Major League Baseball had enjoyed uninterrupted financial growth extending all the way back to the dot.com bubble and 9/11, but then a global pandemic hit. Even a healthy business like baseball proved no match for Covid-19, as the sport saw revenue plummet by nearly 70% and EBITDA turn from a $1.5 billion profit into a loss of an even greater amount.
MLB Financial Snapshot, 2003-2020
Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com
According to Forbes’ latest dive into baseball’s finances, the league lost a combined $1.8 billion on revenue of less than $3.3 billion, the lowest level since 2001. The COVID impact was felt by all teams, but high revenue clubs took the biggest hit, even though the league suspended its revenue sharing scheme. Among the biggest losers were the Dodgers, Mets, Red Sox and Cubs, but no team took it on the chin worse than the Yankees. The Bronx Bombers saw net revenue fall by more than 80% to just over $100 million, putting them in the almost unthinkable position of being one of the league’s lowest earning teams. Of course, it should be noted that Forbes reports revenue net of the team’s approximately $80 million payment in lieu of taxes (PILOT) to service its Yankee Stadium debt. Without that deduction, the team’s revenue would have still ranked first. Nonetheless, the Yankees saw a drastic decline in both revenue and profit.
So, does the grim reality of last year’s finances justify the frugal approach that most teams, including the Yankees, took this offseason? Not so fast. Perhaps the most important finding in the Forbes survey was that despite the massive impact that COVID had on business operations, the enterprise value of the combined league still increased by 3%, led, of course, by the Yankees, which Forbes now values at a staggering $5.25 billion. In other words, the Yankees more than recouped their operating loss with the estimated increase in franchise value, and so did just about every other team.
Estimated MLB Team Valuations: Forbes vs. Sportico
Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com, Sportico.com
Despite all the red ink, this latest Forbes’ report is perhaps the most impressive because it reveals how resilient each franchise has become, and that’s without considering how strongly leveraged the sport is to other high growth industries like media and technology. After all, the Forbes report does not consider related business interests, such as ownership in RSNs. However, another analysis conducted by Sportico, did take into account team-related businesses and real-estate holdings, leading to a league-wide franchise value of over $66 billion. With almost $10 billion of business value in excess of that which is contributed by team operations, it’s easy to see why even substantial losses in one season should not be used as a barometer for the sport’s financial health. Or, as one financier quoted in the Sportico report put it, “I think there is a better chance of the New York Yankees being here in 50 years than Apple being around in 50 years“.
“I think there is a better chance of the New York Yankees being here in 50 years than Apple being around in 50 years.”
– Anonymous sports financier
As MLB emerges from the pandemic, its business outlook is strong. National and local TV rights fees continue to rise; sponsorships remain strong and new partners continue to emerge; technology-driven endeavors like Major League Baseball Advanced Media remain lucrative; and the value of investments in related businesses, such as Fanatics, are increasing exponentially, while new opportunities continue to emerge. Unfortunately, you wouldn’t know that if you listened to the game’s owners, who never miss an opportunity to bemoan their losses. Normally, the owners’ cries of poverty could be dismissed as inane hyperbole, but, in the age of COVID, they carry more weight.
Baseball is not alone among businesses that are attempting to take advantage of the short-term impact of COVID to implement long-term “cost rationalization”. For baseball owners, that means parlaying COVID sentiment into lower payrolls that will persist long after the revenue impact has dissipated. If teams are successful in making these cost savings permanent, the operating losses incurred in 2020 will pale in comparison to the incremental profit earned going forward. That’s what makes the upcoming CBA negotiations so pivotal (and a work stoppage almost inevitable). Forcing the players to strike or invoking a lockout would clearly come with great risk, but if owners can get the MLBPA to crumble, the reward will be even greater. What a shame it would be if MLB survived the pandemic only to succumb to the greed of its owners.
Footnotes
Forbes Methodology:
“Our team values are enterprise values (equity plus net debt) calculated using a multiple of revenue. The multiples are based on historical transactions and the future economics of the sport and team. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2019 season.
“Our 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. Ownership stakes in regional sports networks, as well as related profits or losses, were excluded from our valuations and operating results. Sources include sports bankers, public documents like leases and filings related to public bonds and media rights.“
In addition to team-specific net revenue figures, for 2019, Forbes also estimated total gross revenue at $10.5 billion, broken down as follows: gate receipts: $3.2 billion; central revenue: $3.1 billion; local media: $2.2 billion; sponsorships: $1.1 billion; and other stadium revenue: $925 million.
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.
See here for Sportico’s Methodology.
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