Column: MLB Franchise Values Continue To RiseMay 11, 2017

Column: MLB Franchise Values Continue To Rise “The report of my death was an exaggeration.”
Mark Twain, 1897

For years, polls and pundits have suggested that baseball’s popularity – and economic vitality - is dwindling, especially when compared to football. Based on the most recent estimated MLB franchise values published by Forbes, nothing could be further from the truth.

Thirty years ago 23% of sports fans named baseball as their favorite sport, compared to 24% who chose football. According to the most recent Harris Poll published last year, football trumps baseball by 18 percentage points, 33 percent to 15 percent. However, the poll results only tell one story and the numbers are hardly a reflection of the financial state of MLB.

According to Forbes, the average value of an MLB franchise is $1.537 billion, up a whopping 19 percent from last year’s figure. The increase can be attributed to local television deals, higher profitability and the escalating value of Major League Baseball Advanced Media (MLBAM), the league’s internet and technology arm. While MLB’s average franchise value lags the NFL’s figure of $2.388 billion, it exceeds the NBA average of $1.355 billion and almost triples the average NHL franchise value of $517 million. Not bad for an allegedly dying sport.

Last year, the 30 MLB teams posted a record average operating profit of $34 million, up 52% from the 2015 season. One reason for the increased profitability is revenue increased more than twice as much as player payroll – 7.5 percent to 3.5 percent. Player costs constitute roughly half of a team’s total expenses. Based on Forbes’ estimates, five teams had operating losses in 2016 but that’s hardly grounds for concern. Each of those teams could finish in the black this year.

MLB’s overall revenue is expected to exceed $10 billion this year but still has room to grow, particularly on the local level. A number of teams will be negotiating new television deals and if recent agreements are any indication, the new rights fees will double the current payments. That’s good news for the entire sport, especially the high revenue clubs who may see a reduction in their revenue sharing bills.

The new Collective Bargaining Agreement (CBA) increased the luxury tax threshold, which will allow clubs to increase their Major League payroll before paying a tax on the amount above the base. Other changes in the CBA will protect teams from themselves by imposing limits on international signing bonuses.

MLBAM, owned equally by MLB’s 30 teams, is perhaps the biggest driver of the increased franchise value. The entity was formed in 2000 with a contribution of $2.5 million from each club, paid in over a period of three years. MLB sold a portion of their internet business to Disney, but what remains is now worth an estimated $15.5 billion says Forbes. That means MLBAM contributes approximately half-a-billion dollars in value to each MLB team.

Lest you wonder if MLB is still a good investment, the Miami Marlins have a deal in place to sell the franchise to a group headed by Derek Jeter and former Florida governor Jeb Bush for $1.3 billion dollars. Not a bad return on an original investment of $12 million in the Montreal Expos made by Marlins majority owner Jeffrey Loria. Significantly, Forbes recently valued the Marlins at $940 million, which means if the sale is consummated at the agreed upon price, it will be a 38 percent premium to Forbes’ estimated franchise value. That may seem high for a team that loses money – according to Forbes – but Jeter and Bush are way too smart to pay that price if they don’t expect to make a profit. Such undervaluation is typical of Forbes which undervalued the Red Sox and Dodgers in the past.

Baseball spends a lot of time defending itself from allegations of being too old, too slow, and too tradition bound. While baseball is not without its issues, perhaps it’s time to ignore the naysayers and recognize the financial health of the game.