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Home Maury Brown Understanding the Real Value of MLBAM and MLB Network

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Understanding the Real Value of MLBAM and MLB Network PDF Print E-mail
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Written by Maury Brown   
Monday, 19 January 2009 00:00

MLB Network and MLB.com

MLBN and MLB.com create revenues
for each of the 30 owners in MLB. But,
don't think that free agent signing
money comes directly through the two.

On New Year’s Day, approximately 50 million households witnessed the largest cable channel launch to date in the MLB Network, and with it, a new spigot of revenues for the league was born. And, much like MLB Advanced Media, which was hatched in 2000, MLBN has the capacity to be a cash cow for the owners in baseball.

For fans of the A’s, or Pirates, or Royals, the question becomes, does the revenues from these media holdings eventually translate into better players on the field? Does MLB.com and MLB Network directly tie to my team spending more in free agency? As we shall see, the answer should be yes, but indirectly.

Both MLBN and MLBAM are centralized, meaning the owners all invest in it collectively and reap any rewards collectively. MLB.com, through MLBAM, was funded by the clubs in an agreement that had them each investing $1 million a year over four years. The cost was targeted at $120 million. It became exceptionally popular very quickly, generating excess revenue in only the second year of its existence, allowing them to invest only $70-$75 million before beginning to see a return on the new digital-rights wing of the league. Now, MLBAM is reportedly pulling in approx. $450 million annually, a tidy sum for the league and its owners.

With MLB Network, there are expectations that it too will become a key revenue maker in short order. The league owns the majority of MLBN, with DirecTV and cable consortium iNDemand as minority owners. Start-up costs have reported to be in the mid-eight figures, and hopes are that MLBN will become a profitable venture in just over a year. By 2015, six-years after the channel will have been launched; projections are for revenues from subscriber and advertisement fees to reach $210 million annually. The new league channel could see additional revenues in rights fees through international distribution agreements. There is already talk of a deal where Rogers Cable would carry a repacked version of MLB Network as Baseball TV in Canada.

Factoring in MLBAM, when tied to MLBN’s revenues, by 2015 the league could see between $800-$900 million annually, an exceptionally lucrative source of revenue.

Most Revenues Do Not Head Directly to Owners

While MLBAM and MLBN translate into key revenues, it does not mean that they all pour into the owners’ pockets directly. There are, of course, bills to pay and the future to consider. Whether it is the addition of Pitch F.X. for MLB.com, or the possibility of delving into 3-D broadcasts in the future on MLBN, reinvesting in these league owned assets needs to occur to allow it to grow. MLBAM is just now starting to pay dividends to each of the owners. Over the past two years, each has reportedly received $3 million through BAM, or about the cost of the two-year deal recently brokered for Phillies pinch-hitter Joe Dobbs, with some pocket-change left over. So, directly, the revenues from BAM and MLBN don't translate into some vast stream of greenbacks with which to go free agent shopping. The real value of the two comes indirectly.

Select Read More to see the rest of this article

Both of these assets are used for matters such as league-based credit. For example, Fitch Ratings, which sets the bar for the creditworthiness of businesses around the world, recently affirmed an 'A' rating for MLB based in part on the league’s economic structure.

It is not widely reported, but the majority of the clubs in MLB borrow money against a league fund – its credit facility called the Major League Baseball Trust. Last month, the league was able to refinance most, but not all of the credit facility, which translated into $30 million in principle payments to lenders as the portion that was not refinanced turned to debt. That turned into a bill that averaged $1.5 million for 20 of the clubs this off-season, according to the SportsBusiness Journal. While one might say that the league’s economics don’t appear to be some advantage when clubs are paying $1.5 million in debt before the season starts, consider that the NFL –the most popular league in the U.S. – was unable to refinance even a portion of their credit facility this past year.

The other way to view MLBAM and MLBN is what they are worth in net value, which in turn trickles down to increase franchise value. If projections remain true, MLBN would have a net value of over $1 billion by 2015. As for MLBAM, in 2005, MLB engaged in the possibility of an initial public offer for the digital rights asset. Bank of America, Goldman Sachs, First Boston and J.P. Morgan tried in vain to get the owners to go forward with the initial public offering (IPO). After all, they had good reason to want to see it happen, as these analysts predicted the value of the IPO at the time to be $2-2.5 billion, or approx $2.7 billion in 2008 based on inflation.

So, let’s say that MLB befalls some incredible headwinds. Let’s say that in 2-3 years the country is still in the throes of a recession. The league could then offer up MLBAM and/or MLBN as an IPO and reap the benefits – the two act as a security blanket for MLB.

Could MLBN Have a Negative Influence on MLB’s Bottom Line?

While we have been talking of MLBAM and MLBN together, they are very different. MLB.com is not competing with other league revenues while MLB Network will.

In 2007, MLB negotiated national broadcast deals with both Fox and TBS. Those deals, which run through 2013, will see Fox pay baseball approximately $257 million annually, while Turner will chip in $104 million per year.

ESPN's deal was brokered in 2005. All told, MLB will receive nearly $660 million from their national broadcast partners in '09.

MLBN plans on broadcasting 26 regular season games this year, but there is already talk that they are interested in broadcasting playoff games in the future.

When the time arrives for these partnerships to be renewed, MLB Network will be a new variable in the discussions – the 800lbs gorilla in the room. It is, after all, now competing with these three partners on different levels. It is ESPN that may feel MLB Network’s presence the most. With the creation of MLB Tonight, ESPN’s Baseball Tonight will face stiff competition. Instead of fans now waiting until the late evening to watch Baseball Tonight, starting at 2pm ET, MLB Network will air throughout the day until the last west coast game is completed. One could argue that Baseball Tonights relevancy will be greatly diminished due to MLB Tonight.

If you aren’t sure that ESPN isn’t concerned about MLBN, take a look at their content. There has been no mention of MLBN’s launch, nor has there been a single link to stories on the fledgling network. It’s not by chance.

As for MLB’s other broadcast partners, Fox Sports President Ed Goren and Turner Sports President David Levy were at the MLB owners meetings this past week where they are "aiming for some structural changes within their baseball coverage, which has been beset with struggling ratings and annual complaints over the start times of postseason contests," according to Eric Fisher in Monday’s edition of the SportsBusiness Journal. While MLB Network is not part of the discussion, it does add yet one more factor when these national broadcast deals where postseason games are in play when they come up for renegotiation. As MLB Network CEO Tony Petitti said in our interview with him, “[MLB Network will] sit there like any other bidder hoping we can come up with some more.”

Does MLBAM and MLBN Help Clubs More Readily Reach Deals?

The amount in those dividend checks from MLBAM, and eventually MLBN, coming to each of the 30 owners should continue to grow, but as outlined, the amount isn’t so significant as to influence how low-revenue making clubs chase top-tier free agents. The two media based ventures do, however, bolster the league’s bottom line, which then trickles down. If continued labor peace surrounds MLB, then overall franchise valuations for each of the clubs will continue to grow, in large thanks to the investments in MLB Advanced Media and MLB Network. That, along with revenue-sharing, should incentivize clubs to work toward building winning teams without having to be wholly focused on the revenues they are making at the local level. In that sense, MLBAM and MLBN will add security for those small-to-mid markets looking to access risk in the free agency market.


Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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