The December 2021 MLB lockout is here. This is different than a player-led strike, but the outcome and causes are the same. It’s all about money! And it puts the 2022 season at risk. That said, we have over 100 days before these issues even come to a head and it may all be worked out by then.

Collectors Dashboard is a site that evaluates collectibles as an alternative asset class. That puts baseball cards and other sports cards worth thousands of dollars right in line with buying stocks, bonds, crypto and other assets. In some cases, cards and memorabilia cost more than normal homes. And in the attempt to further the transparency of the hobby, there are obviously some risks that this could hurt sports collectors beyond just baseball.

We are still of course trying to factor in just what the MLB lockout will do to the hobby of baseball cards and baseball memorabilia. And with baseball as the pole position in sports cards (basketball #2 and football #3), it is fair to ask that if modern baseball cards take a big price hit how it might bleed over into basketball and football cards.

As look for data and information from all possible sources, it will be a bit unusual for Collectors Dashboard to identify a report from one of the top three credit ratings agencies. But, hey, aren’t we in a weird period of time anyway? Fitch Ratings has released a report — ‘MLB Ratings Safe in Near Term; Prolonged Lockout a Negative’ which sums up how it sees the MLB lockout now.

Fitch has noted that league-level financing structures and bondholder protections will insulate MLB ratings from the immediate adverse effects of the work stoppage. The ratings agency does warn that both league and stadium borrowings are at increased risk if the lockout extends well into the 2022 season. Their warning is about what we would expect:

The longer MLB’s lockout lasts, the more harm it could cause to the fanbase and revenues.

Fitch has pointed out that they key points of negotiation for the collective bargaining agreement (CBA) are related to:

• revenue sharing among teams,
• luxury tax thresholds,
• rules around salary arbitration and free agency (as seen with the spike in ballplayers securing long-term contracts with new teams in the days leading up to the CBA expiration).

As for what this means to credit ratings, Fitch’s report said:

In the event that the labor dispute is not resolved before the start of the season and there is an indication that revenues would be significantly impaired due to canceled games and/or financial metrics would be affected over the medium-term, Fitch would likely place the MLB and/or MLB facility-specific debt on Rating Watch Negative.

There are some potential similarities to the shortened 2020 season that was disrupted by the coronavirus pandemic and a potential work stoppage in the 2022 MLB season. Robust demand for MLB content quickly bounced back in 2021 after the 2020 season, reflecting the draw of the sport and underpinning the league’s strength. The league level financing structures were able to retain a large portion of their national media revenues despite a shortened schedule, due to the league’s flexibility in scheduling games and the successful delivery of postseason games.

MLB is expected to be able to maintain media revenues at levels close to those agreed to under recently signed national media contracts if the MLB is unable to hold games in the earlier half of the season as experienced in the coronavirus-shortened 2020 season, however, revenues could erode further if later games are canceled. League-level bondholders are protected from a short-term interruption by structural protections including interest coverage reserves and additional liquidity under available borrowing facilities to meet 2022 debt payments.

As for the stadiums and team level financings, which have outstanding issues above and beyond just the MLB exposure, these are shown by Fitch to have layers of liquidity protection. Those layers include debt service reserve funds of at least one year fully funded (and some facilities also carrying additional reserves specifically for work stoppages). Fitch still warns that stadium and team credits with reliance on tickets or local media contracts may sooner face downward rating pressure. After all, games being cancelled would likely result in revenue losses or deferrals.

A prolonged lockout would not be a good thing. That statement should be obvious enough on the surface. Fitch was able to elaborate on what it might mean for ticketholders, contracts and so on:

Stadiums with stronger levels of contractually obligated revenues may be better prepared for a prolonged work stoppage, although the recent shortened season may affect clubs’ ability to negotiate with ticketholders and key sponsors. Player salaries would be expected to be reduced if games are canceled due to a work stoppage, partially offsetting reduced revenues.

Longer-term effects from work stoppages have always been highlighted as a credit risk for professional sports, as they have the potential to alienate the fan base, as witnessed by attendance declines after resumption of work stoppages in other US professional sports leagues. There is also the potential for lower renewal rates associated with key sponsorships and premium seating agreements following a disrupted season.

To the extent a work stoppage continues in excess of one season, which Fitch views as a highly unlikely scenario, credit pressures related to team valuations, demand for MLB related content and fan loss are more likely to negatively affect ratings.

This is far from your normal type of report from Collectors Dashboard. That is because we and others are trying to determine exactly what this all might mean if grown men don’t get to go out and play America’s Pastime on time in 2022.