The Captain's Blog

Forbes’ annual look at the business of baseball has become like a broken record…one that is music to the ears of the game’s 30 owners.

According to Forbes’ 2014 survey, which is based on estimates for 2013, baseball franchises cumulatively increased in value by over $2 billion dollars, or nearly 9%. Compared to last year’s 23% rise, and in light of both slowing revenue¹ growth and an operating income² decline, a single digit increase might seem like cause for concern. However, the real picture of baseball’s financial health is best seen beamed by satellite or streamed over the internet. With a new national media rights deal in place and exponential growth on the local level, where teams have both signed exorbitant, long-term rights deals or established equity in regional sports networks, the revenue trajectory continues to point upward, and the trend has lifted the enterprise value of every franchise (even teams experiencing a pullback in 2013 are up considerably over a longer-term period).

MLB Financial Snapshot, 2003-2013

Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

Top-5 and Bottom-5 Teams By Valuation, Growth, Debt and EBITDA

Source: Forbes.com

The Yankees continue to rank as baseball’s most valuable franchise. According to Forbes, it would now take $2.5 billion to buy the Bronx Bombers, which is over three times the franchise’s estimated value from 10 years ago. However, the report did show a few cracks in the Yankees’ financial foundation. Although by far the highest total in the game, last year’s revenue of $461 million represented a 2% drop off from the prior year. Considering the team’s lackluster performance in 2013, the small decline looks benign, but it’s worth noting that the franchise’s intake was bolstered by a new cable rights deal with FOX, which included selling a portion of the team’s equity stake in YES. As a result, the overall revenue numbers shielded a more significant decline in gate receipts, which have been in a downward trend since the new Yankee Stadium opened in 2009.

Yankees’ Financial Snapshot, 2003-2013

Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

Over the last five seasons, Forbes estimates that money collected at the turnstile has fallen from $319 million in 2009 to $246 million last year. As a result, gate receipts now make up just over 50% of the team’s revenue, compared to over 70% five years ago. These numbers are supported by figures published in the Wall Street Journal, which although showing larger aggregate amounts, suggest a similar decline in ticket revenue. That’s why Moody’s was forced to lower the outlook on the team’s PILOT bonds, citing a “the three year ticket sales decline that has resulted in a nearly 20% decline in revenues assigned to the bonds.”

Yankees’ Gate Receipts, 2009-2013

Note: Forbes data not available for 2011 and 2012.
Source: Wall Street Journal and Forbes

The Yankees aren’t in financial trouble. Not only does the team’s new multi-billion dollar contract extension with YES, which will see the value of its television rights rise from $85 million presently to approximately $350 million by the end of the contract in 2042, provide built-in revenue acceleration, but the franchise continues to leverage its brand across various platforms in the sports and entertainment arena. Nonetheless, the Yankees’ drop off in attendance and the resultant decline in revenue represent a flaw in the franchise’s recent emphasis on cutting costs (instead of bolstering the top line). A good portion of the franchise’s value is based on the strength of its brand, so, in a sense, declining ratings and attendance could be like a canary in a coal mine. The Yankees likely won’t have much to worry about in the immediate future, but if the franchise tarnishes it brand, there could be a carry over on its financial statements.

Baseball as a business has become like a mint, so it’s no surprise that the sport is enjoying a golden age. Although some have predicted an imminent bubble, the long-term nature of local television deals suggests otherwise. Clearly, the cable company executives who continue to shell out billions of dollars for coveted content do not expect the attractiveness of sports programming to wane any time soon. If anything, the greater risk may be that teams are undervaluing their assets by committing to such long-term deals. Nonetheless, the overall financial health of the sport appears to be established well into the future, which all but assures that the naïve will be predicting baseball’s demise for many more years to come.

Footnotes

¹Forbes’ revenue figures differ from totals reported by MLB because they include ancillary stadium revenue (such as concerts and other sporting events), but exclude applicable stadium debt payments.

²Forbes uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measurement of operating income. Although usually defined as EBIT, Forbes not only adds back interest and taxes, but depreciation and amortization expenses as well. As a result, Forbes operating profit can appear higher than stated figures.