The Captain's Blog

The business of baseball is very good, and one of the big reasons why is cable television. According to Forbes’ most recent look at the game’s economics, MLB’s 30 teams combined to earn net-revenue of over $6.3 billion, a 3.6% increase from last year’s record total.  And, of that total, nearly 15% came directly from local television rights fees. Meanwhile, franchise valuations jumped up almost 16% to more than $18 billion, even though operating profit (Forbes uses EBITDA, not EBIT, as a measure of operating profit) declined by 13%. In other words, it’s a good time to own a baseball team, but an even better time to sell one.

MLB’s 2011 Consolidated Financials: Net Revenue, EBITDA, and Franchise Value

Note: Revenue is net of stadium-related payments.
Source: Forbes 2011 franchise valuations

According to Forbes, the decline in EBITDA was largely the result of increasing player costs. Usually, when expenses grow at a higher rate than revenue, franchise values suffer. However, in this case, much of last off season’s spending spree was tied to an anticipated increase in revenue. The two most relevant examples of this relationship occurred in Miami and Los Angeles, where the Marlins’ and Angels’ lavish spending were fueled by an expectation of additional revenue from a new ballpark and cable-TV deal, respectively.

The reason baseball is a cable-TV darling is because each season provides 162 dates of unique, live programming, which is the backbone of an RSN. Pundits without an understanding of baseball’s regional economics often get carried away comparing baseball’s national TV ratings to other sports like the NFL, but the local level is where MLB rakes in the cash.  As a result of this boom in regional TV revenue, franchise valuations have continued to escalate, with the impending sale of the Dodgers providing a real world example to support the numbers.

Comparison of Forbes’ Current Valuations to Purchase Price

CAGR is the compounded annual growth rate from the point of purchase to the present.
Note: The double entry for the Padres compares the prices paid by the team’s two partners.
Source: Forbes 2011 franchise valuations

Not surprisingly, the Yankees’ top Forbes list in terms of revenue and franchise value. In fact, the only sports team in the world estimated to be worth more is the English Premier League’s Manchester United, which Forbes pegs at $1.9 billion. The Yankees have a well diversified stream of revenue, but the $90 million it collects from the YES Network is one of the crown jewels. What’s more, by virtue of the team’s 34% stake in the RSN, the Yankees also have claim on YES’ operating profit, which Forbes estimates at $224 million. For perspective, the Yankees share of that figure is over seven times more than the amount generated by the team in 2011. Also, when you consider Forbes’ numbers also net out about $65 million in PILOT payments related to the financing of the new Yankee Stadium, the team’s revenue from baseball operations is actually much higher. Considering these two factors, and assuming the same is true for several other teams in the league, the picture painted by the Forbes data is even brighter than it appears at first glance. But, if you don’t want to take my word for it, just ask Dodgers’ owner Frank McCourt and the over one dozen suitors who have been vying to purchase the team.

Yankees Financials Snapshot: 1997-2011

Note: All figures are in $ millions. Revenue is net of stadium-related payments.
Source: Forbes annual baseball valuations