The Captain's Blog

Major League Baseball’s financial fortunes continue to rise, as franchise values, revenues and operating profits all exhibited healthy growth in 2018, according to the latest Forbes survey of the game’s financial landscape. The top-line was augmented by continued increases in local and national television deals as well as new online opportunities for content, while the bottom line was supported by flat player costs. The end result was a more profitable and valuable league, with only a few teams failing to share in the riches.

MLB Financial Snapshot, 2003-2018

Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com

League-wide, net revenue was up 5% for the second straight year, although seven teams reported either flat or declining income. The Boston Red Sox were more than just champions on the field, leading all teams with a 15% increase in revenue. On the flip side, the Blue Jays suffered the largest decline as revenue tumbled 3%. In terms of overall net revenue (after subtracting stadium debt service payments and revenue sharing), the Yankees easily remain the game’s top earner, topping the Dodgers’ income by over $100 million. Bringing up the rear was the Oakland Athletics, who, despite recording a 4% increase in revenue, reported net income of only $218 million.

While revenue maintained a steady rise, operating profits (EBITDA) soared by 38%. One year after two-thirds of the league saw their operating profit take a dip, the opposite was true. All but nine teams recorded an operating profit increase, and only three actually recorded a loss, though two of those teams, the Marlins and Orioles, actually saw EBITDA increase substantially from a 2017 spent deep in the red. Among the gainers, half the league saw EBITDA jump by at least $10 million, with the Tigers’ $65 million rise turning a substantial loss from 2017 into a $20 million profit.

With revenue and profits on the rise, expenses flat, and new opportunities abounding, it’s no surprise that franchise values also continued their ascent. In aggregate, the enterprise value for the league increased by 8%, a notch above last year’s 7% rise, and all but the Miami Marlins recorded at least a small bump. Not surprisingly, the two biggest gainers were the Yankees and Red Sox, whose franchise valuation gains nearly doubled the league average. One surprise, however, was not much further down the list. Perhaps in anticipation of finally signing a deal for a new stadium, the Tampa Rays enterprise value increased by 12%.

Top-5 and Bottom-5 Teams by Valuation, Net Revenue, EBITDA – 2018

Note: See below for relevant footnotes pertaining to financial metrics
Source: Forbes.com

As mentioned, contributing to the league’s healthy operating profit were flat payrolls.  With the players’ compensation (salaries, benefits, and postseason awards) stagnant in 2018, their share of the revenue pie dipped below 50% for the first time since at least 2001. Although, these figures do not include investments made in player development initiatives and non-40 man salaries, which would be a drag on operating profit, the robust profit numbers suggest teams are not shifting a significant percentage of the savings in direct player compensation toward other areas that have a direct impact on the field.

MLB Player Compensation vs. League Revenue

Notes: Data Labels represent “year over year comp growth / total comp as percentage of net revenue”. Revenue is net of stadium debt service. Total compensation is actual payroll + player benefit costs + players’ share of the postseason revenue pool. For pre-2015, benefit costs were determined by working backward from the known 2015 amount and assuming a 4% growth rate (CBA calls for increases up to 10%).

Source: MLB releases published by AP (actual payroll), baseball-almanac (postseason revenue) and Forbes (net revenue)

While the players’ share of revenue was stable in aggregate, each team’s level of investment was varied. The Blue Jays were the biggest relative spenders, allocating nearly 60% of revenue to player costs (however, it’s worth noting that the Blue Jays are owned by Rogers Communications, which has a unique ability to leverage the team in other areas of its vast Canadian communications and media empire). At the other end of the investment spectrum was the White Sox, which spent just above 26% of income on player compensation. If not for the thriftiness of Chicago, the Yankees would have claimed the bottom spot, spending a staggeringly low 27% of the team’s hefty revenue on the field.

2018 Discretionary Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams

Note: Red shading indicates teams with an operating loss (EBITDA).

Note: See below for relevant footnotes pertaining to financial metrics.

Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

Owning a baseball team has become an inherently profitable endeavor. The sport’s finances are so healthy, even teams thought to be in distress continue to rake in profit and enjoy the benefits of rising enterprise valuations. With so many different revenue streams and leveraged ventures related to team ownership, it’s becoming easy to lose sight of the fact that the primary business of the league is supposed to be running a sport. Last year, I recommended that Commissioner Rob Manfred make increasing efforts to protect the integrity of the game by ensuring that team owners do not “divorce the importance of winning games from their increasingly voracious profit motive”. Another contentious off season with the MLBPA suggests those efforts are not yet underway. Hopefully, this will be the year when owners return some of their focus from the bottom line to line score.

Footnotes

Forbes’ revenue figures “include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. The nonrecurring $50 million each team received in 2018 from the sale of a stake in BamTech to Walt Disney was excluded, as were profits or losses from team-owned RSNs.”

In addition to team-specific net revenue figures, Forbes also estimated total gross revenue at $10.05 billion ($2.76 billion in central revenue and $7.29 billion generated in local team markets).

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.

Forbes’ franchise valuations are enterprise value calculations that “include the economics of the ballpark but exclude the value of real estate itself.: Forbes also prorates the value of the “league’s ownership in Major League Baseball Advanced Media (100%), BamTech (15%), the MLB Network (67%) and its investment portfolio”. This results in a $400 million increase in enterprise value per team.

Payroll is based on final figures (not AAV) for each year released by MLB and does not include benefits.