Major League Baseball chief financial officer and executive vice president Jonathan Mariner focused on the troubles facing labor agreements in the sports industry in a lecture in Marx Hall on Tuesday night.
Mariner’s talk, sponsored by Business Today, also included a more general discussion about his experience in the professional sports industry.
Mariner began the talk by explaining that he did not know much about baseball before joining the Florida Marlins as CFO in 1999. “You don’t have to be a sports fan to go into the industry,” Mariner said “One employee was too much [of] a sports fan [and] chased players around for autographs.”
The discussion then became serious as Mariner explained the perspectives of NFL franchise owners in the current labor disagreements.
The NFL’s salary cap system evenly distributes a certain percentage of the league’s total revenue to each team. According to Mariner, this system does not account for changes in local revenue, so “teams building bigger stadiums and making more money brings up the minimums for smaller teams that aren’t making more money ... which means that they have to raise salaries as well.”
“The NFL can either cut salary caps in order to prevent disparity, or they can cut costs, which are part of the problem,” Mariner said. “I would expect the NFL to lose a few games unless the players cave in completely.” He further explained that some of the smaller market NFL franchises would not be able to continue functioning under the current system.
According to Mariner, MLB also had difficulties reigning in costs before a series of labor agreements and instituting profit sharing and a luxury tax in 2002.
“Before 1999, the NFL and MLB profit profiles were virtually mirror images of each other,” he explained, showing a chart of franchises’ profits between the two leagues.
Mariner explained that more than half of MLB teams had a negative operating profit while virtually all NFL teams were profitable, in part because “MLB had double-digit player salary increases during the previous few years.”
In MLB, 31 percent of local club revenue is contributed by a team to a pool of money that is then redistributed evenly to the franchises.
Mariner explained that the size of this pool is critical to the vitality of franchises as it resolves some disparity among teams. “At this point we have about $400 million being split among teams,” Mariner said. “We have teams such as the Yankees which produce $104 million to the pool alone.”
“We went from a situation before 2002 when we had only three teams with positive EBITDA to 2007 with only three teams with negative EBITDA,” he added. Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a common metric of a company’s profits.
Furthermore, Mariner explained, the luxury tax does incentivize franchises to individually reign in spending.
"Only one team has had to pay the luxury tax each year" Mariner said. "I won’t tell you what team that is but I think you can take a guess."
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