The Forbes annual report The Business of Baseball came out yesterday. Readers here will be familiar with this report, as it is often cited, most often by me, when discussing club finances.

First the numbers: Note that the report is published as the “2020” report, but it’s covering the 2019 year end. So the year showing in these tables are the actual year, or in other words Report Year minus 1.

• Franchise Value has remained unchanged between 2018 to 2019, estimated at 129 Billion over the last two years, but has more than tripled since 2010
• Revenue only increased about 3M from 2018 to 2019, but has grown 54% since 2010
• Player Expenses (Payroll + Benefits Approx 15M) as % of Revenue fell below league avg

LAST 10 YEARS HISTORICAL DATA

ZOOMING IN ON PLAYER EXPENSES AS PERCENTAGE OF REVENUE (LEAGUE AVG USUALLY 55%)

GRAPH VIEW

HOW ACCURATE ARE FORBES NUMBERS ?

Back in 2007 when Jeff Moorad was CEO of the team I had a chance to ask him how accurate the Forbes data was in describing the financial picture. He told me that the numbers were about “80-90%” in line with reality. For me personally that was enough to justify liberal use of their reports to discuss these matters.

Much has changed in the industry since then though. One club official told me recently that the accuracy of the Forbes report was something of an industry insider joke these days. Not surprisingly he declined to open the books to me to clarify just how much those numbers might be off. That lack of transparency on the part of a private sports entertainment enterprise is understandable perhaps. And this particular official has always been pretty straight with me, so I have no reason to doubt what he said in broad terms, even if I can’t quantify it. We can surmise a few things however.

How MLB franchises derive their revenue has shifted dramatically becoming far more complex. While providing an incomplete picture, This Snapshot shows how revenue from ticket sales decreased as a percentage of overall revenue from 38.2% in 2009 to 29.8% as of 2017.

MLB Advanced Media, which provides the Internet and online streaming revenues for the clubs has grown to become one of the major sources of revenue.

Of even larger impact over the last several years many teams, including the Diamondbacks, have signed long-term local television deals with Regional Sports Networks (RSNs). In many cases these deals include ownership stakes that are not well publicized or understood. But due to factors like these it’s certainly far more complicated from an accounting perspective to estimate Franchise Values and Revenue streams from the outside looking in now than it was 15 years ago. MLB has been looking to expand this practice.

Then there is the trend towards “Entertainment Districts” such as was created in Atlanta. The complex web of public/private enterprise, and how teams derive revenue streams from those will add many layers of complexity. Ken Kendrick has been pursuing exactly this type of future for the Diamondbacks as he explores all stadium options.

Finally the Holy Grail perhaps, Sports Gambling presents yet another huge revenue stream for MLB that will add yet another level of complexity in trying to figure out the true finances of these enterprise. MLB has a dedicated Executive Vice President , Gaming and New Business Ventures. He has been a busy man. Some suggested reading in these links below:

MLB Makes MGM Resorts ‘Official Gaming Partner’ As Sports Betting Deals Proliferate

A Major Gamble: MLB Embraces Sports Betting

Supreme Court, Sports Betting and the future

As sports betting expands, MLB executive eyes prop wagering as a natural fit

All this is not to say that Forbes is incapable of adjusting their methods to estimate the numbers somewhat accurately. They are professional business reporters. They know a lot more about what they are doing than I do. But going forward, it may become even more complicated and difficult to gain the visibility they need to present highly accurate numbers. Up till now, they’ve been doing a pretty decent job. It’s interesting to note the most recent sales data from 4 franchises that have been sold over the last 8 years. If anything, they’ve been low in their estimates. One would be hard pressed to present a case that Forbes is overvaluing these businesses.

LOOKING TO THE FUTURE

Sheryl Ring wrote an interesting legal analysis of the lawsuit brought by minority owners being squeezed out by Ken Kendrick. Of particular interest, the Discovery process if the lawsuit goes to trial and is not settled:

“There are a few aspects of this lawsuit that should prove particularly intriguing........(Discovery) will nonetheless give us a rare peek into the the inner financial workings of the team. After all, there are a number of ways the lawsuit could end - with a settlement for a larger payout for the plaintiffs’ ownership interests, with a court-ordered monetary payment, or by the plaintiffs retaining their ownership interests at a court-ordered percentage. As a result, we may be able to glean some understanding of just how teams value themselves - though doubtless there will be protective orders limiting what we see.”

Then there is the elephant in the room. How the shutdown of the 2020 season due to Coronavirus Pandemic, and what the financial impacts will be are unknown. Regardless if the season restarts in some form or not surely it’s already had a huge impact on revenue. There isn’t any at all. How that impacts the league, and the Diamondbacks in particular over the long term is simply not knowable. Until the country is able to resume some sense of normal activity, MLB, indeed all sports leagues, face an uncertain future, just like the rest of the country and the world.