they receive back from it – they are revenue sharing payors. Others receive more from the pot than they pay into it – these are revenue sharing payees.
Any money that the teams in above average markets would have received, over and above what they paid in, is put into a further, separate fund - along with any money paid by teams hit with the ‘competitive balance tax’, which levies extra charges on teams with a payroll exceeding a certain threshold. This fund is then disbursed, half to fund players’ benefit plans and half as additional funds for revenue sharing payees to further support them financially.[11]
By expanding the number of teams in the league, MLB’s existing owners dilute their share of the central fund and so are entitled to proportionately less of the league's revenue. There are currently 30 MLB teams, meaning every owner receives 3.33% of the fund. Expanding to 32 teams would reduce that figure to 3.13%. Meanwhile, 48% of a team’s locally generated revenue varies wildly from team-to-team. The website Captain’s Blog estimated that in 2019, the Yankees paid around $120m into the league’s revenue sharing plan while the Marlins and Rays received over $50m.[12]
How does this relate to expansion? Any new teams are likely to be based in smaller markets, have smaller fanbases and so generate less money than the average existing ballclub. The logic behind expansion is that new franchises grow the league’s revenue enough that overall revenue grows proportionally more than the existing owners lose by diluting the share to which they are entitled. But the risk is that new franchises contribute less than the amount of revenue to which they are entitled, and expansion does not grow the league enough for the existing owners to make more money than they otherwise would.
Hedging against the risk that expansion does not pay for itself is part of the reason that expansion teams pay the league such a high entry fee, and that previous expansion teams have been excluded from benefiting from the central fund for a time-limited period. The Florida Marlins and Colorado Rockies did not receive their cut of the league’s national TV money in their first year of existence, while in 1998 the Arizona Diamondbacks and Tampa Bay Rays forewent $5 million from baseball's central fund for five years from 1998 – meaning, for example, that both clubs only received around 42% of the distribution made to other clubs in 1998 and 53% in 1999.[13][14][15]
Ultimately, for MLB to expand, the existing owners have to feel sure that expansion will pay for itself - which also relies on new franchises accepting financial safeguards imposed by the existing owners to that effect.
NEW FRANCHISES WILL ENCROACH ON EXISTING TEAMS' TV TERRITORY
One of the main ways MLB franchises make money is through revenue from regional TV deals. Each franchise is designated a television territory in which they have exclusive right (sometimes shared with other clubs) to broadcast on cable television. As a result of their financial importance, franchises are extremely protective of their television territory.
For example, in 2004, the Montreal Expos relocated to Washington DC despite the city falling within the television territory of the Baltimore Orioles. Orioles owner Peter Angelos extracted substantial concessions from MLB, including a guaranteed floor on the Orioles’ annual revenues and majority ownership of MASN, a new television channel established to broadcast both Orioles and Nationals games.[16] As part of the deal, it was stipulated that after 2011 the two clubs would have to negotiate a fair figure for MASN to show Nationals games. But these negotiations broke down, leading to a bitter legal dispute between the two franchises that has been running since 2012.[17]
Similarly, in 2006 the then Florida Marlins were pursuing a relocation to San Antonio. Marlins President David Samson said at the time that “the biggest issue we are having right now as… is trying to figure out where we fit in the broadcast market” and that “it’s a huge area of competition between Major League Baseball teams and a huge factor in revenue sharing… it's complicated. A TV territory would have to be carved out and then monetized.”[18]
Today, MLB and regional television are at a crossroads. Diamond Sports Group, which runs the Bally Sports TV network and as of the beginning of the 2023 had agreements with 14 MLB clubs to televise their games, has filed for bankruptcy.[19] The group has already lost its broadcast rights with some of the teams it had an agreement to televise, who have subsequently partnered with MLB to provide a direct to consumer streaming option.[20] The Group is in serious financial difficulty and it is planning to end its MLB broadcasts after the 2024 season.[21]
As veteran baseball writer Maury Brown has observed: “Expansion markets in the U.S. would need to carve out media deals in which every bit of the country is already claimed by one or more MLB franchises.”[22] In an environment where franchises’ usual protectiveness of their TV territory is combined with uncertainty over the future of Bally Sports (and other operators like it), expansion may be a difficult sell to many of the owners, who are likely to be reluctant to do anything that destabilises such an important revenue stream any further.
That said, it does not make expansion impossible, particularly if the pieces of television territory being carved out were away from existing teams' core followings. Rob Manfred recently commented that:
“As a general proposition, I do not see the television territories for the clubs as a significant issue in considering expansion in domestic markets…I think the Baltimore/Washington matter was just too tight in terms of proximity…I don’t think that if there was relocation into a club’s outer territory that it would be such a problem.”[23]
NEW FRANCHISES MAY ENCROACH ON AN EXISTING TEAM'S OPERATING TERRITORY
Under MLB rules, each team is designated an ‘operating territory’ in which they have the exclusive right to play games as the home club.[24] Operating territories tend to be relatively small, but some extend a substantial distance from a franchise’s home stadium. Clubs are not allowed to be based inside another team’s operating territory (unless 75% of owners approve it).
Some cities previously mooted as candidates for expansion are based within an existing franchise's operating territory. But this makes them unlikely contenders; franchises’ operating territories are where the majority of their ballpark-attending fans live, are paramount to their financial success and so are protected vigorously. The strength with which franchises defend their operating territory can be seen in the San Francisco Giants’ approach to the Oakland Athletics’ planned move to San Jose in 2012. The Giants have “actively worked to expand their Peninsula/South Bay fan base” and allowing the Athletics into that territory would have posed a risk to their business.[25] So, they came out strongly against it, and MLB quashed the plan. In June 2023 San Jose’s mayor coordinated a letter to MLB asking it to revoke the Giants’ claim over their territory, which Manfred rejected, citing a focus on the Athletics’ pending move to Las Vegas.[26]
While only applicable to a small group of potential expansion locations, it is yet another factor that makes expansion more difficult to pull off.
MORE FRANCHISES MIGHT LEAD TO HIGHER SALARIES, ESPECIALLY FOR SUPERSTAR PLAYERS
More teams in the league means more competition for major-league level players. In the non-salary cap constrained world of Major League baseball, the basic laws of supply and demand mean that more competition for players pushes their price higher. For owners, this is an unappealing prospect.
This effect is likely to be particularly acute for superstar players. Top level players are scarce commodities – in 2022, there were just 31 players who were measured at 5 Wins Above Replacement (fWAR) or more, the benchmark Fangraphs uses to separate ‘superstars’ from the rest.[27] These are the sorts of players that everybody wants; and the introduction of two new teams who want them as well will push their price higher, although by how much it is hard to say.
References:
[1] "Manfred: MLB Expansion Fee Could be in $2.2 Billion Range", Sports Illustrated, Associated Press, https://www.si.com/mlb/2021/04/27/rob-manfred-mlb-expansion-fee-over-2-billion, 27 April 2021.
[2] Playing Hardball: the high-stakes battle for baseball's new franchises, David Whitford, 1993.
[3] "Athletics sign binding agreement to buy land for future stadium in Las Vegas", The Athletic, Evan Drellich and Steve Berman, 20 April 2023, https://theathletic.com/4431782/2023/04/20/oakland-athletics-las-vegas-stadium-agreement/
[4] "Major-league deal: A’s to purchase land near Strip for new ballpark", Las Vegas Review-Journal, Mick Akers, 19 April 2023, https://www.reviewjournal.com/sports/athletics/major-league-deal-as-to-purchase-land-near-strip-for-new-ballpark-2764701/
[5] "Rays announce plans for new $1.3 billion stadium in St. Petersburg: 'Our Rays are here to stay'", FOX 13 News Staff, Fox News, 19 September 2023, https://www.fox13news.com/news/rays-announce-plans-for-new-1-2-billion-stadium-for-st-petersburg
[6] "Report: Rays complete deal for new stadium in St. Petersburg", ESPN, ESPN News Services, 18 September 2023, https://www.espn.co.uk/mlb/story/_/id/38430468/report-rays-complete-deal-new-stadium-st-petersburg
[7] "MLB’s 2022-26 Labor Deal Allows For Expansion To 32 Teams, But Likelihood Thin", Forbes, Maury Brown, 1o May 2023, https://www.forbes.com/sites/maurybrown/2023/05/10/mlbs-2022-26-labor-deal-allows-for-expansion-to-32-teams-but-likelihood-thin/
[8] "The Making of the Marlins", SABR, Stephen R. Keeney, (no date), https://sabr.org/journal/article/the-making-of-the-marlins/
[9] The Arizona Republic, 'Colangelo to press for team', 27 February 1994, pg. A6
[10] The Orlando Sentinel, 'Expansion still isn't a sure thing', 2 November 1994, pg. A12
[11] More details at: "Looking Under the Hood of MLB’s Revenue Sharing Plan", Captain's Blog, William Juliano, 7 March 2020, http://www.captainsblog.info/2020/03/07/looking-under-the-hood-of-mlbs-revenue-sharing-plan-yankees-baseball-red-sox-mets-how-does-baseballs-revenue-sharing-work/25425/
[12] "Looking Under the Hood of MLB’s Revenue Sharing Plan", Captain's Blog, William Juliano, 7 March 2020, http://www.captainsblog.info/2020/03/07/looking-under-the-hood-of-mlbs-revenue-sharing-plan-yankees-baseball-red-sox-mets-how-does-baseballs-revenue-sharing-work/25425/
[13] Playing Hardball: the high-stakes battle for baseball's new franchises, David Whitford, 1993.
[14] "Fall 1997: Terms of Major League Expansion", SABR, Doug Pappas, 1997, http://roadsidephotos.sabr.org/baseball/expansion.htm
[15] "The Report of the Independent Members of the Commissioner’s Blue Ribbon Panel on Baseball Economics", Report for Major League Baseball, Richard C. Levin et al., July 2000, http://roadsidephotos.sabr.org/baseball/2000blueribbonreport.pdf
[16] "New York’s highest court ruled against the Orioles and MASN. What’s next?", The Baltimore Banner, Dylan Segalbaum, 5 May 2023, https://www.thebaltimorebanner.com/sports/orioles-mlb/what-we-know-new-york-court-of-appeals-opinion-masn-orioles-nationals-RTJ7FEG6DBDR3HUTEQMCT6STLU/
[17] "'Arranged marriage’ gone awry: inside the Orioles-Nationals unprecedented fight", The Athletic, Dan Connolly and Brittany Ghiroli, 16 March 2020, https://theathletic.com/1668052/2020/03/16/arranged-marriage-gone-awry-inside-the-orioles-nationals-fight-for-fans-masn/
[18] "Television Territories Impact Relocation/Expansion", Biz of Baseball, Maury Brown, 9 April 2006, https://web.archive.org/web/20160224211246/http://www.bizofbaseball.com/index.php?option=com_content&view=article&id=581:television-territories-impact-relocationexpansion&catid=29:articles-a-opinion&Itemid=41
[19] "Diamond, owner of RSNs for 40-plus teams, files for bankruptcy", ESPN, Alden Gonzalez, 14 March 2023, https://www.espn.com/mlb/story/_/id/35860875/diamond-owner-rsns-40-plus-teams-files-bankruptcy
[20] "Diamond Sports Group fails to pay Padres, loses broadcast rights", https://www.espn.co.uk/mlb/story/_/id/37762861/diamond-sports-group-fails-pay-padres-loses-broadcast-rights
[21] "Bally Sports planning to end MLB broadcasts after 2024 season, per court filing", Sports Illustrated, Lindsay Crosby, 9 November 2023, https://www.si.com/mlb/braves/news/bally-sports-planning-to-end-mlb-broadcasts-after-2024-season
[22] "Major League Baseball’s Expansion Paradox", Forbes, Maury Brown, 31 January 2023, https://www.forbes.com/sites/maurybrown/2023/01/31/major-league-baseballs-expansion-paradox/
[23] "MLB Commissioner Rob Manfred Touts Mexico As A Possible Expansion Location", Forbes, Maury Brown, 1 October 2015, https://www.forbes.com/sites/maurybrown/2015/10/01/mlb-commissioner-rob-manfred-touts-mexico-as-a-possible-expansion-location/
[24] "Major League Constitution", Major League Baseball, https://pennstatelaw.psu.edu/sites/default/files/documents/Sports-Law/MLB%20Constitution.pdf
[25] "Territorial Rights - A (Not So) Brief History", Athletics Nation, Ciderbeck, 20 April 2012, https://www.athleticsnation.com/2012/4/18/2958535/territorial-rights-a-not-so-brief-history
[26] "MLB turns down San Jose's Mayor seeking expansion team, citing focus on A's relocation", Mercury News, Alex Simon and Gabriel Greschler, 27 June 2023, https://www.mercurynews.com/2023/06/27/mlb-turns-down-san-jose-mayors-letter-seeking-expansion-team-citing-focus-on-as-relocation/
[27] "Major League Leaders", Fangraphs, https://www.fangraphs.com/leaders/major-league?ind=0&lg=all&month=0&pos=all&qual=y&season=2022&season1=2022&stats=bat&type=8