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June 18, 2012

Bizball

How Every Club in MLB is Getting Rich, Thanks to Television

by Maury Brown

It would be disingenuous to say owners in MLB are doing “nothing” and getting rich. But, by default, they are. Whether it’s indirectly or through media rights deals, from the top to the bottom, each ownership is going to eventually land on a pile of greenbacks.

Case in point: the San Diego Padres. Current owner John Moores has been trying to unload the club for years now, a nasty side-effect of community property laws in California and a divorce from his wife. When the deal with Jeff Moorad fell through, it actually worked to Moores’ advantage.

As early as this week, the sale of the Padres is expected to happen. Using an “auction-like” process, the club will go for between $600-$700 million. Throw in $200 million in up-front money for having a 20 percent ownership stake in a new television deal with FOX Sports San Diego, and the total deal will be at or above $800 million.

Take that in: the Padres are going to be sold for $800 million. Up until television deals with the Rangers and Angels surfaced, the sale of the Cubs (which included Wrigley Field and a 25 percent ownership equity in Comcast SportsNet Chicago) was the second-highest in the history of baseball at $850 million. To put this in perspective, the most recent Forbes valuations have the Padres ranked twentieth out of the 30 MLB clubs at $458 million. So even if you take out the television money—even if you take the low-end sales figure—the sale of the Padres will be $142 million above the most recent valuation and in line with Forbes’ valuation of baseball’s tenth most valuable club, the Chicago White Sox.

To the analyst watching the events unfold with club sales, it’s nothing short of astonishing. Starting with the Rangers’ 20-year television deal that will total $3 billion or more over the life of the contract, the bar on club values has jumped dramatically. The Angels followed suit with a similar $3 billion media rights deal, and recently, the Dodgers sold for $2 billion based on (you guessed it) a lucrative media rights deal that will be in the offing shortly. That made the Padres a beneficiary (as will also be the case with the Astros).

Even clubs that aren’t inking new media rights deals will see their valuations skyrocket. As these media rights deals get inked, the value of such deals continues to increase. It’s just a matter of when they are up for renewal. So if an owner decides to sell his club now, even if the media rights deal isn’t up for renewal, the seller can point to the increases happening in the market around television deals and say that a buyer will reap the same benefits in the future. In other words, all club values have gone up since the Rangers’ television deal was reached.

Doing some “what if” analysis: Forbes has the Yankees valued at $1.85 billion, the highest in the league. The Dodgers have already sold for $150 million more than that. According to a Goldman-Sachs valuation, YES Network (of which the Yankees own approximately 37 percent) is valued at $3 billion. Throw in Legends Hospitality, the concessionaire business that the Yankees jointly own with the Dallas Cowboys, and a package deal for the Bronx Bombers could easily be in the $5 billion range.

Below is a list of recent club sales. See the complete listing, here:

Club

Price
(millions)

When

Who

Notes

Dodgers

$2,150

May 1, 2012

Guggenheim Baseball Management

Mark R. Walter controlling owner. Includes partnership with McCourt, Johnson, and other purchasers of the Dodgers for 150 acres of land around Dodger Stadium.

Astros

$615

2011

Jim Crane group

 

Rangers

$561

2010

Greenberg/Ryan group

Bankruptcy auction. Greenberg forced out shortly after sale

Cubs

$845

2009

Ricketts family

Tribune (Sam Zell) sells due to bankruptcy

Braves

$461

2007

Liberty Media

Part of Time-Warner sale

Nationals

$450

2006

Lerner Family

 

Reds

$270

2006

Robert Castellini

 

Brewers

$223

2005

Mark Attanasio

 

Athletics

$180

2005

Lew Wolff, John Fisher

Wolff managing partner

Dodgers

$420

2004

Frank McCourt

Forced to sell in 2012 due to bankruptcy, divorce settlement

 

Maury Brown is an author of Baseball Prospectus. 
Click here to see Maury's other articles. You can contact Maury by clicking here

Related Content:  Club Sales

28 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

doncoffin
(422)

All of which makes it even more important for the owners to re-gain control of player salaries...

Jun 18, 2012 06:50 AM
rating: 1
 
BP staff member Maury Brown
BP staff

Here's the rate at which the average salary has grown going back to to 2003:

3%
-2%
7%
9%
4%
4%
2%
1%

Salaries are running a lower rate than the increase in revenues coming in.

Jun 18, 2012 07:11 AM
 
scareduck

What that tells us is that there are a lot of guys making major league minimum or close to it. The question I would like to see answered is whether the standard deviation is changing and how salary growth is occurring at the right side of the scale -- i.e., are Albert Pujols-style deals keeping pace with revenues? Also, is salary in aggregate keeping pace?

Jun 18, 2012 07:15 AM
rating: 0
 
jmanig

In 2001 Alex Rodriguez signed what for the sake of simplicity we will call a 10-year, $252 million deal.

Albert Pujols this winter signed for 10 years and $240 million.

Let's just say the right side of the scale has been stagnant at best.

Meanwhile total MLB revenue in the last 10 years has gone up, what, five-fold?

I'm not going to rehash the whole salary debate, but suffice to say I do not think MLB player salaries are a problem.

Jun 18, 2012 09:21 AM
rating: 2
 
misterjohnny
(925)

A-Rod was 25 years old when he signed that contract.
Pujols was 31. HUGE difference.

Jun 18, 2012 10:00 AM
rating: 1
 
SaberTJ

Correct. Also jman, You have to remember Pujols was offered more money by other teams but turned it down to play with the Angels.

Jun 18, 2012 10:10 AM
rating: 0
 
jmanig

I wasn't trying to compare the two contracts exactly. On one hand Pujols' contract has a lot more risk but on the other if you look at both in terms of 2012-22 money, A-Rod's contract is worth a lot more.

My point was that ten years removed from A-Rod's 2001 contract and the $26 million a year barrier is still broken only occasionally. There's A-Rod's 2007 contract, and... I think that's it. It's normal to see either an increase in risk or monetary value, but if salaries were truly out of control we'd by in the $40-45 million range right now.

Jun 18, 2012 10:24 AM
rating: 2
 
scareduck

One other note. It seems to me as though these valuations are all predicated on the new generation of TV deals coming through. Yet there is almost no questioning whether those were themselves fairly valued, and indeed seem to predominantly rest on the idea that sports teams can indirectly extract monopoly rents from cable TV companies, even in a time when cable TV subscribership is significantly eroding. The situation in San Diego, where the local Time Warner affiliate refuses to carry the Padres, is merely a warmup for a larger battle brewing over the sports televising rights valuation bubble. It's all too easy to project a downward spiral of disappearing viewers, followed by increases in per-user rights fee, which in turn chases off even more subscribers.

Jun 18, 2012 07:26 AM
rating: 3
 
misterjohnny
(925)

"Cable TV" subscribership may be eroding, but pay TV subscribership is not.

Satellite and Telco (FiOS, U-Verse) are making up for any losses on the cable side.

There has not been a lot of "cord cutting" up to this point.
http://allthingsd.com/20120508/stalking-the-elusive-cord-cutter-pay-tv-grew-last-quarter-again/

Jun 18, 2012 09:58 AM
rating: 1
 
Ehren Bendler

Yeah. You see a lot of people on tech blogs talking about how traditional TV is dead, but it isn't true at all outside of a very small fraction of people.

Jun 18, 2012 11:53 AM
rating: 0
 
BP staff member Maury Brown
BP staff

On salaries... A good study (no, I have not done it) is the increase in the percentage being allocated to a single player against total player payroll and whether those deals are increasing. As one veteran exec said to me, "It's not AAV that's bothersome, it's AAV over these lengthy contracts."

Jun 18, 2012 07:34 AM
 
scareduck

Which is just a different way, as Albert Pujols can tell you, of spelling r-e-s-p-e-c-t.

Jun 18, 2012 07:46 AM
rating: 0
 
FredOwens

Another question is whether these deals like 10 year deals for aging superstars are good for the long term interests of the team. As the superstar ages he's less likely to be worth it. As a TV contract ages its relative value decreases with inflation and a team is trapped in an undervalued contract. The Braves CEO recently said
"..we inherited a deal that was done under [previous owner Turner Broadcasting/Time Warner] . . . that lasts out through 25 years. So there is no opportunity for a different deal than the one we have. Every single set of games on the different networks that we are seen on . . . are all 25-year deals or thereabouts.”
Asked if the TV contracts will be a competitive disadvantage for the Braves over the next two decades, McGuirk said: “Let’s just say it won’t be an advantage.”
So the broadcasters like the aging superstar have teams by the short and curlies for 3 decades. What they paid $1M for in 1980 is valued to day at around $5,551,340.
Admittedly they teams can invest the money they receive and increase it's value over time but not all of it so in the out years those big deals will still be big but not nearly as big as they are now while team expenses will continue to rise.
While A-Rod's contract looks worse every year the annual amount decreases after this year and it's life is 10 years long enough to lose 25% of the value to him but in 5 year will he be 75% the player he was when it was signed? Probably not. Even so it' all gone at that point. TV contracts like the one the Braves have and the other teams sign are worth about half as much 20 years and 25% of their initial value a the end of the contract using the CPI. The relative value of the TV rights will be significantly higher then and the team will be getting 25 cents for every dollar it should get from those rights. It just looks like a really bad business deal to me.

Jun 18, 2012 08:27 AM
rating: 0
 
thecoolerking
(845)

I'm really surprised this piece didn't touch on two rather obvious questions:

1. Why have TV contracts become so much more lucrative?

2. Does the length of these contracts mean that the final years will be undervalued?

Thanks, FredOwens, for bringing up the second question, but frankly, if I'm paying $40 a year for a BP subscription, I think I'm entitled to expect the author do a little more analysis, rather than stopping short after a mere laundry list of recent deals and valuations.

Jun 18, 2012 09:22 AM
rating: -3
 
jmanig

This is a free article, though. So in theory, it's not part of what you're paying for.

Jun 18, 2012 09:31 AM
rating: 1
 
misterjohnny
(925)

I can answer the first one.

The influence of DVRs has greatly increased time shifting of viewing television. And that time shifting causes ad-skipping and makes some ads viewed worthless (think of the Memorial Day sale ad that you end up seeing in June, or the political ad you see in late November).

One of the few TV shows that can't be time shifted is Sports. People want to watch their sports live. The premium that those ads get increases the value of the broadcasts.

In addition, it is a very loyal audience. Those who watch their team are not afraid to switch TV providers to make sure they don't miss a game. Therefore the Regional Sports Networks can extract high rates, knowing the TV providers don't dare pull the channels, or go dark for an extended period.

With the success of YES network and Big Ten network, every big city team has thoughts of their own RSN. That increases the price the existing RSNs are willing to pay for the product.

In the end, everyone pays through higher pay TV prices.

Jun 18, 2012 10:09 AM
rating: 7
 
win

I'm paying $40 every article should consider everything and also it should be free.

Jun 18, 2012 12:59 PM
rating: -1
 
ofMontreal

Right because you could have gone further yourself with those numbers: a little over $3 a month divided by say 28 days of actual content. Each of those days averages 6.5 articles, which brings us to .02 per. I think you more than got your value buddy.

Jun 18, 2012 17:05 PM
rating: 3
 
BP staff member Maury Brown
BP staff

Why are they growing? More than a few factors... Deals were often brokered based upon what was seen as current value, without accounting for market inflation. But, for MLB what really started moving the needle at such an incredible rate has been the deals around college sports that has caused the realignments we've seen.

Thanks for the subscription. This one was free, but I get what you're saying. This assist in getting closer to root of growth?

Jun 18, 2012 19:42 PM
 
jmanig

I'm still trying to get my head around the Texas Rangers being worth $150 million a year.

Texas has, what, 10 million cable subscribers? If you split the market 50-50 with Houston (to keep the math simple), that means you value the Rangers at around $2.50 per subscriber per month. That's a LOT. I'm not even sure YES is pulling in that much. And that's for a franchise that until their recent World Series run had serious brand awareness issues in their own market.

Jun 18, 2012 09:29 AM
rating: 0
 
tbwhite
(361)

I find the notion that the Padres are worth substantially more today because of their TV rights than say a year ago laughable.

I've lived in San Diego for 10 years and I have yet to watch a local Padres broadcast in my own home, and I'm a pretty serious baseball fan, so I would have if I could have. When I first moved here I subscribed to DirecTV so I could get the Sunday Ticket, but DirecTV wouldn't carry the local sports net channel the Padres were on. Last year I switched to cable and thought great I'll be able to see the Padres. Not so fast, of course I have TWC in my area, and now they won't carry the Padres channel. Finally, last week I switched back to DirecTV which supposedly carries Fox Sports San Diego, so in theory I can now watch the Padres, I just have to sift through the hundred or so odd sports networks to find it.

My point is that it feels like teams/investors think they just have to create a sports network and they have a license to print money. But it feels like that conclusion is based on historic viewing levels in a much different environment. There are so many channels today that no one is going to stumble across a Padres game on Fox Sports San Diego by accident and decide to watch it. I just don't see how Fox Sports San Diego helps the Padres broaden their fan base thereby increasing the value of the franchise if the only people who will watch it/find it are already fans.

Jun 18, 2012 09:55 AM
rating: 1
 
SaberTJ

As long as Fox Sports is getting the revenue from the commercials it doesn't matter that your hometown sports team's channel is in the mid 600's on directv.

Fox Sports decides to pay for a contract to broadcast the Padres because Directv and other networks pay to carry it, and advertisers pay to have commercials during the broadcasts.


Maury - have the revenues for advertising and broadcast rights increases over the past 10 years?

Jun 18, 2012 10:14 AM
rating: 0
 
BP staff member Geoff Young
BP staff

The problem in San Diego is that other networks aren't paying to carry the channel. It is estimated that roughly 40 percent of San Diegans (including yours truly) can't watch Padres games on TV in their homes.

As long as Fox Sports is getting the revenue, it has little incentive to make its channel available to the other 60 percent of potential viewers. At the same time, Fox Sports runs the real risk of alienating folks by investing money in sniping at one of the cable providers that won't pay to carry the channel rather than actually negotiating with said provider so fans can watch games:

http://www.utsandiego.com/news/2012/jun/16/tp-tv-stalemate-hurting-one-and-all-especially/

The current strategy may make a few people rich, but it won't help a new ownership group build and retain a fan base that wasn't strong even before this madness began.

Jun 18, 2012 11:12 AM
 
SaberTJ

That makes a lot of sense. Thanks for the clarification Geoff.

The Indians almost had the same controversy once or twice, but it has always been rectified before a regular season began.

Jun 18, 2012 12:13 PM
rating: 0
 
tbwhite
(361)

This is what I mean, Fox Sports made a billion dollar bet on the Padres. I don't see how it can pay off if 40% of the market doesn't have access to Fox Sports San Diego. Advertisers aren't going to pay top $ for a channel that only reaches 60% of the potential audience. Fox may think they can strong arm TWC into paying but I doubt it. TWC still won't pay for the NFL Network, and the fact that Cox, AT&T and Dish are all holding out as well doesn't bode well.

I wonder how these deals are structured. Let's say the economics of this deal just don't work. People don't care about the Padres and they don't complain to TWC, Cox and the others and they don't switch providers. Fox has to drop their price or accept less ad revenue and let's say they end up losing money on the deal. How strong is the connection between Fox and Fox Sports San Diego ? Is Fox obligated to make good on the Fox Sports San Diego contract ? Or is Fox Sports San Diego an independent entity that can default or go bankrupt to escape a bad contract with the Padres ? What recourse would the Padres have ?

Meanwhile, this North County San Diegan has attended more Angels games than Padres games over the past 2 years. It's not that much further to Anaheim, tickets are often cheaper, the product is better and I can actually follow the Angels on TV.

Jun 18, 2012 12:57 PM
rating: 0
 
BP staff member Maury Brown
BP staff

Broadcast rights have exploded. It's a domino effect. Try this...

ACC deal is a $3.6 billion deal over the next 15 years. Start there... look at the NFL... look at the industry. Now...

When is MLB's national broadcast deals up for renewal? End of 2013. Do the math. It's coming.

Jun 18, 2012 19:46 PM
 
rweiler

More proof, as if more were needed, that you can always tell when sports team owners are lying about how much money they are losing; their lips are moving.

Jun 18, 2012 11:34 AM
rating: 1
 
hessshaun

McCourt should be subjected to the same statutes that criminalize Ponzi schemes. For the record, I don't even like the Dodgers.

Jun 19, 2012 11:39 AM
rating: 0
 
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