Forbes released their annual Business of Baseball series yesterday. It shows by Forbes’ calculations what the value of a franchise is, the percent change from the previous year, the debt-to-value percentage, plus the revenue for each club and the operating income. Operating income is defined by Forbes as the money left before taxes, interest, and depreciation.
By their calculations, Forbes ranks the Pirates 28th in Major League Baseball with a value of $336 million. The good news is that the value increased 11% from the previous year. Forbes has the Pirates with a 38% debt-to-value percentage, which puts their debt at approximately $127 million. The Pirates had a revenue stream of $168 million and operating income of $15.9 million. Again, operating income does not imply profit.
Within the main piece, it is stated that the average value of an MLB franchise is $605 million with a revenue of $212 million, so you can see the disparity between the Pirates and the league average. Here’s how the NL Central teams compare with each other:
|Team||Value||1-Year % Change||Debt-Value %||Revenue||Operating Income|
|Chicago Cubs||$879M (4th)||14%||66%||$266M||$28.1M|
|St. Louis Cardinals||$591M (11th)||14%||47%||$233M||$25.0M|
|Houston Astros||$549M (13th)||16%||41%||$196M||$24.3M|
|Milwaukee Brewers||$448M (22nd)||19%||27%||$195M||$19.2M|
|Cincinnati Reds||$424M (24th)||13%||10%||$185M||$17.1M|
|Pittsburgh Pirates||$336M (28th)||11%||38%||$168M||$15.9M|
A few things can be interpreted from this chart above. The first is that the Chicago Cubs are truly the sleeping giant of the NL Central. Thankfully for the rest of the division the Cubs have not been well run in recent years, but once the new regime of Epstein and Hoyer clean up the shop the rest of the division could be in trouble once the Cubs bring their full resources to bear.
The second heartening note is that only 2 of the other teams (taking the soon-to-be-departing Astros out of the mix) are in the top half of teams in value, which tends to correlate to revenue. For the most part, the Brewers and Reds are in the same economic sphere as the Pirates. Coupled with the Cubs needing to do a rebuild over the next 2-3 years, it appears as if the Cardinals may be the only combination of financial strength plus present-day talent to create a sustained winner.
Forbes also highlights one of the main reasons for the rapidly increasing valuations of many franchises: local TV deals. This is something that has been written about extensively here at Pirates Prospects, but it bears repeating again. Here is what Forbes writer Mike Ozanian said within the article:
Rights fees paid by cable television channels are behind the growth in team values. Aggregate cable television revenue for baseball’s 30 teams has increased to $923 million from $328 million over the past 10 years.
The Astros’ sale last year to Jim Crane included a 45% stake in regional sports network Comcast SportsNet Houston, a joint entity between the Astros, the Rockets of the NBA, and Comcast. Starting in 2013, the entity will pay $80M in rights fees to the Astros over the next 20 years — triple what the Astros received in 2011. These regional sports networks and rights fees escalations are the reason why the Dodgers’ sale will probably top $1.5 billion dollars.
Per Forbes’ calculations, only two teams last year lost value as a franchise: The Mets (due in part to the Wilpon-Madoff fallout) and the Rays (drop in attendance and TV ratings). Three teams in the study had a negative operating income: The Mets, Angels, and Phillies. Going by Forbes’ numbers alone, it is clear why there is not as much of a hue and cry to change the operating model of MLB when the Collective Bargaining Agreements come up — everyone is making money. Compare MLB to the NHL when Forbes examined them in fall 2011. During that analysis, 18 of the 30 teams had negative operating incomes and much smaller average franchise values.
It has been said that “The Revolution Will Not Be Televised”. At least with respect to MLB, the next revolution is because of TV. We can only hope that the Pirates are not falling behind the curve.