You need a new type of scorecard to accurately measure the wealth of Major League Baseball these days because team owners are scoring in so many different ways.
Upshot: 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.
Why did values climb sharply despite falling profitability? Because to fully capture the value of MLB's 30 teams it is necessary to keep score of the sport's full portfolio of assets rather than just the cash-flow of the individual franchises. Our valuations were boosted by the escalating television rights fees that flow to each team, and the climbing values of Major League Baseball Advanced Media and the league's investment fund.
National broadcasting fees are baseball's biggest chunk of equally-shared revenue. Last year, Fox, TBS and ESPN inked new, eight-year broadcasting deals that will bring MLB a total of $12.4 billion over eight years--an average of $52 million a season for each of the league's 30 teams--through 2021. The new deals begin with the 2014 season and are worth more than twice the league's existing television contracts. Baseball has more inventory than any sport and with the national cable sports networks Fox Sports One, ESPN and NBC Sports battling it out for supremacy over couch potatoes, MLB was in a particularly strong negotiating position.
Another big contributor to team valuations is MLBAM, baseball's highly profitable, fast-growing digital arm, which generated an estimated $650 million in revenue last year. It could be worth over $6 billion if you give it a similar enterprise value-sales ratio as Facebook. MLBAM was launched 13 years ago and every team owns an equal share, making its success particularly important for low-revenue teams. Last year, MLBAM had more than 3 million subscribers to its various products, which include MLB.TV and the MLB.com At Bat 12 mobile application. The At Bat app hit a grand slam last year: it was downloaded 6.7 million times (more than twice the combined downloads from 2011 and 2010) and is the top-grossing sports app of all-time.
A hidden gem: baseball's investment portfolio. After MLB sold the Washington Nationals--which the league had acquired in 2002 for $120 million--to the Lerner family for $450 million in 2006, the profits from the sale were parked in Baseball Endowment L.P. (BELP), of which each of the 29 teams that had owned the Expos had an equal share (those assets were subsequently transferred to a new BELP, which is owned equally by all 30 teams). MLB also rolled in a portion of baseball's Central Fund, which distributes the revenue from the league's equally-shared national television and radio, Internet, licensing, merchandising and international deals.
The gross amount of Central Fund revenue for each team in 2012 was $50 million, but the league kept $7.5 million (the money belongs to the teams and is booked as an "account receivable" on their balance sheet). Commissioner Bud Selig oversees the fund. BELP has invested in hedge funds and the league has earned double-digit returns on its investment portfolio. Each team now has Central Fund and BELP investments worth $40 million to $45 million combined.
Our team valuations are enterprise values (equity plus debt) and are calculated using multiples of revenue. Thus while teams value MLBAM and BELP on their balance sheets on a "cost basis," which understates their true value, we incorporate market value estimates for those assets. Two more significant ways our accounting differs from the P&L statements of many teams: we include revenue teams keep from concerts, soccer games and other events at their ballparks; and we deduct from revenue stadium debt payments that are paid with stadium revenue. In short, our team values are meant to reflect what a buyer would be willing to pay in an arms-length transaction and our operating income measures are meant to indicate how much cash is generated.
The ownership stakes of teams in their local television deals is not included in our valuations because teams and regional sports networks can be sold separately (witness the recent purchase of 49% of the YES Network by Fox). The San Diego Padres were sold to a group headed by the O'Malley family last year for $800 million; $200 million of the purchase price was for the team's 21% stake in its new RSN, Fox Sports San Diego. We value the Padres at $600 million.
While the new national broadcasting deals, MLBAM and BELP have lifted the value of all baseball teams, the local television deals are mainly responsible for determining the pecking order.
The New York Yankees are the most valuable baseball team for the 16th consecutive year, worth $2.3 billion, also making the Bronx Bombers the most valuable U.S. sports team (full disclosure: I am co-host of Forbes SportsMoney on the YES Network). As part of a deal that saw Fox buy a stake in YES, the Yankees got a new rights fee agreement that will pay them $85 million this year and increase annually to a payout of $350 million in 2042. The Yankees also raked in piles of money from two Madonna concerts and a soccer game between Chelsea and Paris Saint-Germain.
The Los Angeles Dodgers are the second most valuable team, worth $1.6 billion. A group led by Mark Walter, Todd Boehly Bobby Patton, Magic Johnson and Peter Guber paid $2 billion for the team last year in anticipation of starting a new RSN for the 2014 season. Although the Dodgers announced a new $7 billion television deal with Time Warner Cable earlier this year, MLB has not seen the formal proposal yet.
The Chicago Cubs, worth $1 billion and Philadelphia Phillies, valued at $893 million, also cracked the top five as both teams should also get much richer local television deals soon. The Cubs pulled in less than $50 million last season from CSN Chicago and WGN. The team's deal with regional sports network CSN Chicago, which is 20%-owned by the Cubs, runs through 2019. But in 2015 the team is poised to ink a much bigger deal with WGN. The Phillies' contract with CSN Philadelphia and PHL 17 paid the team $54 million combined in 2012. The deal with the RSN, which televises most of the games, expires in 2015. The Phillies and Comcast are already in the process of negotiating a new deal that may double the team's rights fee.
The Bay Area's two teams both had great years. The San Francisco Giants have benefited from winning two of the last three World Series. The team is now worth $786 million, 22% more than last year. The team has scored with dynamic pricing and drew 3.4 million fans--fourth-most in baseball. The Giants will likely have paid off the $170 million of bank debt they used to help build AT&T Park in 2017.
The value of the Oakland Athletics rose 46%, more than any other team, to $468 million. The A's revenue increased 8%, to $173 million, as the team received one of baseball's biggest 's revenue-sharing checks (more than $30 million) and improved dramatically on the diamond (winning 20 more games than the previous season and capturing the American League West). Average home attendance was up 14%, to 20,728. MLB recently laid out tentative guidelines for the A's to move to a new stadium in San Jose, 42 miles from San Francisco, but there may be legal entanglements with the Giants. With a new stadium, Billy Beane may not have to rely on Moneyball to finally get a World Series ring.