Yankees Beat Dodgers as Baseball's Most-Valuable Franchise

Wednesday, 23 Oct 2013 10:15 AM

 

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The average value of a Major League Baseball team is $1 billion, more than 35 percent higher than previous estimates, according to data compiled by Bloomberg.

The New York Yankees are worth $3.3 billion, making them the sport’s most-valuable enterprise. The Los Angeles Dodgers rank second with a value of $2.1 billion.

“Major League Baseball is catching up to valuations of the National Football League,” Anthony Di Santi, the managing director of the sports finance advisory division of New York- based Citigroup Inc.’s private bank, said at the Bloomberg Sports Business Summit on Sept. 10.

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“It’s because they’ve been exploiting the media opportunities that are available to them on a national level.”

He said regional sports networks also play a role when valuing teams. The Dodgers were sold in April 2012 for $2.15 billion to an affiliate of Guggenheim Partners LLC, a New York-based investment management firm with more than $190 billion in assets under management. Di Santi said the transaction price was influenced by the potential creation of a new cable TV network, and increased franchise values across MLB.

Ten teams are worth more than $1 billion. The Boston Red Sox and New York Mets each are valued at more than $2 billion, the data shows.

The National League champion St. Louis Cardinals, who are valued at about $805 million, will play the American League champion Red Sox in Game 1 of the World Series tonight in Boston.

Enterprise Value

In calculating team value, Bloomberg News examined revenue from ticket sales, concessions, sponsorships and broadcast rights, as well as interests in TV channels, radio stations and real estate.

Revenue from national TV contracts and merchandise is split evenly among the teams, as is the value of MLB Advanced Media, a subsidiary that supplies content to Internet and mobile subscribers.

Under baseball’s collective bargaining agreement between the owners and players, revenue from large-market teams, such as the Yankees and Red Sox, is shared with smaller-region franchises like the Kansas City Royals, Paul Godfrey, former president of the Toronto Blue Jays, said. Each team contributes to a pool that was about $360 million in 2012, according to MLB. Those with lower revenues receive bigger amounts from the fund.

Bronx Bombers

Baseball teams are valued based on multiples of revenue, not operating income, according to Gerald Cardinale, managing partner of private equity firm RedBird Capital Partners and a co-founding investor of the YES Network. He said enterprise value, defined as market capitalization plus total debt minus cash, is the best way to quote team transactions.

The Dodgers sold for six times revenue, a number that changed how baseball executives and sports bankers determine the value of teams. MLB franchises traded for an average of about three times sales over the past decade, according to data compiled by Bloomberg.

The Yankees are valued at about four times sales. The team is the centerpiece of Yankee Global Enterprises, a New York- based company that controls 25 percent of YES Network, the most-profitable regional cable TV channel in the U.S., according to researcher SNL Kagan. The company also owns a 43 percent stake in Legends Hospitality, a stadium concessions venture with the Dallas Cowboys football team.

YES Network

The Steinbrenner family owns 55 percent of Yankee Global, according to a 2010 NBC New York report published after George Steinbrenner’s death. The remaining 45 percent is divided among 35 minority owners, according to the team’s 2013 media guide, including billionaire Lester Crown.

Almost two-thirds of Yankee Global’s value is derived from its baseball operations. The team had about $570 million in revenue in 2012, according to data compiled by Bloomberg.

The majority of Yankee Global’s net income comes from its cable TV and hospitality businesses. The company sold 9 percent of YES Network in December 2012 to News Corp. for $420 million in two tranches, valuing its remaining stake at more than $930 million.

“The Yankees are as successful as you can possibly be,” said Lee Berke, a sports media consultant and author of YES Network’s original business plan. “It’s the culmination of a perfect storm coming together: the nation’s number one market, professional sports’ most successful team and tremendously savvy and aggressive ownership.”

Alice McGillion, a spokeswoman for the Yankees at New York- based Rubenstein Communications, said the team declined to comment on its valuation.

Magic Johnson

The Dodgers’ $2.1 billion valuation is based on information provided by two individuals involved with the transaction who asked not to be identified because the details were private.

Guggenheim Baseball Management LP, a Los Angeles-based company led by financier Mark Walter, paid $2 billion for the team and Dodger Stadium, plus $150 million to form a real estate joint venture with Frank McCourt, the team’s previous owner. In exchange, McCourt transferred ownership of the 261 acres that surround the ballpark, most of which are parking lots, to the partnership.

The Guggenheim group includes basketball hall of famer Magic Johnson, who won five championships with the Los Angeles Lakers.

Regional Networks

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McCourt, who bought the Dodgers in January 2004, agreed to sell the franchise as part of a U.S. Bankruptcy Court settlement with MLB. He retains an option to buy back Guggenheim’s share of the land for its initial investment plus inflation, according to one of the people, contingent on construction of another sports stadium on the site.

NFL Commissioner Roger Goodell said in a June 2012 memorandum to professional football team owners that the league is considering sites in Los Angeles for a new stadium. Guggenheim will receive its $150 million investment back if the land is sold for any non-sports use.

Since the sale, the Dodgers’ annual revenue has risen by 38 percent to $450 million, according to a person with knowledge of team finances. Attendance also has gone up by 13 percent to about 3.7 million fans this season, the most in baseball, according to MLB.

During negotiations, McCourt’s representatives proposed starting a new regional sports network, which they referred to in presentations as YES West, that the new owners could create because the team’s deal with Fox was set to expire.

Guaranteed Payments

Guggenheim transformed YES West into SportsNet LA. The Dodgers will retain full ownership of the network through a subsidiary, American Media Productions LLC. Time Warner Cable Inc. has a 25-year agreement that allows the company to keep any profit made above guaranteed payments to Guggenheim, which will receive $200 million a year, after network costs and revenue sharing obligations to MLB.

The first payment from Time Warner is scheduled for January, and they would continue until 2038, stopping only in the event of a baseball labor dispute, according to the terms of the agreement.

Guggenheim believes the network is worth $2.75 billion, a discounted value of the guaranteed payments, one of the people said. SportsNet LA is scheduled to debut next spring. MLB has yet to approve the deal.

“That process is at a point where it’s pretty clear there will be approval of the Dodgers’ arrangement well before the 2014 season starts,” baseball’s Chief Operating Officer Rob Manfred said during an Oct. 15 interview at his office in New York.

Phillies, Mets

Fourteen teams have stakes in regional sports networks. Of the 10 teams valued at $1 billion or more, only the Philadelphia Phillies don’t have one. The team and Comcast are in negotiations for a new TV contract. Their current deal ends in 2015.

The average value of a team’s interest in a regional network is about $360 million, with the Mets’ 65 percent stake in SportsNet New York having the biggest valuation of almost $1.2 billion, according to data compiled by Bloomberg.

Joseph Ravitch, a former Goldman Sachs Group Inc. partner who is co-founder of Raine Group LLC, a New York-based merchant bank that works with several MLB teams, said some regional networks shouldn’t be considered in a franchise’s valuation.

Digital Business

“The equity value of SNY is zero, since the owners use it to cover $75 million a year in Mets losses,” Ravitch said from his office in New York.

David Cohen, the Mets general counsel, said the team declined to comment on its debt and valuation.

Digital rights also have become an important component to a franchise’s value. Each team owns 3.33 percent of MLB Advanced Media, baseball’s Internet and mobile division, which had more than $600 million in revenue in each of the last two years, according to statements by MLB officials.

The value of the digital business is $3.3 billion, or $110 million per team, based on a formula provided by Jeffrey Phillips, managing director of the valuations division of Stout Risius Ross Inc., an adviser to investment banks. Phillips said the calculation should be based on an enterprise value-to- earnings before interest, taxes, depreciation and amortization multiple of 17.

Data for franchise valuations were provided by sports bankers, media consultants, municipalities, financial statements and people familiar with team operations. Calculations were compiled for the 2012 season and made available to each team and MLB for review and comment. Four teams didn’t return calls or e- mails. Sixteen declined to comment.

Low Valuation

Bob Rose, the public relations director for the Oakland Athletics, said Bloomberg’s $590 million valuation of the team was low. The franchise had revenue of $175 million in 2012.

“If hypothetically we were to sell, it would be more like four times $175 million, or $700 million,” Rose said in an e- mail.

San Francisco Giants President and CEO Larry Baer confirmed $300 million in team revenue for last season, and suggested a valuation higher than $1.2 billion, which includes ownership’s 33 percent stake in Comcast Sportsnet Bay Area.

“I think we’d trade for more,” he said, “I know we’d trade for more.”

© Copyright 2014 Bloomberg News. All rights reserved.

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