Yesterday, Forbes magazine released its annual valuation of the 30 franchises, with the outlook for MLB in the overall looking extremely robust. As Michael K. Ozanian reports

Team values increased an average of 15 percent for the second consecutive year, to $376 million, in our 2006 survey of Major League Baseball’s 30 franchises. Overall operating income increased to $360 million ($12.1 million per team) from $132 million ($4.4 million per team) the previous year, as revenue increased faster than player salaries.

“Faster than player salaries…” well, there’s something I’m certain the MLBPA will want to talk about in December.

There’s a lot to the Forbes valuations, so let’s hit some key points.

The franchise that increased the most in value? The Washington Nationals by a staggering 42% increase from the year prior (although this is a substantial increase, it pales when compared to the 114% increase in value when the club moved from Montreal to DC). Let’s put this in further perspective. Below is the Forbes value of the Expos/Nationals since MLB purchased the club in 2002:

What has increased the value so dramatically has been the finalization of the lease and funding for a new stadium in the Near SE area of DC. This shift also outlines a key component of the relocation of the Expos to DC: MLB’s intent to shift a franchise from a revenue taker to a revenue payor in the system.

What has been truly amazing has been the impact of revenue sharing on the NY Yankees. The Bombers paid a whopping $77 million into the revenue sharing program, which is currently set at 34% of Net Local Income (Forbes runs a good compainion article on how New Yankee Stadium will work as a revenue sharing tax shelter). How has this impacted those that are benefiting from the system?

Let’s look at the bottom values from last year

Now look at the bottom 10 for the League this year:

What’s key? 5 of the biggest gainers from last year are those that are/have been the lowest in value. The Blue Jays, Royals, A’s, Tigers, Twins, and DRays all posted gains within the top 10. (The A’s and Royals gained more than 20%) Why?… Revenue sharing.

Who’s kicking in the most? Why George Steinbrenner, who else? He now has the distinction of owning the first club valued at over $1 billion!

Here are the top 10 clubs ranked by value

The Yankees kick in an eye popping $77 million into the revenue sharing system, followed by the Red Sox at $55 million. This has impacted the operating income of those teams at the upper levels of the valuation chart.

The Yankees posted -$50 million losses, while the Red Sox posted an -$18.5 million loss. Since clubs are not all pouring money back into player payroll (something that has been noted by Donald Fehr and the Players Association), what we’ve got are clubs living on welfare… the Pirates, Royals, and DRays all posted $20 million profits.

As for where all the revenues are coming from…

The supporting article in Forbes outlines that 27% of all merchandise sold in MLB is Yankees gear. Those revenues are equally dispersed amongst the 30 clubs.

What’s interesting is what was not mentioned in the article…

A key revenue source that has steadily increased has been those flowing in from MLB Advanced Media (MLBAM), shown to be $300 million for last year alone, and more than doubling from two years ago. (MLBAM revenues are dispersed equally amongst the 30 clubs). It has been reported to me, however, that while these streams up rising a considerable rate, they are being re-funneled back into MLBAM — reinvesting, as opposed to profit taking.
Revenue for MLB Enterprise Revenue was $290 million for 2005, and is projected to increase to $300 million by 2006. Media revenue alone has more than doubled from 1999 due to cable and other new media sources to $814 million league-wide (source Sports Business Journal).

In that sense, the article somewhat portrays MLB as loaded with no more than a welfare system. While the revenue sharing component should not be minimized, there are several other components involved in the increases in revenues that need to be taken into account to paint a broader picture of how MLB is functioning financially.

And how are they doing?

As the Forbes valuations and supporting data show, MLB is doing quite well, thanks. There is one issue outstanding on the horizon that needs to be addressed… the $2.5 billion MLB broadcast deal with FOX expires at the end of the season, and so far, FOX has not been interested in renewing the deal, opting instead, they say, for playoff, World Series, and All-Star game choices. As the end of the season approaches, MLB is losing leverage to negotiate a solid deal. This might be the only blemish at this point on MLB’s increasingly impressive ledger.

Supporting Articles:

• LA Times: Angels Increase in Value
• AP: Yankees first team to top $1 billion in Forbes valuation
• AP: Baseball says Forbes figures misstate finances

UPDATE: Statement From Robert D. Manfred, Jr., Executive Vice President, Labor Relations & Human Resources:

Forbes has never had access to financial information from Major League Baseball or the individual Clubs. The estimates published in the current issue of the magazine materially misstate the financial performance of the industry as a whole and of the individual Clubs.

This entry was posted on Friday, April 21st, 2006 at 5:48 am and is filed under Baseball Insight. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.