The economic toll of the COVID-19 pandemic has reached the corridors of Citizens Bank Park.
In an email to full-time employees Monday, Phillies managing partner John Middleton projected losses of “substantially more than $100 million" in 2020 and announced salary cuts, effective immediately, for anyone on the business or baseball side of the organization who was due to make at least $90,000 this year.
“This salary reduction plan does not come close to eliminating our 2020 losses,” Middleton wrote in a letter that was obtained by The Inquirer. “As a result of the financial impact of the Covid-19 pandemic, the Buck and Middleton families must now invest an additional $100 million in the Phillies over the next year to ensure the continued stability of the club.
"During these uncertain and distressing times, our decision-making must address both short-term and long-term financial ramifications, especially since none of us knows when and how this pandemic will end.”
The percentage of the cuts will be determined by salary level. The highest-paid employees will receive the most substantial reductions. Employees who make less than $90,000 won’t have their salaries reduced.
Middleton also informed employees that he will forgo his salary for the remainder of the year.
While other teams, including the big-market Los Angeles Angels, have furloughed employees, the Phillies are sticking to a May 8 decision to protect jobs for full-time staff through at least October. Those employees will also continue to receive all benefits, including health insurance, pension, and 401(k).
The salary reductions come amid negotiations between Major League Baseball and the Players Association on an economic plan for an abbreviated 2020 season. The sides have exchanged proposals but remain oceans apart on terms with time growing short to resume spring training by mid-June and open the season by the Fourth of July.
Players are opposed to secondary pay cuts beyond the prorated salaries that were agreed upon in a March 26 deal. The owners, meanwhile, insist they can’t afford to pay players at those salary levels because of the revenues that will be lost from not having fans in the ballparks.
On Sunday, the union proposed a 114-game season, with full prorated salaries but deferrals totaling $100 million if an expanded postseason is canceled due to a second wave of the coronavirus and opt-out provisions for players with underlying health conditions or a general desire to sit out. In response, MLB floated the idea of a shorter season (roughly 50 games) in which players would receive full prorated salaries, according to ESPN.
As always, compromise will be required. But MLB’s latest concept appears to reinforce that, without fans in attendance, owners can pay a far smaller percentage of player salaries. In essence, then, players must choose between playing fewer games for their prorated salaries or more games with further pay reductions.
In his letter to employees, Middleton wrote that he’s still “hopeful” that the Phillies will play this season.
“The absence of fans creates an enormous financial challenge, as approximately 40% of our total annual revenue is generated by attendance — tickets, food and merchandise concessions, parking and sponsorships,” Middleton wrote. "With no fans in the stands, these sources of revenue evaporate.
“These staggering losses have forced ownership and senior management to make difficult but necessary decisions, as have other clubs and business confronted with the impact of Covid-19, to protect the financial viability of our organization and to ensure our future.”