The Simple Economics of the MLB CBA and an Oakland Athletics Stadium

For years, A’s fans, analysts and insiders have followed the A’s executives and their winding search for a new stadium. It has long been acknowledged how important a new park is towards ushering the franchise into the 21st century of sports business competitiveness. But it has never happened.

Also for years, the A’s business people have received an extra exemption in the MLB/MLBPA collective bargaining agreement. This special exemption provided the franchise additional revenue sharing under the program that is intended for small market teams. It was recognized in the CBA that the A’s were in fact located in one of the larger U.S. markets, but their antiquated dual-use stadium was a hindrance to large market revenue generation.

Accordingly, the A’s had a unique exemption that gave them an extra ~$30 million per year based solely on their stadium situation. The prior CBA went so far as to write out specifically that that A’s would lose these “Market Disqualification Proceeds” as soon as they opened a new stadium. Verbatim in the 2012-2016 CBA:

(Source: MLB 2012-2016 CBA page 125)

What the old CBA was saying, was that the A’s would receive this additional ~$30-35 million (and rising) check, so long as they did not build a new stadium.

Of course, the MLB and MLBPA folks that agreed to this deal surely did not mean to be paying the A’s franchise to not build a new stadium. However, effectively, that is exactly what they were doing.

Many have criticized former managing partner Lew Wolff for his very slow process of getting a new stadium off the ground. But some blame rests with the MLB/MLBPA for the unintended consequences of their prior CBA language and structure. The CBA terms they agreed to prior to this year were a textbook disincentive for the Athletics’ business people to build a new stadium. Not only would the A’s business be shouldering the risk and the challenge of putting together a new stadium, but they would also lose $30+ million per year in revenue sharing as soon as the new stadium opened! New stadium development is always a risky endeavor - there is great upside but also significant costs and challenges. To add a $30+ million annual disincentive to build is certainly a way to slow the urge to develop.

The prior CBA effectively encouraged the A’s business to sit back at the Coliseum. And that they effectively did, including signing a 10 year lease in 2014.

For the ultimate reasons that only the MLB and MLBPA decision makers know, the new CBA for 2017-2021 has changed the above situation. The A’s no longer have an endless “bad stadium” exemption to the market rules. They will no longer be getting an extra $30+ million annually as long as they stay in the Coliseum. The MLB will be phasing out this payment over the next four years, and the A’s will be moved into the section of ball clubs who play in large markets. Fellow AN writers Jeremy Koo (article here) and Alex Hall (article here) have written pieces on the new CBA, with Mr. Koo’s view being fairly pessimistic and Mr. Hall’s being more baseball-focused.

Ultimately for me, while it is unfortunate the A’s are in this awkward situation of losing a meaningful portion of their annual revenue before a new stadium has even broken ground, the simple economics of the MLB/MLBPA changing the incentive structure make it much more likely a stadium will actually get done. While the prior CBA effectively said “build a stadium please, but once you do, we are cutting off this extra cash spigot”, the new CBA effectively says “build a stadium as fast as you can”. While the tough love may be frustrating in the short term, it may be just what the A’s business people need to finally get the new stadium project off the ground.

The Athletics and new club president Dave Kaval issued this statement following the agreement on the new CBA:

From the perspective of economic incentives, the new CBA much more strongly encourages the A’s to build a new park. The MLB/MLBPA “tough love” could be just the change in incentive structure needed to finally nudge the A’s over the top to a new stadium being actual rather than theoretical. With change like this comes challenges, but it also points to the A’s moving full speed on a new stadium. In the always exciting hot stove season, have hope A’s fans, a new baseball park and new higher-upside era of Oakland A’s baseball is much more likely than it was before.