Forbes: MLB franchise values soar 23%, thanks to TV riches

The Forbes baseball team value estimates are out, and they’re a doozy:

The average baseball team is now worth $744 million, 23% more than a year ago and the largest increase since we began tracking MLB finances in 1998. During the 2012 season, revenue (net of stadium debt service) rose 7%, to an average of $227 million per team. Operating income (earnings before interest, taxes, depreciation and amortization) per team fell 9%, to $13.1 million, mainly due to higher player costs and stadium expenses.

Yeah, you read that right: Baseball teams are less profitable, but worth more. How’s that work? Forbes doesn’t exactly explain, but does note that both TV rights fees and revenue for MLB Advanced Media (baseball’s online arm) have been soaring, so presumably prospective team buyers are expecting that those revenue streams will keep growing in coming years, enough to outpace increased payroll costs. Though the way things are going there, player costs might just eat up any new revenues faster than owners are anticipating.

More likely is that last year’s sale of the Los Angeles Dodgers for $2 billion and the San Diego Padres for $800 million forced Forbes to recalibrate its entire scale upwards. Which is fine enough — new data points should be incorporated into the calculation — but it still doesn’t exactly explain why team values are soaring this much when profits are essentially flat.

The one thing that the Forbes numbers make even more clear is that TV and internet broadcast money is king right now: MLB is starting to become more like football, where a larger share of money is generated by people watching at home, rather than the more stadium-revenues-based model it’s traditionally been. How this will affect the business of the sport is complicated: Does it dilute the advantage of teams like the Yankees because everyone now has TV riches at their disposal, or give them more of an advantage because they can expect their cable contracts to outpace their competitors by an even greater margin? Does a team like the Oakland A’s (third to last in team value, but 5th in the league in profits at an estimated $27.5 million) or the Tampa Bay Rays (dead last in value, 19th in profits at $10 million) reconsider its stadium plans if access to eyeballs outweighs ability to put fannies in the seats? If nothing else, one thing should be clear: No teams are moving to San Antonio or Las Vegas anytime soon.

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7 comments on “Forbes: MLB franchise values soar 23%, thanks to TV riches

  1. This was discussed on the most recent episode of “Forbes SportsMoney” on the YES network. It sounded like they were already incorporating some of the benefits of the next national TV contract into the valuations, hence the disconnect from current operating income. As things are right now the money from the 2014-2021 contract would cover the current player costs for all those teams that regularly complain about their inability to compete in the current environment. It’ll be hard to get much sympathy once your player costs for the season are paid before you’ve sold a single ticket.

  2. Yeah, but history shows that once the TV money goes up, the owners will just blow it all on crappy mid-rotation starters. Clearly the owners will benefit some, and nobody’s losing money here, but still the disconnect seems a bit weird.

  3. Professional sports is semi-notorious for using “interesting” accounting methods, so maybe Forbes takes “operating income” with a large grain of salt when applying it to team valuations.

    With the big increase in national TV money starting in 2014, I wonder if the guys in Tampa and Oakland will make a bigger push for new stadiums this year. You would hope that local officials would pay attention to future revenue streams, but it would probably still be easier to get a “good” (i.e. heavily subsidized) deal done this year than next.

  4. Neil;

    Do you know if Forbes includes the infamous roster depreciation allowance as part of their net profit estimates/calculations?

    If not, that could explain at least part of the discrepancy. Some owners (IE: those with significant income from other businesses) likely see a good portion of player payroll increases as a pass through, given that they are allowed to effectively depreciate the value of their roster each year as well as “expense” the payroll costs directly.

    I do think that we may be on the cusp of a major sea change in stadium development. No, not that owners will pay for their own factories. That’s not going to happen until elected officials actually grow balls.

    But we have already witnessed NFL stadia being “right sized” as part of replacement (many new venues have lower capacities than their predecessors in the NFL, some even in MLB). This won’t save any taxpayer money, of course, as the teams will just demand that higher end toilets and showers be fitted, along with even more HD tvs in locations no-one visits, rather than reduce cost.

    I suspect they’ll be just as adamant in trying to justify a $475m stadium for the A’s or Rays regardless of whether it seats 46,000 or 25,000.

  5. I note that Forbes value for the Leafs jumped from $450m in 2012 to $1bn in 2013. And the Leafs still suck… and are actually seeing a drop in revenue from game day ops (though slight).

    What changed? Well, two dimwitted TV sports networks put together a bid of $1.3Bn for MLSe. So Forbes apparently considers “any” transaction to be a FMV transaction (witness the Dodgers bid, which was anything but. A bid made to keep a team out of an auction is the very definition of “duress”).

    Since MLSe owns the Raptors and the ACC as well as other sports properties (TFC, Marlies, etc) and a significant amount of prime real estate, I very much doubt that the Leafs alone can reasonably be valued at $1bn (ok TFC sucks, and the Marlies are a non-entity, but any MLS team now has to be worth $50-80m as a portable asset, and the Raptors can’t possibly be worth less than $350m).

    What is the arena worth? Even without it’s primary tenants, as the sole major concert venue in the GTA, you’d have to think it is worth $125-150m… and the commercial/residential property plays are very valuable as well… so even if you believe that MLSe is actually worth $1.3Bn… the Leafs themselves are probably somewhere in the $6-700m range at best.

    I’m told (though I can’t confirm) that MLSe’s operating profit last year was somewhere around $90m. Not chump change… but I wouldn’t pay $1.3bn to get that (ebitda).

    In short, Forbes valuations are a lot less scientific than Forbes would like you to think. The selling price of any asset is not necessarily it’s actual market value.

  6. Forbes net revenue figures are EBITDA (earnings before interest, taxes, depreciation, and amortization), so nope, it’s not because of roster depreciation.

    And we’ve been seeing intentional ticket scarcity as a design spec for a while (check out the Mets and Yankees stadium capacities compared to their old ones). But I agree that it’s likely to accelerate as they can make more money from people watching at home.

    I also agree that using mixing data from actual sale prices with data based on earnings ratios is, well, dumb. But it’s the kind of dumb that Forbes and others use for non-sports companies, too. The Forbes revenue figures are generally more accurate than their valuations, in my experience.

  7. It neither dilutes, or means that teams are safe from relocation. There is no salary cap, the Yanks are paying one player, more than the Houston Astros are paying their entire team. The goal of these people is always more money. So you get tv money. If you are drawing 10,000 in Tampa, or 3,000 in Montreal, or 5,000 in Pittsburgh or Cleveland, there will still be teams looking to move to greener pastures for even more money. There are still markets availiable, that support franchises in other leagues, but do not have MLB. Charlotte, Indy, San Antonio, Sac, New Orleans, etc.

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