The Yankees and Red Sox opened the season against each other, six months after Boston ended New York’s 2021 campaign in the Wild Card game. The longtime rivals have each won a quartet of World Series titles the past 25 years, the most in baseball, but off the field, the Bronx Bombers take the crown.
The Yankees franchise is worth $7.01 billion, including their related businesses—a 26% stake in the YES Network and 23% share of sports operations business Legends—which is nearly $2 billion ahead of the Red Sox ($5.07 billion), who rank second in Major League Baseball. The Yankees are not just the most valuable franchise in baseball, but across all global sports leagues, scoring a notch ahead of the NFL’s Dallas Cowboys at $6.92 billion. The only other $6 billion franchises are the NBA’s New York Knicks ($6.12 billion) and Golden State Warriors ($6.03 billion).
Baseball faced a perilous financial situation 12 months ago, on the heels of multi-billion dollar losses during the 60-game COVID-19-impacted 2020. Nearly every team started the 2021 season with limited fan capacities, but teams were on the hook for 100% of player salaries. Another liability: The sport was careening towards a work stoppage.
However, stadiums opened up fully earlier than expected, and 45 million fans ultimately attended games. League-wide revenue came in $1.5-$2 billion above early forecasts, which projected longer capacity restrictions. Overall, revenue reached $9.4 billion, including non-MLB events at stadiums, equivalent to roughly 90% of the 2019 total. And the league emerged from a 99-day lockout with a five-year collective bargaining agreement that introduced new revenue streams from an expanded playoff and additional sponsorship options.
The result is an average franchise value of $2.31 billion, including MLB-related businesses like regional sports networks and stadium real estate, according to Sportico calculations and conversations with more than 30 people involved in the business of baseball. The average is up 5% over last year; the gain would have been higher, except for sagging RSN valuations, as teams face accelerating cord-cutting and dwindling profit margins in these businesses in which 18 teams hold equity positions.
The $69 billion cumulative market value of baseball’s 30 teams would put MLB outside the 200 largest publicly traded companies and on par with the likes of Freeport-McMoRan, Truist Financial and Canadian Pacific Railway. But the scrutiny over the sport occupies a dramatically larger public mindshare versus similarly sized businesses.
The NFL (Broncos) and Premier League (Chelsea) are both dealing with high-profile team auctions. MLB will get its own litmus test on the appetite for multibillion-dollar assets in its sport, with the news that the Washington Nationals hired Allen & Company to explore the sale of the franchise that Ted Lerner paid $450 million for in 2006. Sportico values the club at $2.23 billion, including its 24% stake in Mid-Atlantic Sports Network and Lerner-owned real estate outside Nationals Park. It ranks 12th in baseball, behind the Houston Astros ($2.4 billion).
The most recent MLB control sales were the New York Mets and Kansas City Royals in 2020. Steve Cohen paid $2.42 billion for the Amazins, but the Mets are saddled with annual $44 million in PILOT bond payments related to stadium construction, while some bidders were wary of going toe-to-toe in a bidding war with the hedge fund titan, who is worth $17 billion, according to Forbes. John Sherman bought the Royals from David Glass for $1 billion in 2019, but it was perceived as a below-market price, as Glass, who died three months later, wanted to ensure the next owner would keep the club in KC.
The bullish case for the Nats: It’s a big market franchise in the Northeast megalopolis that is home to four of the eight largest metros in the U.S. Greater D.C. is one of the wealthiest parts of the country, and the club reeled off eight straight winning seasons, capped by the 2019 World Series title, before embarking on a recent rebuild that has payroll in the bottom half of clubs for the first time since 2012.
The macro case across baseball includes the scarcity value of teams on the market and loads of live sports content to monetize. The new CBA allows teams to sell jersey sponsorships in the form of a patch, similar to the NBA, starting in 2023 (MLB also plans a league-wide deal for helmet decals with one sponsor). The patch deals are expected to average $10 million per team and could top $20 million for marquee franchises. Baseball also offers opportunities in gambling, blockchain, streaming and more.
“Gambling is perfect for baseball,” Sal Galatioto, veteran sports investment banker, said in a phone interview. “You have 162 games, and the speed of the game allows you to wager as the game’s occurring. The number of data points you can bet on is almost infinite. The more people bet on the games, the more they watch the games.”
How the games are watched is one of the biggest obstacles facing MLB, due to the eroding RSN model, and the Nationals have an added complication with their decade-long legal fight with the Baltimore Orioles over the rights fees paid by the Orioles-controlled MASN.
Soaring local cable rights fees have boosted MLB team values over the past two decades, with the Dodgers’ 25-year, $8.35 billion agreement with Charter Communications-owned Spectrum the crown jewel. But the RSN economic model was built on increasing subscriber revenue to pay the escalating rights fees, not one where 33% of traditional pay-TV homes have cut the cord in the last eight years, a loss of roughly 32 million paying customers. Cable rights fees will represent roughly 20% of MLB team revenue this season, and clubs that own equity stakes in RSNs will also benefit from profit distributions, but those profits are dwindling too.
“The delivery system is broken,” said media strategist Lee Berke. “The model is going to need to be reinvented.”
Baseball has been the backbone of RSNs because of its long season and the shoulder programming built around games, but it now needs to address how to reach its audience through streaming, and the urgency has accelerated since Sinclair Broadcast Group purchased 21 RSNs from Walt Disney in 2019.
“There wasn’t a lot of financial leverage on these before Sinclair came along,” said Ed Desser, who spent 23 years at the NBA and has negotiated more than 70 sports media rights deals. “It changed the calculus and introduced the bondholders into the negotiations with leagues, teams and distributors. It is 3D chess, and someone probably ends up in checkmate.”
Diamond Sports Group, the Sinclair subsidiary that was formed to acquire the RSNs and is saddled with debt, is planning a direct-to-consumer (DTC) product to launch in the next few months and has secured the streaming rights to five MLB teams for the service. It is expected to offer in-game wagering and access to daily fantasy sports apps. “It is the start of a new paradigm of how fans can watch and engage with their local teams,” Chris Ripley, Sinclair CEO, said during the company’s fourth-quarter earnings call in February. Sinclair injected more liquidity into DSG through a recent $635 million loan.
The credit rating agencies remain skeptical. “Diamond’s credit profile reflects continued concerns over the long-term sustainability of the current capital structure,” per an April Moody’s credit opinion. “We view DSG’s capital structure as unsustainable,” S&P wrote in March. Diamond’s subscribers have declined from 70 million in 2019 to roughly 47 million, according to S&P.
“If you’re a sport that has broad-based appeal and want to continue that, you have to serve your fans, no matter where they are, whatever screen they want to watch,” Chris Bevilacqua, a New York-based media advisor, said in a phone interview. “Moving a chunk of games out of the wholesale model into the direct-to-consumer model where a younger demo is consuming all of their video makes sense. They have to be in those in those distribution channels.”
MLB recognizes this need, and the future involves viewers being able to access a broad scope of games wherever they are and on any device through a frictionless experience. There will be less of an emphasis on national versus local games. The question is who will ultimately distribute the product. In the short term, MLB seems willing to get on board with Sinclair, but almost everyone around the media side of the sport says the situation is “fluid.”
The Yankees, who have the second-highest cable rights deal behind the Dodgers, are testing the DTC model with 21 games this season exclusively on Amazon, which owns a piece of the YES Network. Baseball will have weekly national games this season exclusively on streaming services from Apple and Peacock. Those two deals are worth more than $100 million combined per year.
While there is pressure on the RSN model, the Yankees and Red Sox are in the best position with their respective networks, which are both seen as must-carries by distributors in their markets. YES is expected to generate more than $300 million in cash flow in 2022, while NESN should easily top $100 million.
Sportico values teams on multiples of revenue, from the 2019 season, the last one not impacted by COVID-19. Multiples range from 4.6 for the Marlins to 8.4 for the Yankees (click here for a full methodology). The Dodgers posted the highest revenue in the sport in 2021 at $540 million, while the Yankees were tops in 2019 at just over $700 million. The average MLB value ($2.31 billion) slots in behind the NFL ($3.5 billion) and NBA ($2.58 billion), but ahead of the NHL ($934 million) and MLS ($550 million).
The related business and real estate market component of Sportico’s MLB valuations represented 10% of the total value. The troubled RSN market triggered a decline in these values—which are largely based on multiples of cash flow—as much as 30% in some cases. Excluding RSN equity stakes, the average franchise value rose 7%.
The Orioles, who own 76% of MASN, were one of the hardest hit; their overall value sank 4% to $1.63 billion, as MASN’s value continued its freefall. On the field, the situation isn’t much better. The roster has been torn down to the studs during a five-year rebuild, and fans have abandoned the team—revenues were the fourth lowest in baseball during the 2019 season.
The upside is a farm system that ranks among the best in the game, and the Maryland state legislature committed $1.2 billion this month to upgrade the Orioles’ Camden Yards and the NFL Ravens’ M&T Bank Stadium. Peter Angelos, 92, bought the team for $173 million in 1993, and the Orioles are expected to be sold after his death.
“Disaster” … “Train wreck” … “Terrible.” These are a few of the printable descriptions by MLB insiders used to describe the Miami Marlins, the only other franchise that declined in value. It is off 5% to $1.06 billion and ranks 30th in MLB for the second straight year. Bruce Sherman’s ownership group paid $1.2 billion for the team in 2017, and almost nothing has gone right. Attendance ranked last each year of Sherman’s tenure, and 2021 marked an 11th straight losing season. The club secured a new TV deal with Bally Sports Florida last year, but it fell short of expectations from when the team was bought. The latest blow was Derek Jeter resigning as CEO and selling his stake in the team.
MLB opened its doors to private equity investment in late 2019, ahead of the adoption by the NBA, NHL and MLS. A fund can own up to 15% of an individual MLB team, and teams can sell 30% of their total equity to PE funds. Unlike the other leagues, baseball does not cap the number of teams that can be owned by a single fund.
“Institutional funds represent a positive source of liquidity for teams, as well as an additional source of equity when buying a club,” Galatioto said. A bidder on the Nats could tap institutional markets for up to 30% of a bid. These investors see sports assets as a diversification play that is less correlated to the overall market.
Arctos Sports Partners is the only investment firm that has taken advantage of MLB’s cross-ownership rules. The company, led by private equity veteran Ian Charles and former MSG CEO David “Doc” O’Connor, has invested in a half-dozen clubs, including the Red Sox, Dodgers, Cubs, Giants, Astros and Padres. The investments are in four of the five most valuable teams, and all of them rank among the top half of franchises.
Arctos declined to comment on its MLB stakes, but a clear pattern emerges with the firm’s sports targets. They typically have strong real estate development prospects beyond the teams, as is the case with the Red Sox, Cubs and Giants (the NBA’s Warriors and Kings—both Arctos investments—also have valuable real estate assets).
The Red Sox parent company, Fenway Sports Group, is in the planning stages of a development outside Fenway Park that is a joint venture with WS Development and the D’Angelo family. It will cover up to 2 million square feet of commercial, residential and retail use. The project is expected to take five to seven years to complete and kick off in 2023. FSG’s share of the real estate venture and 80% stake in NESN are worth an estimated $1.18 billion and will increase as the project is developed.
The Atlanta Braves offer a blueprint for developing a business beyond the team. The Battery real estate development around Truist Park is a 2-million-square-foot, mixed-use destination that includes shopping, dining, offices and residential space. With Stage 2 of The Battery complete, it is expected to generate $30 million in annual net operating income for the Braves’ parent company, Liberty Media.
The Braves are riding high after last season’s World Series title, the franchise’s first in 26 years. Season tickets are at their highest in more than 20 years, premium seating is already sold out, and team merchandise has been selling at a record pace.
Rumors have floated for several years that Liberty would unload the Braves, as public markets often discount sports team assets. Sportico values the Braves and The Battery at $2.54 billion, seventh in baseball and up 7%. It represents a 25% premium to the current enterprise value of the tracking stock. Liberty CEO Greg Maffei downplayed talk of unloading the team.
“We’re bullish on what (the Braves) can do there,” Maffei told Sportico in November. “We continue to build out The Battery, and there’s a lot more upside.”
(This story was altered in the Sinking Fortunes section to correct the current value of the Miami Marlins.)