From: SportsMoney By Mike Ozanian @ Forbes - Friday Mar 26, 2021 01:03 pm
Forbes Newsletters
March 26, 2021
THE BIG TAKE
In our new MLB team valuations—the full list of which is set to be published on Forbes.com on March 29—the Yankees rank first at $5.25 billion and the Mets sixth at $2.45 billion. Therein lies the opportunity for Steve Cohen, who bought the Mets for $2.42 billion in October: The value of his team should be closer to the value of the Yankees. The clubs play in the same market, and both moved into new ballparks in 2009.
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National television money is split evenly among all 30 MLB teams, and the Mets’ cable deal with SportsNet New York runs through 2030. To close the gap with the Yankees, Cohen must increase the team’s gate and sponsorship revenues. That means putting a better product on the field. Excluding the 2020 pandemic season, the Yankees’ average attendance since 2009 has been 3.4 million per year while the Mets have averaged 2.46 million.
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As can be seen in the above chart, the seasons in which the teams play well produce higher gate revenues. Another benefit of better on-field play is the possibility of raising ticket prices: Fans are more likely to pay more for a ticket to watch a team in contention. The Yankees’ average ticket price from 2009 to 2019, during which they averaged 93 wins a season, was about $63; the Mets’ average ticket price over the same timespan, during which they averaged 78 wins, was roughly $27.

Cohen needs to sign Francisco Lindor, a great player in his prime at a crucial position, to a contract extension. Another shortstop, Fernando Tatis Jr., recently signed a 14-year, $340 million deal with the Padres, and the Mets should give Lindor a comparable deal because it would likely improve the team’s value.

In addition, although it is not included in the chart, there is an opportunity for increased gate revenues if the club makes the playoffs. In 2015, the last time the Mets had a deep postseason run, the organization brought in an additional $17 million in gate revenue for its playoff games. And like fans, sponsors are more likely to flock to, and pay more to advertise with, teams that have a better on-field product.

LITTLE DITTIES
NAME RECOGNITION MATTERS TO RED SOX
Despite the bite the pandemic has taken out of revenue, the market remains hot for sports teams with big brands. A prime example: RedBird Capital’s pending purchase of an 11% stake in Fenway Sports Group. It has been reported that the deal values FSG at $7.3 billion—but that is based on a non-controlling stake. It is safe to assume that there would be a control premium of about 20% to 40% above that investment price.

FSG owns the Red Sox, Liverpool FC, New England Sports Network (80%), Roush Fenway Racing (50%), Fenway Sports Management and some real estate. The Red Sox and Liverpool are enormously valuable brands: The Red Sox are among a handful of baseball teams with national appeal, and Liverpool has global fan support. For our new MLB valuations, we calculated the Red Sox’ brand value at $335 million. The only baseball teams with higher brand values are the Yankees ($1.05 billion), the Mets ($451 million) and the Dodgers ($420 million). When we last valued soccer teams, in 2019, Liverpool had a brand value of $205 million, seventh-highest among soccer teams, behind Real Madrid ($725 million), Barcelona ($465 million), Manchester United ($444 million), Bayern Munich ($392 million), Manchester City ($310 million) and Chelsea ($259 million). Brand values measure name recognition that goes beyond the current revenue being generated by a team. RedBird Capital clearly recognized that in its valuation of FSG.

TV DEAL WEIGHS DOWN MARLINS’ VALUATION
When Jeffrey Loria was shopping the Marlins in 2017, the club’s future CEO, Derek Jeter, circulated to potential investors a document called Project Wolverine—which I have a copy of—detailing the team’s past and projected revenue, expenses and enterprise value. The document predicted the value of the Marlins would increase from $1.27 billion in 2017 to $2.07 billion in 2021 based on a consistent revenue multiple of 6.5.

In September 2017, a group that was led by Bruce Sherman and featured Jeter bought the Marlins for $1.2 billion. But in our MLB valuations being published Monday, we value the Marlins at $990 million. Main reason: the Marlins’ inability to get a local television deal as lucrative as Project Wolverine projected. The document predicted the team’s cable television and local radio revenue would increase from an MLB-low $20 million in 2020 (the last year of the agreement that was in place with Fox Sports Florida) to $51 million in 2021. According to the document, the team’s radio revenue for 2020 was $1.67 million, and it was projected to stay at that amount until at least 2027. So the kind of increase the document forecast would have to come on the TV side.

In August 2019, Fox Sports Florida, along with 20 other Fox regional sports networks, was acquired by Sinclair Broadcast Group. The Marlins would not share any financial information on the team’s deal with Fox Sports Florida—which is being rebranded as Bally Sports Florida—but two sports bankers and one MLB executive told me that the Marlins were having problems getting a new cable deal done and that MLB had to intercede to make sure an agreement was in place for this season. They also said the amount the Marlins are getting for their TV rights this season is not good. To make matters worse, the Marlins are one of a handful of MLB teams that do not have a naming rights deal for their ballpark. It was anticipated at the time Sherman bought the team that one would be coming, and would be worth at least $5 million a year to the Marlins. But so far, nothing, which is why our valuation is well below the $1.2 billion purchase price.

CABLE KINGS
During the 2020 MLB season, when stadiums were devoid of spectators, local television deals had a bigger impact than usual on revenue, which is why the deals are a driving force in the pecking order of our baseball team valuations. Moreover, while local television revenue is normally included in the pot of money that high-revenue teams give to low-revenue teams (as per baseball’s collective bargaining agreement), there was no revenue sharing in 2020.

The 2020 MLB schedule was reduced to 60 games, or 37% of the 162-game schedule, but regional sports networks paid out a little over 40% of their scheduled rights fees to teams. Here is how much the top five took in.

DIAMONDBACKS SWAP CABLE EQUITY FOR TEAM EQUITY
During the past 15 years, the Diamondbacks have eliminated more than $350 million of debt (mostly tied to deferred player contracts and their ballpark) through equity and debt restructurings. Most recently, the team cut its debt to $100 million, from $175 million, by selling the equity stake in Fox Sports Arizona it got as part of the 20-year, $1.5 billion cable agreement it inked with the network before the 2016 season. Fox Sports Arizona was purchased by Sinclair Broadcast Group in 2019 and is being rebranded as Bally Sports Arizona.
SNYDER HAS GOODELL TO THANK
Dan Snyder, who currently owns 59.5% of the Washington Football Team, is on the verge of buying out his three limited partners at a discount. Snyder is going to pay about $900 million (the final price has not been set) for the remaining 40.5% of the team, implying an enterprise value of about $2.6 billion, including $300 million to $350 million of existing debt; contrast that with the $3.5 billion valuation we put on the team in September. The gap is not quite so glaring when you take into account that non-control stakes in teams usually go at a discount of 25% or so, but one team owner told me that after the NFL completes data and sports betting deals and renews a sponsorship deal with Verizon—to go along with its recent media deal renewals—Snyder would be able to sell the team for at least $4 billion. A prominent sports banker told me the same thing. Still, despite that upside, Snyder initially did not want to buy out his limited partners, an NFL executive familiar with the deal told me; NFL commissioner Roger Goodell pushed for the deal to quash the ugly legal battle between the two sides that has rocked the franchise.
AS NFL RE-UPS WITH BROADCASTERS, DON’T FORGET VERIZON
Lost in the news of the NFL’s $113 billion bounty from its new media rights deals with CBS, NBC, ESPN/ABC, Fox and Amazon is the league’s mobile deal with Verizon. In December 2017, the NFL signed a five-year deal that gave Verizon the right to stream in-market and national NFL games via digital and mobile platforms, starting with the postseason in January 2018. The deal was worth about $500 million per year to the league—double what Verizon was paying under its existing four-year deal. Verizon got the right to sell advertising within the games that it streams on mobile, which include in-market games on Thursdays, Sunday afternoons, Sunday nights and Monday nights. (DirecTV, owned by AT&T, has the rights for all out-of-market games on Sundays.) The NFL counts this agreement as a sponsorship deal, not a media deal, but it is really a combination of both. NFL insiders say that Verizon wants to stay with the NFL and that the next deal might double in value again.
QUOTE OF THE WEEK
Why are sports rights fees still increasing, especially for the NFL? S&P Global Ratings gave the best answer on Tuesday when it issued a report on the NFL’s new $113 billion media rights agreements, summarizing its feelings about the deals for the networks like this: “Given secular changes in U.S. television and uncertainty over what the TV ecosystem will look like in 2034, the long-term ratings impact is difficult to predict. Sill, we believe the long-term impact of these wins on the credit quality of the incumbent media companies is likely negative. The rights-fee increases that the winners will be paying over the next 11 years is staggering, even though they aren't implemented on Day 1. While the new contracts provide the networks greater flexibility and a path to generate additional revenues, we are skeptical that revenue growth will match cost growth. Therefore, we believe the increasing costs over the contracts’ lifetimes will likely weaken cash flows and hurt credit metrics beginning in 2023, when the new contracts start. Still, we believe not having the key NFL broadcast rights holds greater long-term risks to the incumbent media companies’ U.S. TV businesses than overpaying and weakening credit measures.” In other words, the networks are damned if they do but are really damned if they don’t because the pace of cord-cutting would accelerate.
hello world
Mike Ozanian
Assistant Managing Editor
I'm the assistant managing editor for SportsMoney at Forbes Media and the managing editor and cohost of the Forbes SportsMoney TV show on the YES Network. I've been compiling valuations for professional sports teams for three decades.
You can follow me on Twitter @MikeOzanian.
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