Pain. The word keeps coming up in conversations with people involved in the business of Major League Baseball. Financial pain for some teams whose local TV deals—a pillar of baseball’s economic ecosystem—are destined for a haircut, even potentially a full buzz cut. Pain for some viewers who might find the broadcasts of their games delivered through a new model or partner over the next year or two.
In 2023, baseball implemented the biggest on-field changes in more than half a century, but it is also facing economic upheaval off the field for the fourth straight season, following two years impacted by COVID-19, and then a lockout that threatened the 2022 season before a new collective bargaining agreement avoided any canceled games.
The challenge in 2023: Diamond Sports Group’s looming bankruptcy and Warner Bros. Discovery’s plans to wind down its regional sports networks.
“There are changes coming in the ecosystem. I do think you will see net revenue declines across all of baseball, with the decline of RSNs.” Greg Maffei, CEO of Liberty Media, which owns the Atlanta Braves, said last month on his company’s fourth quarter earnings call. “I think that in the short term, that’s almost inevitable.”
Sportico spoke to more than 30 people over the last month, including eight bankers and lawyers involved in MLB team transactions, to gauge the current health of the sport. Despite the “sky-is-falling” narrative by some pundits and the inevitable reduction in local media rights for certain teams, franchise values are not veering off a cliff. In fact, the average MLB team value inched up 2% over the past 12 months to $2.36 billion, including equity in stadium real estate and MLB-related businesses like RSNs, according to Sportico’s calculations. The teams alone are worth $2.2 billion.
The Yankees rank first at $7.13 billion when factoring in their equity stakes in the YES Network and premium experiences company Legends. Only the Dallas Cowboys ($7.64 billion) and Golden State Warriors ($7.56 billion) are worth more among the world’s sports franchises.
The Los Angeles Dodgers ($5.24 billion), Boston Red Sox ($5.21 billion), Chicago Cubs ($4.69 billion) and San Francisco Giants ($3.81 billion) round out the top five. Like the Yankees, each of those clubs own valuable related business assets.
The MLB valuation gains are not uniform, though. The current RSN upheaval is disproportionately threatening the smaller-market teams, as they are almost all affiliated with Bally Sports or AT&T SportsNet channels. Additionally, nine MLB clubs own equity in their Bally Sports networks. Sportico dropped those values to zero with the pending bankruptcy of the networks’ parent, Diamond Sports Group, and it also cut valuations of non-Diamond RSNs. The result: a further bifurcation in team values. Valuations increased 3% on average for the top half of the table, while those in the bottom half dipped slightly. Overall, 10 clubs fell in value, with the Colorado Rockies, down 4%, and Pittsburgh Pirates, down 3%, the biggest laggards.
Baseball’s 30 clubs generated a record $10.9 billion in revenue last season, including revenue from non-MLB events at stadiums that teams own or operate. It was a 16% increase from 2021 when attendance was still hampered by COVID in certain markets. We include the equity in our valuations for related businesses, such as the Braves’ mixed-used development The Battery, but not the revenue from it (click here for more methodology details and a breakdown of the 30 teams).
Consternation about Diamond’s bankruptcy is higher within MLB versus other leagues, because of the way baseball makes its money. Yes, the NBA and NHL are feeling the RSN pinch but to a much lesser degree; their regular seasons both wrap up over the next month, and teams have already received the bulk of their rights fees. The local media deals are also a much smaller piece of the overall pie for the NBA (13% of total revenue) and the NHL (12%). MLB local media deals are 23% of total revenue, including local radio contracts.
The NFL, as usual, wins again with no RSN exposure. Its local media—radio contracts and preseason TV deals on broadcast networks—represent less than 2% of leaguewide revenue. The percentage attributable to local TV in MLB ranges from an estimated 12% for the Brewers to more than 30% for Los Angeles’ two clubs.
Baseball’s RSN problem did not come out of left field. It has been on the league’s radar as U.S. cable households plummeted from 100 million in 2015 to 68.5 million at the end of last year. The decision last month by Diamond Sports, which owns 19 RSNs, including 14 that carry MLB games, to skip a $140 million interest payment had seemed inevitable almost from the day Sinclair Broadcast Group paid $9.6 billion in 2019 for the Fox RSN business and borrowed $8.6 billion to make the deal happen. Last year, Diamond reorganized its debt, in what was technically a default on its obligations. With AT&T—home to games for four MLB teams—declaring last month it wants to exit the RSN game, the Band-Aid on the problem is being fully ripped off.
What’s next for clubs and their broadcast partners is still extremely fluid. The payment schedules on rights fees vary widely, with some kicking off in February and others not until April. Teams might get two payments during the year or as many as six. More answers will come soon with the 30-day grace period on Diamond’s skipped interest payment expiring on March 17, which means a bankruptcy filing is inevitable.
Warner Bros. Discovery gave teams on its RSNs—Colorado Rockies, Houston Astros, Pittsburgh Pirates and Seattle Mariners in baseball—a deadline of March 31 to take back their rights fees or else it would enter Chapter 7 bankruptcy. The optimists around the sport, who cite baseball’s relationship with WBD through its longtime national partner TBS, expect the AT&T clubs to continue airing games on their existing RSNs and receive their rights fees in 2023 before reverting to the clubs after the season. The Mariners' RSN, Roots Sports Northwest, was the only one of the four with positive cash flow in 2022, according to S&P Global Market Intelligence estimates.
Diamond was scheduled to pay MLB clubs just over $1 billion for their rights in 2023 and is looking to secure streaming rights for more clubs. It is expected to keep most of its Bally Sports RSN deals intact, including profitable ones, like the Braves’ home Bally Sports Southeast, as well as the five clubs where Diamond controls streaming: Detroit Tigers, Kansas City Royals, Miami Marlins, Milwaukee Brewers and Tampa Bay Rays.
The rights fees most at risk are money-losing ones, such as the Arizona Diamondbacks’ Bally Sports Arizona, which S&P figures lost $3.3 million last year and projects cash flow to hit -$13.3 million in 2023. Smaller markets, such as Cincinnati, Cleveland and San Diego could also see reduced fees.
Meanwhile, the Yankees own 26% of the YES Network, which spits off more than $200 million a year in cash flow, according to S&P. YES averaged 386,000 viewers, up 27%, for games in 2022 when Aaron Judge broke the American League record for home runs in a season. It was the biggest audience in 11 years. In addition, the YES app has racked up 1.7 million downloads and viewership topped 100,000 for certain games last year. The Cubs, Red Sox and Giants all own at least 33% of RSNs that still generate significant cash flow.
MLB says it will take over the distribution of games if Diamond or AT&T shut down any of their networks at any point in 2023.
MLB Team Sales
There have been only four control sales of MLB teams over the past decade: the New York Mets for $2.42 billion in 2020, the Royals for $1 billion in 2019, the Marlins for $1.2 billion in 2018 and the Mariners for $1.4 billion in 2016. Last year, the Los Angeles Angels and Washington Nationals both went up for auction. L.A. and D.C. are premium markets, but neither the Angels nor the Nats are premium brands during a time when an unprecedented number of marquee sports franchises were up for sale. Arte Moreno pulled the Angels off the market in February, citing a change of heart. The Nationals remain available following the death last month of the team’s patriarch, Ted Lerner.
Both sales faced challenges. The Angels’ future stadium situation, along with the land surrounding their current home, remains unclear; on top of that, its RSN deal is the largest in the Bally Sports universe at more than $100 million a year. The clubs ranks tenth at $2.45 billion, down 2%.
The Nationals sale was always going to be tricky as long as its own RSN situation remains unsettled. Washington is in a decade-long battle over rights fees with the Orioles, who control MASN through their 75% ownership in the RSN. The Nats and Orioles are back in court Tuesday for the latest in their dispute. Sportico values the Nationals at $2.18 billion, down 2%.
Meanwhile, a chunk of the Rockies has been on the market for more than a year and received little interest.
The appeal for clubs at the top of MLB’s financial hierarchy remains high, thanks in part to the diversified assets of those clubs. The Chicago Cubs sold a limited partnership stake last year at a $5.5 billion enterprise valuation, according to multiple sources familiar with the transaction. The sale included stakes in the team’s real estate development and Marquee Sports Network, which both carry a decent level of debt. Sportico valued the Cubs at $4.7 billion, including the equity component of its related businesses.
The 2% rise in MLB team values severely lags the 16% annual increase for Sportico’s most recent NBA valuations where the average team is worth $3 billion. The NFL is also lapping America’s Pastime with an 18% bump to $4.14 billion. Yet, most deem this year as a pause instead of a downward trend in the long-term trend of rising MLB valuations, as the sport sorts out how games will be distributed.
The soaring prices in football and basketball are making MLB clubs a good arbitrage play for those seeking value. MLB still offers the same attributes driving investment in sports, such as live content and scarcity, as well as being non-correlated and recession-resistant assets—but at a fraction of the price.
In January, the Phoenix Suns sold for 13 times revenue, while current bids for the Washington Commanders are thought to be roughly 10 times revenue and Dan Snyder holding out for more. Most baseball team teams are worth five-to-six times revenue, with the marquee names commanding seven-to-eight times.
Investors are drawn to baseball for the same reason that the sport formed the backbone of the RSN model for decades. There is a lot of content, and it is leading programming in most local markets for six months of the year. Last season, RSN broadcasts of games were the No. 1 primetime programming on cable in 22 of 29 MLB markets, according to Nielsen (data from Toronto is not available). It was still tops in 13 markets when factoring in broadcast programming as well.
Despite the 30% decline in cable households since 2016, viewership of games on RSNs has remained basically flat during that time and averaged 96,000 viewers per game last season, per Nielsen. Viewership declined 4% annually for both basketball and hockey during the same time with their averages—58,000 NBA and 45,000 NHL—a fraction of baseball in half the games. The hope is that streaming more games will allow clubs and the league to monetize their fan base in different ways through sports betting, merchandise, data and sponsorships.
MLB has also introduced new revenue opportunities for teams. Last year’s expanded postseason generated more than $100 million in incremental revenue. A half-dozen teams have announced jersey patch partners, which are new for 2023. The biggest deal so far is the Boston Red Sox partnership with Mass Mutual worth $170 million over 10 years, according to someone familiar with the agreement.
MLB owners don’t appear worried about a collapse of their economic system. They committed a record $4.3 billion to players on free agents and contract extensions this winter, including $838 million by the Padres, who operate in baseball’s fifth smallest market.
Baseball has faced bigger financial crises than the RSN turmoil, including eight work stoppages over 25 years, capped by the cancellation of the 1994 World Series. In 2020, COVID-19 shut down the sports world three weeks before opening day, resulting in a 60-game season with no fans.
"Leagues have prepared contingency plans to cover disruptions and minimize revenue losses at the team level," Henry Flynn, Fitch director, wrote to clients last month after DSG's missed debt payment. "Liquidity from either the league credit facilities or ownership equity would help mitigate near-term potential media revenue volatility." Baseball gets an A rating from Fitch for its league credit facility, same as the NFL. The NBA gets an A- with a higher leverage ratio of 2.7 versus under 2 for MLB.
"The multiplatform approach, including broadcast, MVPDs and streaming, can be of great value to the teams and leagues going forward,” media consultant Lee Berke said. “But it's going to take time to put that together."