The Captain's Blog

The business of baseball is booming. In stark contrast to trite reports about the game’s demise that have been common for over a century, Forbes’ annual look at the financial health of major league baseball once again revealed a thriving enterprise with no signs of slowing down.

According to Forbes’ 2015 survey, which is based on estimates for 2014, baseball franchises cumulatively increased in value by over $11 billion dollars, or nearly 50%. Even coming off a trough, such exponential growth would be impressive, but, following three years of almost double-digit gains, it is truly remarkable. At the heart of the game’s surging valuation is the steadily increasing revenue streams derived from cable TV and internet sources. In addition to robust rights fees being realized across the board, which Forbes estimates now account for nearly 40% of industry revenue, the sport is also uniquely positioned to profit from the proliferation of content streaming. Thanks to the strong business model of its MLB Advanced Media subsidiary, baseball is potentially sitting on a goldmine that some believe could one day rival the combined value of the 30 franchises.

MLB Financial Snapshot, 2003-2014
Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

Not only did MLB enjoy a spike in “paper profits”, but the sport’s top and bottom line also received a jolt. Net revenue, which excludes exempt stadium debt and revenue sharing payments (so there is no double counting), increased over 10%, while EBITDA, which Forbes uses as a proxy for operating profit, more than doubled. With total payroll costs increasing only 8.5% year-over-year, the sport’s 30 franchises continue to enjoy an increasing percentage of the financial pie.

Top-5 and Bottom-5 Teams By Valuation, Net Revenue, EBITDA

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

Baseball’s rising tide lifted all boats in terms of franchise valuation, but teams like the Twins, Phillies, Tigers and Astros experienced declining revenue and/or EBITDA. Still, for the most part, the league’s financial strength was broad-based. In fact, some of the league’s smallest franchises recorded the largest increases in valuation, net revenue, and profit. However, the Yankees still comfortably preside over baseball’s financial landscape. In terms of net revenue, the Bronx Bombers’ $508 million was over 25% better than the second place Dodgers. Meanwhile, the Yankees 28% increase in value to $3.2 billion placed it over 30% ahead of Los Angeles. Although other teams may be closing the gap with the pinstripes, the financial gulf is still very large.

Yankees’ Financial Snapshot, 2003-2014
Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

One area in which the Yankees have been surpassed is payroll. Not only have the Dodgers laid claim to the title of the sport’s biggest spender, but on a percentage of net revenue basis, the Yankees’ level of investment now ranks in the middle of the pack. Also, for the first time since at least 2001, the Bronx Bombers spent less than 50% of net revenue on the 40-man roster. Based on Forbes’ revenue estimate and payroll statistics released by the league, the Yankees spent approximately 46.5% of net revenue on players, which is well below the recent past and a far cry from the 2005 peak of nearly 90%.

2014 Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams
Note: Revenue is net of revenue sharing and stadium debt service. Payroll includes benefits and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2014
Note: Revenue is net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. 2014 revenue is based on estimated growth rates over 2013 revenue.
Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

By no objective measure is baseball in decline, and, as long as the sport’s owners and players continue to fairly split the pie, the good times should continue to roll. However, the only thing that matches baseball’s financial strength is the gall of some team owners who continue to cry poverty and preach about the need to control payroll. Fans might be willing to abide a greater percentage of the sport’s wealth being consolidated in the hands of owners, but the MLBPA probably won’t be as accommodating when it comes time to negotiate a new CBA. That’s two years down the road, though, so, until then, the MLB coffers should continue to fill.

Footnotes

Forbes’ 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.

Forbes 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