Tuesday, April 24, 2007

Mixing and Matching, delving into the top of the MLB Forbes List

There is a great deal more to the 2007 Forbes MLB franchise valuation list with the Yankees once again finishing at the top of the list. The Yankees cross-town neighbors the New York Mets are second on the Forbes list, followed by the Boston Red Sox, the Los Angeles Dodgers and the Chicago Cubs rounding out the top five on the Forbes list.

The Yankees who like the Mets will move into a new stadium in time for the 2009 season are valued at $736 million, nearly a $500 million behind the Yankees $1.2 billion. Forbes determined the Mets had a value of $604 million last year (remember Forbes annual valuation is based on the previous season), $505 million in 2005, $442 million in 2004, $486 million in 2003, $482 million in 2002, $454 million in 2001 and $314 million in 2000.

Contributing to the Mets growth last year according to Forbes: First up was the launch of their own regional sports network called SportsNet New York. Time Warner and Comcast received equity stakes in the network that aired 125 games in 2006. Later in the summer the Mets broke ground on their new 45,000 person stadium scheduled to open in 2009. The team is picking up 75% of the stadium's $600 million tab. In the fall, the Mets signed the richest naming rights deal in the history of sports, a 20-year, $400 million agreement that christens the new ballpark, Citi Field. In between all of this, the Mets finished tied for the best record in baseball in 2006 and drew a record 3.4 million fans to Shea Stadium. The naming rights agreement was the biggest deal in sports history.

The team warmly welcomed its newest outlet by winning its first National League title since 1988. Success on the field helped the network bring in 135% more households and achieve a 40% prime-time ratings increase over former local cable rights holder MSG. The debut of SportsNet New York was a key to the long-term growth of the Mets. It’s tough enough for Mets owner Fred Wilpon, who bought them in 2002 for $391 million to compete with George Steinbrenner and the Yankees, the Mets had to have their own televisions network as the Yankees have had since 2002 (the YES Network).

Both the New York Yankees and New York Mets made it to the post-season last year. The Yankees lost to the American League champion Detroit Tigers in the American League Divisional Series, the Mets were eliminated by the St. Louis Cardinals in the seventh game of the National League Championship series.

‘Big Apple’ Major League Baseball enjoyed its greatest single attendance year in 2006. The Yankees regular season attendance topped 4.2 million. The Yankees drew more than 4 million fans for the second consecutive season. The Mets, winners of the National League’s eastern division with 3,379,551. All told, the Yankees and the Mets sold more than 7.5 million tickets to 162 games. In 2005 the Mets and the Yankees drew a combined 6.87 million fans. The Yankees won the AL East in 2005. The Mets finished fourth in the NL East winning 83 games. New Yorkers have many choices they can make with their disposable dollars. A winning team in Flushing led to the Mets for an increase of 700,000 fans in 2006 over the 2,782,212 they drew in 2005.

But what really created shockwaves in the sports industry that directly related to the Mets in 2006 -- annual rights fees paid by Citigroup the New York based financial company is expected to be worth at least $20 million annually, be for a term of 20-years, and include an option to extend the agreement to 35-years. Over the life of the agreement, the Mets stand to generate between $400 and $650 million from the sponsorship agreement. The agreement will obliterate the $10 million annual fee Reliant Energy pays the Houston Texans to call the home of the Texans Reliant Stadium.

The Mets establishing the highest annual sponsorship fee paid to a sports team in corporate stadium/arena naming rights has to be regarded as a positive step forward for MLB. Prior to today’s agreement, only one of the top ten most valuable naming rights deals belonged to a Major League Baseball stadium naming rights agreement, the $170 million, 28-year agreement with the Houston Astros, a little more than $6 million annually.

Just behind the Mets, Forbes believes the Boston Red Sox are worth $724 million. The Boston Red Sox are owned by John Henry, Larry Lucchino and Tom Werner, who bought them in 2002 for $380 million. Henry and company also picked up Fenway Park and an 80 percent stake in the New England Sports Network as part of their purchase, pushing the total sale price to $700 million.

The Red Sox won the 2004 World Series the organizations first since the team traded Babe Ruth to the York Yankees after the 1918 season, creating the infamous “Curse of the Bambino”. More than a championship Henry, Lucchino and Werner offered Red Sox Nation what Yankees owner George Steinbrenner offered Yankees fans, an opportunity for the Yankees to win every year. But like Steinbrenner Henry, Lucchino and Werner’s effort have dramatically increased the value of the Red Sox.

John Harrington managed the Red Sox for the Yawkey Foundation before the $700 million sale after the 2001 season. Forbes determined the Red Sox financial valuation was at $284 million in 2000 and $339 million in 2001. The Red Sox value increased to $426 million in 2002, $486 million in 2003, $555 million in 2004 (the year the team won their first World Series in 86 years), $563 million in 2005, $563 million in 2005 and $617 million last year.

According to Forbes: since buying the team and 80% of the NESN cable channel in 2002, the Boston ownership team of John Henry and Tom Werner has transformed the Red Sox from a sleepy asset into a cutting-edge organization. In February the team bought a 50% stake in Nascar's Roush Racing, a move that will allow Henry to cross-market the two sports. Premium seating has been added to Fenway Park (400 standing-room seats have been converted to field box seats) and beginning this season the Red Sox will receive $16 million a year for their radio rights, a 50% increase over their previous deal.

The Fenway Sports Group (the parent company that own the Red Sox, the 80 percent share in NESN, the 50% stake in the NASCAR team and other related sports properties) has become a money-making machine.

The Red Sox will sell out their 319th game tonight when the “Old Towne Team” meet the Toronto Blue Jays to close a five game homestand. Last year the Red Sox became the first Major League Baseball team to form their own travel agency. According to a Bloomberg News report, Red Sox Destinations, operated by the Red Sox sister company Fenway Sports Group, will run trips to 11 series of games this year that the company says will generate more than $1 million in sales.

“We have sold out 309 straight games. It's a good problem to have, but we need to look for new revenue streams,” said Tim Zue, Fenway Sports Group's director of business affairs, who runs the travel company. “If you can do it yourself, you can maximize the revenue potential.”

The Red Sox ‘technically’ play in the second smallest stadium seating capacity in MLB. Only Oakland's McAfee Coliseum, with 34,077 seats, is smaller -- and that's because the team closed the upper deck due to lack of ticket sales. Fenway's capacity is 36,108.

Fenway Park may be the smallest ballpark in the MLB, but the Red Sox have demonstrated the true meaning of how the law of supply and demand works when it comes to selling tickets. The Red Sox remain the most expensive average ticket price in MLB, with an average ticket price of $47.71 in 2007 a 2.7 percent increase over their 2006 average of $46.46.

TMR’s Fan Cost Index (FCI), which estimates what it would cost a family of four to attend a sports event pegs the FCI at Fenway for the 2007 season at $313.83 an increase of 9 percent over the 2006 season FCI at $287.84. The cost of tickets increased by a modest 4.27% at Fenway last year. After winning their first World Series in 86 years, Red Sox tickets increased by 9.30% in 2005 to a league leading average ticket price of $44.56. The average ticket price for Red Sox games in 2004 was $40.77. 2003 -- $38.59. 2002 -- $39.68 (the first year under the teams’ current ownership group). According to TMR the Red Sox have had the highest average ticket price since the 1998 season. The Yankees had the highest average ticket price in 1997 -- $18.36. The Red Sox average ticket price nine years ago, in 1997 stood at $17.93.

In the last decade, the average Red Sox ticket price has increased by more then 250 percent. The ever evolving secondary ticket market had to have opened many eyes in the Red Sox front office in September. Yes the Red Sox managed to sellout their September home games, but hundreds of tickets were available at face or less then face value through the secondary ticket market. On August 17 the Red Sox were 1.5 games behind the Yankees. Two weeks later the Red Sox were 8 games behind the Yankees as August turned to September. The Red Sox where 6.5 games out of the wild card playoff spot – to Red Sox fans the season was over. The Red Sox have sold more than 2.5 million tickets for the 2007 season (the season is virtually sold out). If the Red Sox 2007 season falls by the wayside before September, it will be very interesting to see how Red Sox fans react when it comes to so willingly prepared to pay the highest ticket prices in baseball.

Fenway’s capacity for 2006 was listed at 36,109. According to ESPN.com’s MLB attendance database, the Red Sox averaged 36,182 fans per game for 2006. Using that figure, multiplied by the teams projected 81 home games (the Red Sox reschedule every rainout as a day/night doubleheader, with two separate admissions), times the Red Sox average ticket price of $47.71, the Red Sox projected ticket revenues for the 2007 season stands at an awe inspiring $139,913,623 for the season or $1,727,328 at the Fenway Cashbox. Fenway Park may have the smallest capacity of any MLB ballpark but the Red Sox generate more revenues in ticket sales than the other 29 MLB teams by a considerable margin.

Bostonian Frank McCourt did his best to buy his beloved Red Sox from the Yawkey Foundation losing to Henry and company. McCourt turned around and bought the Los Angeles Dodgers for $355 million in 2004. There are those who believe McCourt hasn’t been good for the Dodgers but results suggest otherwise.

According to Forbes: McCourt arrived in LA in 2004 with an onerous debt load from his purchase of the team, causing fans to worry the Dodgers would suffer from payroll cuts. But McCourt has kept payroll in the $100 million range and last year the team reached the playoffs for the second time in McCourt's three-year tenure. McCourt has also poured $40 million into renovating Dodger Stadium. Last year the team replaced almost every seat in the stadium and added 1,100 box seats with tables for dining and concierge service that cost as much as $150 a game. Fans like the new look as the team drew 3.8 million fans to Dodger Stadium, the highest attendance in team history.

The Dodgers increased their 2007 ticket prices by 26.9 percent following the 10.3 percent increase Dodgers fans experienced in 2006. Two years ago the 2005 average ticket price for Dodgers game stood at $18.94. Fans can look forward to paying $26.28. Is the increase of more than 35 percent in two years a market correction or price gouging? Bottom line -- the Dodgers sold 3,758,421 last year, establishing a single season Dodgers attendance record. Bottom line the Dodgers sold more than 82 percent of their available ticket inventory last year, a 3 percent increase over 2005. The Dodgers made the playoffs in 2006. Clearly in the Southern California market the Dodgers ticket price increase as significant as they may have been over the last two years appear to be a market correction, ticket prices clearly didn’t reflect how the market would react.

Forbes believes McCourt’s Dodgers are worth $632 million this year, $452 million last year, $424 million in 2005, $399 million in 2004, $449 million in 2003, $435 million in 2002, $381 million in 2001 and $325 million in 2000.

One area Forbes believes helps generate significant revenue for the Dodgers – local television revenue. Forbes estimates the Dodgers generate as much as $45 million from local media rights. Viacom-owned KCAL signed an eight-year agreement valued at $80 million with the team to become its new television home beginning with the 2006 season. (KCAL was the former home of the Angels.) Since Infinity Broadcasting, a fellow Viacom property, operates KFWB-AM, the team's radio rights holder, the two outlets are able to capitalize on cross-promotion opportunities previously unavailable in the two-team market. The irony of the Dodgers improving bottom line and the organizations growth in local media sales – Rupert Murdoch who sold the Dodgers to McCourt (and owns the Fox Network and the Fox regional sports network(s) couldn’t make economic sense out of owning a MLB team).

If the Barry Bonds saga will grab the attention of baseball fans throughout the 2007 season, the sale of the Chicago Cubs promises to be one of the bigger sports business stories.

Earlier this month, the Tribune Company announced that the Tribune’s board had agreed to accept a revised $34-a-share proposal from Chicago real estate magnate Sam Zell to buy out the company's public shares in a complex, $8.2 billion transaction structured around an employee stock ownership plan, or ESOP. However (and here’s the sports angle to this mega deal) to help fund the agreement, Tribune said it would sell the Chicago Cubs and its 25 percent stake in local cable channel Comcast SportsNet Chicago after the 2007 season.

It’s rare a sports franchise as iconic as the Chicago Cubs are put on the market. The last baseball franchise with as much “panache” as the Cubs being put up for sale was when John Harrington the trustee for the Yawkey Foundation placed a for sale sign on the Boston Red Sox. In 2002, the Red Sox sold for a MLB record $700 million, a price that included an 80% stake in NESN, the cable channel that airs the team's games. It’s important in understanding the value of the Red Sox; John Henry purchased the team, Fenway Park and revenue generating NESN.

Before the sale to Zell, the Tribune’s company’s assets directly related to companies baseball operation included: the Cubs, Wrigley Field, WGN, WGN Radio and a 25 percent interest in broadcast partner Comcast SportsNet Chicago. While any actual sale of the Cubs is months away, confusion was the order of the day in terms of what actually would be offered along with the Cubs earlier this month. A report in the Chicago Tribune on April 4 suggested Zell has every intention of keeping both WGN and WGN Radio, and another report in the Tribune (the company that has been sold) notes nowhere has it been said Wrigley Field will be a part of any package that includes the Cubs.

If the Tribune company had decided to package the Cubs, Wrigley Field, WGN, WGN Radio and Comcast SportsNet Chicago as a package, those five properties packaged together could have sold for as much as $2 billion, at the very least for $1.5 billion. The Cubs sold on their own (with Wrigley Field) might sell for between $500 and $700 million.

Without Wrigley Field, the new Cubs owner would be forced to pay rent for Wrigley Field and could easily be held hostage by whoever owns Wrigley Field. As attractive as owning the Cubs maybe to a select group of people, if the new owners of the Cubs have to answer to the owners of Wrigley Field it would be nonsensical for anyone to purchase the Cubs – it would be a terrible decision.

Noted sports economist Andrew Zimbalist told The Tribune Tuesday, establishing what the Cubs can be sold for will be easier said than done.

"Unless you know where the revenue streams are and how long they last, you really can't tell what the Cubs are really worth," Zimbalist said.

Robert Caporale of Game Plan, a Boston sports investment firm, told The Los Angeles Times in November he believed, the Cubs could sell for "even more than what the Red Sox and NESN fetched."

Despite Caporale’s belief the Cubs could sell for more than the Red Sox did, that makes little if any sense. The $700 million John Henry’s group paid for the Red Sox included NESN. Cubs’ games are televised on WGN and the radio rights holder is WGN Radio and neither of those key media properties will be included in whatever price the Cubs are sold for.

Regardless the Tribune Company will experience an amazing return on their initial investment in the Cubs. The Tribune purchased the Cubs for $20.5 million in 1981. Its reasonable to assume the Cubs (with or without Wrigley Field) will sell for at least $500 million once the 25 percent stake in Comcast SportsNet Chicago is factored in.

Forbes believes the Cubs have a value of $592 million, $445 million last year, $398 in 2005, $356 in 2004, $335 million in 2003, $267 million in 2002, $247 million in 2001 and $242 million in 2000.

As Forbes noted in their report: the Cubs went on an unprecedented spending spree this winter after finishing with a National League high 96 losses in 2006. The team committed nearly $300 million in new contracts in an attempt to bring Wrigleyville its first World Series title since 1908. The biggest contract was an 8-year, $136 million deal with outfielder Alfonso Soriano. To help pay for such largesse, the team has been signing up corporate sponsors at Wrigley which for years was ad free. Last year the team signed a deal to dub Wrigley's famed bleachers the Bud Light Bleachers. This year, the Cubs became the last baseball team to have advertising on its outfield wall when it announced a deal with Under Amour.

The Cubs haven’t won a World Series in 103 years, but that hasn’t stopped the Tribune Company from creating their own version of the Red Sox law of ticket supply and demand. Wrigley Field seats 41,160 one of the smaller stadium capacities in MLB. The Cubs sold 3,123,215 tickets, averaging 39,040 at Wrigley Field or 94.9 percent capacity last year. The Cubs average ticket price for 2007 stands at $34.30 the same price the second priciest MLB tickets where in 2006.

Forbes believes the Cubs generate as much as $42 million annually from local media sales.

The Cubs are the only team whose local rights are held by media outlets owned (WGN television and radio) or co-owned (Comcast Sports Net) by its parent, Tribune, making them an interesting value proposition for the next owner. How the media rights factor into the package the Tribune Company puts in the marketplace will determine how much the Cubs will be sold for.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: Forbes Magazine’s Business of Baseball Report.

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