The Business of Sports

Opening Day 2011: Play Ball


Through a baseball lens, this weekend's shocking NCAA Final Four matchup is something like the Minnesota Twins vs. the Texas Rangers, and the Marlins vs. the Pirates. It's the Pretty High Up Guys vs. the Been There Befores, and the Zero Chancers vs. the Wild Cards (with Butler playing the role of the unpredictable Marlins).

Conversely, with the average value of an MLB franchise reaching an all-time high in 2011, PED issues receding, and a more tranquil labor outlook than any other major sport on the horizon, is Commissioner Allan "Bud" Selig stepping into the glass slipper of the forever-charmed Cinderella?

They Might be Giants: Franchise Valuations

In sports, no day is giddier than the start of baseball season, and in MLB, things have perhaps never been as giddy as this year. With the NFL locking out its players, and the NBA facing a similar threat this summer, MLB and its players association are preparing for the second round of collective bargaining negotiations. Baseball's CBA expires in December. The two sides expect regular negotiations to occur after the season begins—and they expect them to go smoothly.

The start of baseball season also brings new franchise valuations. The average MLB franchise value this year increased to an all-time high of $523 million, according to just-published annual rankings. The Texas Rangers, sold at auction last fall, jumped a MLB-best 25 percent in value, and all but three teams increased in value from last year.

For the 14th straight season, the New York Yankees are MLB's most valuable franchise, rising 6 percent in value, to $1.7 billion. Tellingly, the gap in 1998 between the Yankees and the No. 2 Baltimore Orioles was 12 percent. Today the Yankees are 86 percent more valuable than the No. 2 Boston Red Sox.

Total revenue for MLB's 30 teams increased 4 percent, to $6.1 billion, while operating income fell 5 percent, to $494 million, as rising facility, player, and marketing expenses eroded profits. In San Diego, the Padres ranked as baseball's most profitable team, with an operating income of $37 million (and a revenue-sharing check of more than $30 million).

It has been 89 years since the San Francisco Giants won back-to-back World Championships. That long stretch doesn't scare the nearly 7,000 new season-ticket holders who signed up this year, bringing the number of full-season tickets sold to more than 27,700. Last Thursday, the Giants launched their Premium On-Deck Wait List, which will give fans the opportunity to secure season tickets as they become available in a nonrefundable $500 per-seat deposit.

New sponsors, including The Sports Authority, Tiffany (TIF), and online file-sharing company Box.net have also jumped into AT&T Park alongside renewing backers Safeway (SWY), Toyota (TM), See's Candies, Levi Strauss, and Genentech, among others. And in what's being touted as "Hard Knocks for Baseball," the Giants will even have their own documentary series on Showtime, premiering this summer.

As baseball prospers, so do its owners. One authoritative industry poll counts eight billionaires among baseball's 30 ownership groups—albeit the smallest number of billionaires in the four major U.S. sports. At the top of the list is the Nintendo (NTDOF) Chief Executive Hiroshi Yamauchi, who also owns the Mariners, worth an estimated $4.6 billion; Yamauchi is currently at the forefront of baseball's contributions to tsunami relief efforts in Japan. Behind him is Atlanta Braves owner John Malone ($4.5 billion), whose company Liberty Media is currently rumored to be shopping the Braves because the tax advantages of owning the team since Liberty bought the Braves from Time Warner Cable (TWC) in 2007 are now at an end. Others in the Billionaire Boys of Baseball club include the Washington Nationals' Ted Lerner ($3 billion), the Detroit Tigers' Mike Illitch ($1.7 billion), the Houston Astros' Drayton McLane ($1.5 billion, also thought to be selling his team), and the Rangers' Ray Davis ($1.4 billion), who aided Nolan Ryan with the early departure of owner Chuck Greenberg.

Franchise values aren't the only thing increasing for MLB. According to the league, total 2010 licensing revenue was up 6 percent over the previous year's. The Yankees, Red Sox, Los Angeles Dodgers, Philadelphia Phillies, and Chicago Cubs are the top five in team merchandise sales.

The Fly Balls in the Ointment: Ownership Dilemmas in New York and LA

MLB Commissioner Selig, after shepherding the Rangers out of bankruptcy last year and now contemplating retirement at the end of the 2012 season, faces even more serious questions surrounding the Dodgers and the Mets. At the heart of their very different ownership dramas is the same issue: The debt loads carried by both teams far exceed the league's stated ratio of 60 percent assets to 40 percent liabilities. One financial publication even scoffed that Selig "now faces the possibility of becoming known as 'the Debt Commissioner' for the ballooning of franchise IOUs under his tenure."

The New York Mets, according to some estimates, lost $50 million or more in 2010 alone—from a dramatic decline in ticket sales, not from the Wilpon family's failed Bernie Madoff investments. Their franchise value is down 13 percent from last year, and the team's losses are "projected to hit another $50 million or more this season based on factors including advance ticket sales," according to The New York Times. Fan fascination with the Mets' new Citi Field is gone, and the team continues to struggle on the field.

The Dodgers, meanwhile, through ticket price increases, saw their franchise value climb from $727 million to $800 million—but the franchise is thought to carry a debt load of 54 percent of its overall worth. Owner Frank McCourt refuses to address his financial and legal situation as he works through a messy divorce settlement with his ex-wife Jamie that has left Dodgers ownership in dispute. An L.A. Downtown News editorial summed up the feelings of many Dodgers fans: "It is time for the McCourts to swallow their pride and let someone who really cares about the team and the city, and someone with the resources to make the Dodgers competitive and the stadium experience enjoyable and efficient, take over."

Seat Coolers?

Despite the U.S. economy beginning its turnaround, league-wide attendance fell half a percent last year. Across baseball, stadiums were filled only to 70 percent of capacity throughout the regular season. And as 2011 Spring Training morphs into Opening Day, tallies show that Cactus League attendance this year wasn't exactly flowering.

Outside of the Arizona Diamondbacks and Colorado Rockies and respective double/triple-digit attendance jumps at their stunning new HKS-designed Salt River Fields at Talking Stick facility, all but one of the remaining 13 Cactus League teams have gone down in attendance, and four teams have seen declines of 20 percent or more. In Florida, overall Grapefruit League attendance has declined less than 1 percent, with only the Cardinals and Marlins suffering double-digit declines. Regardless, Selig told USA Today that he is "optimistic baseball will surpass 2010's regular-season attendance of 74 million."

With so many people being priced out of ballparks as the new MLB season gets under way, a new company called ScoreBig is trying to get them through the gate. Similar to hotel locator Priceline (PCLN), ScoreBig works with sports teams and venues to sell their unsold inventory. Fans can make an offer for the tickets they're interested in and receive an instant response on whether that offer is accepted. This model is good for teams, because they can get rid of unsold tickets, and good for fans, because they can get tickets for 10 percent to 70 percent off face value.

Despite what he says, with Spring Training attendance down this year, you can bet the commissioner is concerned about putting fans in regular-season seats. Innovations such as ScoreBig could help him score. Big.

Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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