The Captain's Blog

For interactive charts comparing each team’s investment in payroll relative to revenue, click here.

After experiencing two years of pandemic-induced declines in revenue, MLB has fully recovered from Covid. According to Forbes’ latest “Business of Baseball” report, the sport’s revenue (net of stadium debt service) increased 8% to over $10.3 billion, just a shade below the previous record set in 2019.

Forbes’ Estimate of Annual MLB Revenue, 2003 to 2022

Note: Revenue is net of revenue sharing, competitive balance taxes and stadium revenue used for debt service.
Source: Forbes, captainsblog.info

The increase in revenue was mostly the result of a big rebound in attendance, as all ballparks were open without restriction during the season. That helped push 2022 gate receipts over $3.1 billion, or 30% of net revenue and nearly 10% better than 2019’s record total. Notably, this climb in ballpark sales occurred despite attendance being over four million fans below 2019, illustrating the impact of teams shifting their focus from selling tickets to providing premium-priced event experiences.

Forbes’ Estimate of MLB Gate Receipts vs. Total Attendance, 2018 to 2022

Source: Forbes, baseball-reference.com, captainsblog.info

The Yankees easily led all teams in gate receipts, taking in nearly $300 million from ticket and suite sales. That was nearly $100 million more than the champion Astros and the Dodgers, and nearly 10 times as much as the bottom ranking Marlins. Thanks to its deep run in the postseason, the Astros were the team whose gate impacted the top line most. Over 50% of Houston’s net revenue was derived from attendance. The teams whose gate made the least impact were usual suspects like the Marlins, Rays and A’s, all of which saw less than 15% of net revenue come from ticket and suite sales, well below the league average of 37%. Considering the relative elasticity of attendance to team success, this suggests that smaller market teams have great potential to significantly increase their revenue by investing more in their roster.

Impact of Ticket and Suite Sales on Net Revenue, 2022

Source: Forbes, captainsblog.info

Another big component of the MLB revenue pie was local TV. The league’s 30 teams combined to earn more than $2.2 billion on regional rights fees, or 22% of the net total. Individual team totals ranged from the Brewers at $33 million (11% of net revenue) to the Dodgers at nearly $200 million (34% of net revenue). It’s important to note, however, that these rights payments do not reflect the equity that some teams own in the RSN that broadcasts their games, nor the different ways in which that asset can be leveraged. So, for example, the estimated rights payment of $143 million paid by the YES Network to the Yankees does not account for the approximately 30% of the network owned by the team, nor consider whether that amount has been deflated in order to shift revenue away from the club, where it needs to be shared with other teams. It also doesn’t consider the degree to which the team brand has boosted the profile of the network and allowed its owners to reap greater carriage fees. For teams that do have some equity arrangement with their RSN, the rights fees are the tip of the iceberg in terms of valuing the asset of a 162 game inventory.

2022 Revenue Breakdown, by Team

Source: Forbes, captainsblog.info

Despite the increase in revenue, league-wide operating profit took a significant hit. In 2022, the players share of industry revenue jumped two percentage points to a tick below 50%. This increase in player expense of nearly one-half billion contributed to league-wide EBITDA declining by approximately 18%. Once again, however, this only applies to the teams’ collective books. All of the other ways in which MLB franchises leverage their brands are not accounted for on the team’s bottom line.

MLB Player Compensation vs. League Revenue

Another caveat to the league’s decline in EBITDA is the drop was basically attributable to the Mets, whose aggressive spending resulted in an operating loss of nearly $140 million. On the one hand, this exorbitant loss could be viewed as one very wealthy man making what for him is a nominal investment in achieving a sport-related goal. While that might explain Steve Cohen’s proximal motivation, this investment could also be looked at as a down payment on the franchise’s future financial success. Just consider the recent case of Guggenheim Baseball Partners’ purchase of the Dodgers. After purchasing the team for over $2 billion in 2012, Guggenheim set about to quickly rebuild the roster by nearly doubling payroll in the first year, leading to an $80 million operating loss that was equal to the combined red ink compiled by all other teams reporting losses. Fast forward 10 years, and not only have the Dodgers won a championship, made the postseason every year since and established themselves as the sport’s gold standard on the field, but the franchise has also earned $160 million in cumulative operating profit (excluding the Covid-impacted 2020 season) and seen its enterprise value more than double.

Forbes’ Estimate of Annual MLB EBITDA, 2003 to 2022

Source: Forbes, captainsblog.info

Excluding the Mets, the league’s EBITDA would have been $668 million, a small increase over 2021. However, the Mets weren’t the only team reporting a significant operating loss. The White Sox and Padres both recorded losses exceeding $50 million, while the Twins and Blue Jays surpassed $30 million in losses. It’s worth noting that all four of those teams recorded their highest payroll in 2022.

Top-5 and Bottom-5 Teams by Valuation, Net Revenue, EBITDA – 2022

Source: Forbes, captainsblog.info

On the flip side, the biggest gainers were a combination of larger market and small market teams with restrained payrolls relative to their resources, including the likes of the Giants and Red Sox among the former and Pirates and Athletics among the latter. The team with the highest EBITDA, however, was the Mariners, whose gain of $84 million set the pace.

Forbes’ Estimate of Annual MLB Franchise Value, 2003 to 2022

Source: Forbes, captainsblog.info

With the outlook for the league being mostly rosy, Forbes’ estimation of franchise values was robust. In total, league EV jumped 12% to nearly $70 billion, with the Yankees leading the way at over 10% of that total. Not every team saw a bump, however. Thanks to the Bally Sports bankruptcy and disruption to the RSN model that may result, Forbes decided to keep steady the valuation for several of the impacted teams, including the Twins, Reds and Guardians. However, despite this headwind, MLB’s overall revenue outlook remains strong, as new opportunities and investments in areas like merchandizing, streaming, sponsorships, and technology continue to take hold. That’s what makes owning an MLB team such an attractive investment.

Theoretical Franchise Return, CAGR, 2013-2022

Note: Team CAGR is based on EV appreciation plus cumulative EBITDA over the 10 year period from 2013 to 2022. The SPX calculation is based on index return, including dividends.
Source: Forbes, captainsblog.info

As illustrated above, the theoretical return on over half the teams in the league exceeded the 10-year CAGR of the S&P 500 Index, while all but three teams returned over 10%. When you consider all of the tax advantages that come with team ownership (see here for an illustration), not to mention the leverageable business opportunities and other personal benefits that stem from being associated with a popular social institution (i.e., very few passive investors become local or even national celebrities), it’s easy to see why sports franchises have become such coveted assets.

Every business faces challenges. Changing consumer tastes, increasing expenses, labor discord and even unforeseen events like pandemic-driven hysteria are always a threat to a thriving industry. However, if MLB can avoid trying to solve problems that don’t exist, the league should continue its upward trajectory in terms of revenue, profit and enterprise value, at least over the term of the existing CBA.

For interactive charts comparing each team’s investment in payroll relative to revenue, click here.

Footnotes

Forbes Methodology:

“Forbes’ team values are enterprise values (equity plus net debt) based on historical transactions and the future economics of the sport and each team. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) are for the 2022 season and are net of revenue sharing, competitive balance taxes and stadium revenue used for debt service. Our figures also include revenue and expenses from non-MLB events at the stadium that go to team owners, include spring training games and the revenue and expenses for team-owned minor league teams. Ownership stakes in regional sports networks, as well as related profits or losses, are excluded from our valuations and operating results, as are investments in real estate and other businesses. (For our all-inclusive sports ownership valuations, see our annual Sports Empires ranking.) Sources include sports bankers, team and league executives, public documents like leases and filings related to public bonds, and media rights experts.”