I am happy to see that Major League Baseball Players Association chief Tony Clark understands corporate debt (link may require a subscription):

“Understand that debt, the word ‘debt,’ resonates with all of us, even on a personal level,” Clark said. “And we normally attribute that to what our individual experiences have been. Debt as car notes, home mortgage, student loans, etc. On a corporate level, debt can be something much different. And historically, in most, if not every industry, business people take on debt particularly during an economic downturn, because they can borrow at low interest rates and invest in their futures.”

TheAthletic.com

Corporations tend to roll their debts over into new loans, as inflation makes the debt easier to pay off as time goes on. Debt becomes a problem when cash flow can no longer sustain interest payments, or valuations sink so far that the debt can no longer be paid off by selling the asset. The article points out that current MLB debt stands at $8.3 billion. According the Forbes, at the start of the season, the combined value of the Yankees and Dodgers was $8.4 billion. The interest on that debt, if one assumes a 3% interest rate, would be around $256 million a year. It’s the payroll of the two or teams. So in fact, MLB as a whole has a very healthy level of debt.

Of course, Major League Baseball is not a single entity. The debt is not held by the league, but by the individual teams. While the league as a whole carries a very reasonable amount of debt, individual teams could get themselves in trouble. The league will play up that aspect in negotiations. The union will play up the overall debt health to counter.

I believe the MLBPA has the high ground on this issue. MLB should argue from a cash flow perspective, not a debt perspective. Cash flow took a hit from fans being absent from games, as stadium revenues account for about 1/3 of the MLB total.

For 2021, the sides need to focus on getting some fans back in the stands to improve cash flow. That’s a short term agenda, however. Long term, the MLBPA needs to focus on a shorter path to free agency to try to move more revenue onto the players side of the ledger.