As early as 1991, through the now defunct Financial World magazine, Michael Ozanian would publish valuations of the 30 clubs in Major League Baseball. When Financial World folded, starting in 1998, Ozanian continued doing the valuations for Forbes, adding Kurt Badenhausen as co-author.
Today, they are an annual staple for those looking at baseball as a business. As we reported last month, the figures within the Forbes valuations show clear trends in how individual clubs are increasing in value, as well as MLB as a whole. Bud Selig calls this the “Golden Age” of baseball, and he may well be right, based upon the rosey standing of the industry.
When conducting the research for Inside the Numbers: A 6-Year Look at the Forbes Valuations, we contacted Badenhausen who is a Forbes Senior Editor, to get clarification around some aspects of the process by which he and Ozanian go about defining the valuations, and how they differ from MLB’s.
But, even for those that follow the valuations closely each year they are published, we saw that an interview around the published figures would be incredibly insightful.
To that end, we contacted Badenhausen for the following interview. Topics include how long, and who Forbes contacts for their valuations; his response to Marlins President David Samson’s remarks regarding this year’s report; what does it say when the highest profiting clubs often times receive the most in revenue-sharing; how new ballpark construction—especially for the Twins—impacts valuation; how regional sports networks factor into the valuations; the upcoming sale of the Chicago Cubs; the clubs that have the largest potential for increasing in value; the overall growth in MLB, and much, much more. – Maury Brown
Select Read More to see the interview with Kurt Badenhausen, Senior Editor Forbes
Maury Brown for the Business of Sports Network: Each year, the Forbes valuations for MLB create controversy, as well as present a clear picture of how MLB is performing as an industry. Take us through the process. When do you start working on it? Who do you interview?
Kurt Badenhausen: We work on the MLB valuations year-round, although the bulk of the work is done in the 2 months leading up to the publication date which typically coincides with the start of the season. We contact every team as well as investment bankers, consultants and other baseball people. The level of cooperation varies significantly amongst teams. Some teams won’t confirm the name of their stadium, while others will provide us with their revenue and operating income.
Bizball: On the controversy side, Marlins president David Samson said after this year’s figures were released, "We've never gotten called by them. We've never been asked to verify, deny, confirm, nothing.” As co-author of the report, how do you respond?
Badenhausen: We wrote about the Marlins and Jeff Loria four years ago and we reported about how the team was losing money and the team cooperated with us at that time. We contact all of the teams each year and ask for certain pieces of information. This year we heard back from all 30 teams and all but two cooperated to some degree (the Marlins were not one of the two).
Bizball: When looking at the operating income figures, for many, it is surprising to see clubs such as the Marlins, Rays, pulling in some of the highest profits while fielding teams with exceptionally low player payroll. Both clubs have ranked at the bottom of the valuations for several years now. How do you view these two issues together, especially in terms of the revenue-sharing system?
Badenhausen: It’s an issue that has upset many large-market teams. By our calculations the Marlins and Rays both received more than $70 million last year from MLB in the form of revenue sharing, national TV and licensing revenue. You combine that with 2007 payrolls under $30 million and you have two very profitable franchises. But increasing the value of an MLB franchise comes through increased revenues and the poor stadium situations of the Marlins and Rays prevents them from generating much in the way of revenue. Hence they are the two least valuable franchises in baseball by our calculations.
Bizball: It has recently been reported that the Twins have already sold out nearly all of their luxury suites for their new open-air ballpark, just under two years before it is set to open. Are the Twins a club that is set to climb in the rankings?
Badenhausen: The Twins have been one of the least valuable franchises in baseball over the past ten years, but the value of the franchise has increased 52% since the new stadium deal was announced in 2006. The current value of the team is $328 million which ranks 25th out of baseball’s 30 teams. If the team is able to sell most of its inventory of tickets, luxury suites, sponsorships and ad signage they have the potential to move up in the rankings.
Bizball: RSNs have become an incredibly important part of the revenue streams for many clubs. How big of a factor are they, and do they create a have and have-not environment for those clubs that are in markets where they are unable to take full or partial ownership of one?
Badenhausen: We don’t include the value of RSNs in our calculations of team values. From a revenue standpoint, we only include the rights fee that the RSN pays the baseball team. These are supposed to be arms-length transactions to adhere with MLB’s revenue sharing regulations. But there is no doubt that the Yankees and Red Sox are getting below-market rights fees from their RSNs. While we don’t include RSNs in the value of teams, they are an important factor driving the business of the teams that have them. The Yankees and Red Sox collect stars to help fuel ratings on YES and NESN respectively. Both RSNs are extremely profitable allowing the teams to dole out high salaries and potentially lose money on the team itself, while making it up with RSN profits.
Bizball: The Cubs should be sold shortly, now that Sam Zell is getting the book out to bidders on the franchise, Wrigley Field and Comcast SportsNet Chicago. What do you see the sale price of the club at, both with, and without Wrigley as part of the package?
Badenhausen: The Cubs sale process has been endless even by MLB’s standards. We value the Cubs and Wrigley at $642 million. But since the Cubs are a marquee franchise and there appear to be many bidders interested in the team, it would not surprise me to see a sale price of more than $700 million. If Wrigley is not part of the package, it is hard to say what the team sells for. If the new lease agreement gives the new team owners access to most of the stadium revenues and they are able to add premium seating and advertising, then the price shouldn’t drop too much. But if the new venue owners are going to keep significant stadium revenues, we could see a much lower price. I think this is unlikely though. SportsNet Chicago is another component of this and could push the value of the total package to close to $1 billion if included.
Bizball: Do you see the down turn in the economy impacting valuations in the next year?
Badenhausen: I don’t think the downturn in the economy affects revenues too much for individual teams. We could see it affect revenues to some degree in sponsorship agreements as companies tighten their belts and cut back on their ad and marketing budgets. Potentially the big impact on team values and franchise sales relates to the access to credit. We’ve seen numerous public company buyouts affected by the tightening credit markets. The sale of the Tampa Bay Lightening has also been impacted by the turbulence in the credit markets. Easy access to credit made franchise transactions easier and prices higher over the past five years. That will change if these markets remain tight.
Bizball: Which club do you see as having the largest potential for increasing valuation?
Badenhausen: The two franchises with the biggest potential for increasing their value on a percentage basis are the two Florida clubs. Both are in dire need of new stadiums and in the Marlins case at least it looks like it is finally going to happen. If these clubs can build new stadiums and get fans to show up, they will see the value of their franchises increase at least 50%. A new stadium is the biggest factor that can significantly boost the value of a franchise. Almost every other club is already playing in a relatively new stadium, getting one or playing in a big market in an iconic stadium.
Bizball: We’re seeing more and more in-stadium naming deals these days. How much do naming and sponsorship deals play in the valuations?
Badenhausen: Sponsorship revenues are up 63% over the past five years compared to 50% for MLB revenues overall. It is an important part of team valuations because it is one way that teams can really differentiate themselves from some of the less successful teams. Overall though sponsorship revenues, which includes ad signage, naming rights and marketing deals, are only 11% of total MLB revenues. Tickets and media deals are still the main drivers of team values representing 36% and 35% of league-wide revenues.
Bizball: Finally, MLB is in a fantastic growth period. What do you think has been the key reasons for it?
Badenhausen: We have seen revenues and team values each surge about 150% since we first published our MLB valuations in 1998. The average team is currently worth $472 million and league-wide revenues are $5.5 billion by our calculations (Major League Baseball calculates its revenue to be $6.07 billion in 2007, but that include revenues from things like the All-Star game and MLBAM where very little of the money trickles down to the teams). There are several factors behind the boom in baseball. First up are the 12 new ballparks that have opened since 1998 with two more scheduled to open in New York next year. These stadiums have richly enhanced teams by creating new revenue streams from premium seating, concessions and sponsorships/signage. Secondly, revenue sharing has had a big impact on the finances of low-revenue teams like the Royals, Twins and the Florida clubs. Lastly I’d point to the incredible success of the big-market teams. The Mets and Yankees sold 8 million tickets between them last year, double their attendance in 1996 (the first full year after the strike). LA’s 2 teams drew 7.5 million, 50% more than in 1996. Chicago’s two teams drew 6 million fans, also up 50%. The Red Sox have been a juggernaut as well. The increased number of fans in these markets means more sponsorship revenues and the increased demand results in higher ticket prices. Add it all up and you get greater revenues and increased team values.
Interview conducted by Maury Brown on 4/30/08