Even in times of economic turmoil, an investment in a Major League Baseball team is a sure bet.
Major League Baseball has seen this play before: A global calamity spreads fear and panic. Equity values plummet. The future gets scary.
And prices for the most valuable teams in the league hold their lead.
No one knows this better than the billionaire Ricketts family, who bought the Chicago Cubs from Tribune as the great recession was coming to an end, the year after the S&P 500 fell 37%.
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The 2009 deal saw the Ricketts pay a record $700 million for the team and Wrigley Field, plus another $145 million for Tribune’s 25% stake in Comcast SportsNet Chicago, handing the Chicago media giant a thirteenfold increase in real terms on the investment it made two decades earlier.
The Cubs appreciated almost five times more in the decade that followed and are now worth $3.2 billion, putting the team at No. 4 on the Forbes list of the most valuable teams in baseball. They’re not alone, with the average MLB team value rising 4% from last year to $1.85 billion. While the rise is the smallest increase since 2010, when team values rose just 2%, Forbes data show that the average team value is up nearly fourfold from a decade ago. An investment in the S&P Index rose less than 2.5 times before dividends.
The New York Yankees take the No. 1 spot—which they have held since our first ranking in 1998—with a valuation of $5 billion, a 9% rise from a year ago. The Los Angeles Dodgers come in at No. 2 with a valuation of $3.4 billion, followed by the Boston Red Sox ($3.3 billion), the Cubs and the San Francisco Giants ($3.1 billion).
When the Ricketts were setting their price record, the U.S. economy was struggling, with GDP falling 4.3% from its peak at the end of 2007 to its trough in the spring of 2009. Now the country is back in a crisis—the S&P is down 15% so far in 2020, and Morgan Stanley expects a 5.5% hit to GDP—with opening day canceled and the entire MLB season put on indefinite hold.
MLB’s Most Valuable Teams
The Yankees are the world’s second-most-valuable sports franchise, behind only the Dallas Cowboys. George Steinbrenner paid $8.8 million for the team in 1973.
So what happens next for America’s pastime?
MLB hopes to play at at least 100 games, about two thirds the number normally played by each team, which would still allow the league to collect the bulk of the revenue it would have taken in from a complete season.
The league would likely avoid returning money from national broadcasting deals for games not played by giving the networks additional marketing and programming opportunities, according to Lee Berke, who runs the LHB Sports, Entertainment & Media advisory firm.
And Fox had already extended its national media deal with MLB in November 2018, paying roughly 50% more for a seven-year deal that begins in 2022. Media experts Forbes spoke with say MLB’s two other national media partners—ESPN and Turner—will likely pay similar increases. Berke notes that when strikes have shortened seasons in the past, media payments for broadcast rights weren’t refunded.
Revenue from local cable deals is much trickier to estimate, especially in cases where teams own equity in regional sports networks that televise their games, a situation that applies to the Yankees, the Cubs, the Red Sox, the New York Mets and the Cincinnati Reds. In either case, teams could provide the RSNs with more non-MLB programming or more streaming options to avoid returning a portion of their rights fees.
MLB Revenue Breakdown
MLB games played without fans will preserve national and local TV revenue, but gate receipts and other stadium revenue will be crushed.
Total revenue is before annual stadium debt service payments. Gate receipts include club seating and luxury suites. National includes equally shared revenue from national media contracts, sponsorships and licensing. Local media includes TV and radio. Sponsorships include ad signage, pouring rights, and naming rights. Other stadium revenue includes concessions, team stores, parking and non-MLB stadium revenue.
The Tampa Bay Rays started a new cable deal this season that will pay an average of $60 million a year, more than double the amount under their previous agreement, and the Kansas City Royals—purchased by John Sherman in November for $1 billion—reportedly have a deal beginning this season that doubles their local television revenue. And beginning this season, MLB’s 30 teams can sell their local streaming rights, a big plus for a sport looking to capture a younger demographic and link up with new digital partners, the way the Yankees have done with Amazon.
Revenue from other sources—namely, ticket and concession sales—would be tethered to the number of games played, which will inflict some pain, but even that isn’t likely to hurt profitability too badly, after an agreement with the players’ union added some cost certainty as teams continue to pay ballpark employees.
The reality changes if there are far fewer games played, or if a portion of the season has to be played in empty ballparks. In this scenario, some teams could lose a lot of money because of plummeting local revenue. All options remain on the table.
Highest Local Media Revenue
The pecking order for MLB team values is largely driven by their local television and radio deals, with big markets commanding the largest pacts.
The teams are also riding a wave of profitability that will help offset any downturn from the delayed season. MLB profits are at record highs, with the average team operating profit—earnings before interest, taxes, depreciation and amortization (Ebitda)—rising 25% to $50 million last year, thanks to flat player costs and increased revenue of $16 million per team on average.
The No. 1 Yankees generated $683 million in revenue in 2019, $127 million more than the second-place Dodgers, who also posted the second-highest revenue in the league. The Houston Astros had the highest profit at $99 million, and only the Miami Marlins lost money on an operating basis by our count, with a loss of $6 million, compared with 2013, when there were 11 moneylosing teams, according to Forbes data.
With additional reporting by Christina Settimi.
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.
Click here for the full list of MLB valuations and financial information.
