Yankees LP Faces $54 Million Lawsuit Over MiLB Reorganization
When MLB reorganized minor league baseball in 2021, 43 teams lost their big-league affiliations. Some folded; others, such as the Salem-Keizer Volcanoes, continue to play in independent leagues.
The Volcanoes’ owners are now seeking justice for what they contend was a corrupt and costly bargain between a favored group of MiLB owners and MLB.
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Last week Sports Enterprises Inc. (SEI) filed a complaint in New Jersey’s federal district court against New York Yankees limited partner Marvin Goldklang and the Goldklang Group, which is co-owned by Academy Award-nominated actor Bill Murray, who also serves as the group’s “director of fun.” The Goldklang Group owns the St. Paul Saints (Minnesota Twins AAA team), Charleston RiverDogs (Tampa Bay Rays A team) and the Pittsfield Suns (a summer collegiate baseball team).
SEI’s complaint details how the National Association of Professional Baseball Leagues (a.k.a. MiLB), negotiated professional baseball agreements (PBAs) between MiLB owners and MLB. As part of their MiLB membership, owners pledge their association “shall not become party to any agreement that would result in the immediate cessation of operations of any member league or club.”
A few years ago, MiLB named a negotiating committee to bargain with MLB, which sought metamorphic changes in the relationship between MLB teams and minor league affiliates. MLB sought to provide services offered by MiLB and reconfigure how revenue was shared. Jerry Walker, who runs SEI, twice volunteered to serve on the committee but was denied both times. Meanwhile, Goldklang and several others were picked.
As SEI tells it, committee members “breached their fiduciary duties to the other [MiLB] members … by secretly acquiescing to MLB’s proposal.” Indeed, after the relevant PBA expired, MLB teams signed professional development licenses with affiliates whom MLB had deemed eligible. Of the 12 MiLB teams owned “directly or indirectly” by committee members, 11 were issued a license.
SEI accuses committee members of “self-dealing” at the expense of Walker and other exiled owners who were “stabbed in the back.” SEI claims that Goldklang not only ensured his teams were protected, but he “received” a AAA affiliation for the Saints, which had been an independent league team. The Saints’ market value, SEI argues, increased by at least $25 million. Sportico recently found that demand for buying minor league teams—and their accompanying market values—are rising.
SEI demands a jury trial and raises claims for breach of contract, breach of fiduciary duties and unjust enrichment. By allegedly “conspiring” to secure MLB affiliations for his teams, Goldklang supposedly reneged his implied covenant of good faith and fair dealing as well as his duty of loyalty and contractual obligations. SEI estimates that the combination of diminishment in the Volcanoes’ market value and revenue opportunities, the surge in value of Goldklang’s teams and related developments is worth at least $54 million.
SEI’s filing only tells one side of a complicated story. Attorneys for Goldklang will answer the complaint and seek its dismissal.
Those attorneys have already released a statement to the media, including Sportico, which says, “Mr. Goldklang has never met or otherwise interacted with the plaintiff or its ownership, on any matter or at any time. We believe that the judicial process will expose this litigation as nothing more than a shakedown.” The statement also praises Goldklang for his “more than 30 years” of experience in MiLB and “well-earned reputation for excellence.”
In future court filings, expect Goldklang’s attorneys to insist that he ably and ethically performed his committee duties. The committee was tasked with negotiating a resolution with MLB, which, as the parent league, had the leverage.
MLB has often described minor league baseball as unprofitable, inefficient and in need of change.
Last year, commissioner Rob Manfred wrote that MLB planned to spend at least $1.03 billion to operate the minors while obtaining just $25 million in revenue. Though not yet in play in 2021, MLB recently settled a $185 million lawsuit over MiLB player play. It also signed the first CBA with MiLB players, with MLB committing to pay a roughly $90 million increase in wages. Also, though MLB teams rely on the minors for player development, the vast majority of minor league players, and 95% of players drafted after the 10th round, don’t advance to the big leagues.
It is also not unusual or suspicious for owners to serve on committees that make decisions impacting other owners’ teams. The NFL’s finance committee, for example, consists of a handful of owners who play a crucial role in team sales, while the NFL’s media committee oversees media licensing arrangements impacting all 32 teams.
The Volcanoes aren’t new to litigation over MiLB. In 2021, they joined the Staten Island Yankees, the Norwich Sea Unicorns and the Tri-City ValleyCats in suing MLB over its antitrust exemption. The teams lost in the Southern District of New York, but the SI Yankees, Sea Unicorns and ValleyCats are appealing to the U.S. Court of Appeals for the Second Circuit in a case the Justice Department finds important enough to file an amicus brief.
