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Updated as of the release of Forbes 2020 revenue estimates on April 8, 2021.

Provided below is a graphical illustration of total player compensation (in terms of year over year growth and percentage of industry net revenue) segmented by CBA iteration and presiding MLBPA executive director.

Also presented are two interactive charts displaying how much each Major League Baseball team has spent on players relative to their annual revenue, as estimated by Forbes. To display or hide an individual team in the chart at the top, click on the circle icon next to each name. To display or hide a specific period in the chart at the bottom, click on the circle icon next to each year.

MLB Player Compensation vs. League Revenue

Notes: Data Labels represent “year over year comp growth / total comp as percentage of net revenue”. Revenue is net of stadium debt service. Total compensation is actual payroll + player benefit costs + players’ share of the postseason revenue pool. For pre-2015, benefit costs were determined by working backward from the known 2015 amount and assuming a 4% growth rate (CBA calls for increases up to 10%).

Source: MLB releases published by AP (actual payroll), baseball-almanac (postseason revenue) and Forbes (net revenue)

Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue, 2001, 2003-2020

Note: Revenue is net of revenue sharing and stadium debt service. Payroll costs excludes benefits, but include luxury tax payments, and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

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Major League Baseball had enjoyed uninterrupted financial growth extending all the way back to the dot.com bubble and 9/11, but then a global pandemic hit. Even a healthy business like baseball proved no match for Covid-19, as the sport saw revenue plummet by nearly 70% and EBITDA turn from a $1.5 billion profit into a loss of an even greater amount.

MLB Financial Snapshot, 2003-2020

Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com

According to Forbes’ latest dive into baseball’s finances, the league lost a combined $1.8 billion on revenue of less than $3.3 billion, the lowest level since 2001. The COVID impact was felt by all teams, but high revenue clubs took the biggest hit, even though the league suspended its revenue sharing scheme. Among the biggest losers were the Dodgers, Mets, Red Sox and Cubs, but no team took it on the chin worse than the Yankees. The Bronx Bombers saw net revenue fall by more than 80% to just over $100 million, putting them in the almost unthinkable position of being one of the league’s lowest earning teams. Of course, it should be noted that Forbes reports revenue net of the team’s approximately $80 million payment in lieu of taxes (PILOT) to service its Yankee Stadium debt. Without that deduction, the team’s revenue would have still ranked first. Nonetheless, the Yankees saw a drastic decline in both revenue and profit.

So, does the grim reality of last year’s finances justify the frugal approach that most teams, including the Yankees, took this offseason? Not so fast. Perhaps the most important finding in the Forbes survey was that despite the massive impact that COVID had on business operations, the enterprise value of the combined league still increased by 3%, led, of course, by the Yankees, which Forbes now values at a staggering $5.25 billion. In other words, the Yankees more than recouped their operating loss with the estimated increase in franchise value, and so did just about every other team.

Estimated MLB Team Valuations: Forbes vs. Sportico

Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com
, Sportico.com

Despite all the red ink, this latest Forbes’ report is perhaps the most impressive because it reveals how resilient each franchise has become, and that’s without considering how strongly leveraged the sport is to other high growth industries like media and technology. After all, the Forbes report does not consider related business interests, such as ownership in RSNs. However, another analysis conducted by Sportico, did take into account team-related businesses and real-estate holdings, leading to a league-wide franchise value of over $66 billion. With almost $10 billion of business value in excess of that which is contributed by team operations, it’s easy to see why even substantial losses in one season should not be used as a barometer for the sport’s financial health. Or, as one financier quoted in the Sportico report put it, “I think there is a better chance of the New York Yankees being here in 50 years than Apple being around in 50 years“.

“I think there is a better chance of the New York Yankees being here in 50 years than Apple being around in 50 years.”

– Anonymous sports financier

As MLB emerges from the pandemic, its business outlook is strong. National and local TV rights fees continue to rise; sponsorships remain strong and new partners continue to emerge; technology-driven endeavors like Major League Baseball Advanced Media remain lucrative; and the value of investments in related businesses, such as Fanatics, are increasing exponentially, while new opportunities continue to emerge. Unfortunately, you wouldn’t know that if you listened to the game’s owners, who never miss an opportunity to bemoan their losses. Normally, the owners’ cries of poverty could be dismissed as inane hyperbole, but, in the age of COVID, they carry more weight.

Baseball is not alone among businesses that are attempting to take advantage of the short-term impact of COVID to implement long-term “cost rationalization”. For baseball owners, that means parlaying COVID sentiment into lower payrolls that will persist long after the revenue impact has dissipated. If teams are successful in making these cost savings permanent, the operating losses incurred in 2020 will pale in comparison to the incremental profit earned going forward. That’s what makes the upcoming CBA negotiations so pivotal (and a work stoppage almost inevitable). Forcing the players to strike or invoking a lockout would clearly come with great risk, but if owners can get the MLBPA to crumble, the reward will be even greater. What a shame it would be if MLB survived the pandemic only to succumb to the greed of its owners.

Footnotes

Forbes Methodology:

Our team values are enterprise values (equity plus net debt) calculated using a multiple of revenue. The multiples are based on historical transactions and the future economics of the sport and team. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2019 season.

Our figures include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. Ownership stakes in regional sports networks, as well as related profits or losses, were excluded from our valuations and operating results. Sources include sports bankers, public documents like leases and filings related to public bonds and media rights.

In addition to team-specific net revenue figures, for 2019, Forbes also estimated total gross revenue at $10.5 billion, broken down as follows: gate receipts: $3.2 billion; central revenue: $3.1 billion; local media: $2.2 billion; sponsorships: $1.1 billion; and other stadium revenue: $925 million.

Forbes uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measurement of operating income. Although usually defined as EBIT, Forbes not only adds back interest and taxes, but depreciation and amortization expenses as well. As a result, Forbes operating profit can appear higher than stated figures.

See here for Sportico’s Methodology.

It’s been nearly a year since most players took the field in front of living, breathing fans, and, not surprisingly, many found the experience to be a refreshing semblance of normalcy. But, what about the fans themselves? With pandemic-related concerns still lingering, are people actually ready to be taken out with the (possibly infected) crowd?

At the start of the exhibition season, all teams have been granted approval to admit fans at varying percentages of capacity based on state and local guidelines. In terms of available seats, the Cubs will allow the most fans through the turnstiles at 3,630, while the Yankees and Twins are pushing the furthest limit by extending capacity to 28%. At the other end of the spectrum, the Giants will only be admitting up to 1,000 fans per game, or about 9% capacity.

On average, spring training ballparks will admit around 2,000 fans per game, or roughly 21% of available seats. Will this limited supply be sufficient to meet demand, or will Covid fears keep even more seats empty?

If the first game is an indicator, fans appear eager to return to the ballpark. For the 14 games played on February 28, average utilization was over 94%, including seven teams above 99%. The lowest level of capacity recorded was 82.4% at the spring home of the Cardinals, though it’s worth noting that was nearly the same percentage that attended the team’s first exhibition game at Roger Dean Chevrolet Stadium in 2020.

Though one game does not a trend make, MLB teams should be encouraged by the initial attendance figures. Covid will probably have some dampening effect into the foreseeable future, but it’s becoming increasingly evident that fans are ready to head back to the ballpark. The big questions, of course, are how soon and to what degree will state and local governments allow them to root, root, root for the home team?

(This updated post was originally published on February 16, 2011, and has since been updated before each season)

For over 25 years, Tampa has been the Yankees’ spring training home, but it still seems like just yesterday when the team’s camp was located down the coast in Ft. Lauderdale. I am sure most fans who grew up in the 1970s and 1980s still reflexively harken back to those days of yore, while the real old timers’ memories take them all the way back to St. Petersburg, where Yankees’ legends from Ruth to Mantle toiled under the Florida sun.

Over the years, spring training has evolved significantly. Once upon a time, it was a pre-season retreat designed to help out-of-shape ballplayers shed the pounds added over the winter. In the early part of the last century, before even reporting to camp, players would often attend spas in places like Hot Springs, where they would purge their bodies of the iniquities from the offseason. Then, games would either be played among split squads (in the old days, the camps would be split into teams of veterans and hopeful rookies, the latter often called Yannigans) or against local minor league and college ball clubs. Finally, the teams would barnstorm their way back up north before finally kicking off the regular season.

Today, spring training is more big business than quaint tradition. Thanks to the growing competition between cities in Arizona and Florida (each state now hosts 15 major league clubs), teams have been able to extract sweetheart stadium deals, allowing them to turn the exhibition season into a significant profit center. Still, at the heart of spring training is hope and renewal as teams begin the long journey that is the baseball season.

The Yankees’ spring history has been a journey all its own. Below is an outline of some significant mileposts along the way.

Yankees’ Spring Training Homes Since 1901

 

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The MLBPA is expected to consider a proposal by baseball owners that would begin the 2020 season in July, but there could be fireworks long before Opening Day. Although “who plays where” is the question on the minds of most fans, the players and owners seem more concerned about answering “who gets what”? So, before a pitch is thrown, both sides will need to settle a brewing financial dispute that could be the first salvo in next year’s collective bargaining war.

Hypothetical Model of MLB Revenue and Expenses (82 games played without fans)

Based on some back of the envelope math, MLB owners stand to lose about $1.6 billion if 82 games are played without fans in attendance, which would more than wipe out the cumulative operating profit earned by the league in 2019. In an effort to mitigate this financial burden, the owners have incorporated a revenue sharing plan into their proposal. According to reports, players would be guaranteed 50% of all revenue, including the post season, and each contract would be paid proportionally.  Needless to say, the initial response from the union has not been welcoming.

Using last year’s estimates from Forbes, and reapplying the same assumptions outlined above, a 50% revenue sharing agreement would effectively amount to a 41% pay cut for the players. Essentially, the plan would shift two-thirds of the owners’ projected loss to the players, allowing the teams to lower their operating loss to around $600 million. It would also allow the owners to benefit fully from slashing other expenses. In fact, by cutting all non-payroll expenses by 30% (some of which would come naturally as a result of not hosting fans and having limited travel), MLB teams could actually turn a profit if the players agreed to such a drastic reduction in their compensation.

Effective Payroll Reduction Due to 50/50 Revenue Sharing Arrangement and Potential Profit from Overall Reduction of Expenses

Another reason why the MLBPA would be well advised to avoid a revenue sharing arrangement is because of how difficult it would be to determine eligible revenue and make sure teams did not manipulate the process. For example, if team-owned RSN revenues were exempt (as they currently are under MLB’s revenue sharing program), clubs could effectively shelter income from the players by offering rebates on rights fees. Considering the lack of trust between the two parties, coming up with a verifiable and enforceable revenue sharing agreement doesn’t seem possible at all, much less on short notice.

So, does that mean the players should reject the owners’ request for a concession out of hand? Unfortunately, the situation requires a more practical response than a stand on principle. After all, if forced to choose between losing $1.6 billion and not playing the season, the owners might opt for the latter, in which case, the players would take a much bigger financial hit. Not only would they collective forfeit well over $2 billion in compensation, players would also irrecoverably lose a year of earnings potential. Meanwhile, the owners would limit their losses and likely recover any lost enterprise value somewhere down the road.

Clearly, teams are facing a real financial burden, so it makes sense for the MLBPA to consider offering a reasonable financial concession. One potential solution could be a deferral. Instead of forfeiting salary, players could help teams free up cash flow by deferring 30% of their salaries over a defined period. For example, 50% could be payable in 2021, followed by 25% in each of the next two years, with these latter amounts adjusted for inflation. This framework would ease the burden on teams during the crunch, while ensuring players would be made whole once the crisis subsided.

Another alternative would be a straight cut of a more modest amount, perhaps 10%, with a revenue-sharing based bonus pool. Under this set up, players would know their minimum salary before playing a game and also leave themselves the potential to earn more should the league generate higher than expected revenue. From the owners’ perspective, they would get a needed immediate reduction in expenses without the obligation of future remuneration.

Getting the owners and players on the same page will likely be difficult, but even if both sides eventually come to an agreement, MLB will still have more financial restructuring to do, and, the result could be a revenue sharing agreement among teams that sees money flow from small markets to higher revenue clubs.

Source: Forbes (revenue data), capitainsblog.info (calculations)

The cause of this unorthodox imbalance stems from the disproportionate levels of local revenue earned by each team as well as the widely variable percentages of that amount derived from stadium sources. As a result of this disparity, which ranges from the Red Sox at 71% to the Marlins at 21%, as well as the large differences in team payrolls, five of the largest market teams would be in the red before even considering non-payroll expenses. To share the burden, it is likely that MLB will not only have to suspend its current revenue sharing scheme, but perhaps implement a new one that transfers money to perennial payors like the Red Sox, Giants and Cubs.

Source: Forbes (revenue data), MLB (payrolls), capitainsblog.info (calculations)

Even before the pandemic upended the sport, baseball was headed for a contentious round of collective bargaining, but now, with recriminations flying from all corners, the path to labor peace seems a lot more treacherous. In the coming days, as they grapple with how best to salvage the season, players and owners will take the first step on that road. If they can resolve their differences amicably, the goodwill created could pay long-term dividends. However, if the two sides remain at a stalemate, or begrudgingly come to an acrimonious compromise, shortened seasons could become the new normal for baseball.

Trumpeting Major League Baseball’s financial health may not seem wise, or appropriate, in the midst of a pandemic that has shuttered the game and brought the entire country to a halt. However, the business of baseball has been very strong in the recent past, and that’s a very important thing to consider at a time when the game faces such an uncertain future.

MLB Financial Snapshot, 2003-2019

Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com

According to the latest Forbes survey, MLB teams continued to enjoy stable revenue and enterprise value growth in 2019, with each up mid-single digits over the past three years. However, where MLB really hit a home run was with EBITDA. According to Forbes, nearly 65% of incremental revenue flowed straight to operating profit, boosting the sport’s margin to 14.5%, the highest it has been since Forbes started doing its annual survey. The increase in EBITDA margin extended a recent acceleration that has been fueled in large part by cost control (i.e., a slower rate of growth in player salaries). With the top line maintaining a steady growth trajectory and costs leveling off, team coffers have been filling up. That’s not a bad way to head into a year that promises immense business disruption.

MLB EBITDA Margin, 2001, 2003-2019

Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com

Although league-wide net revenue was up 5% for the third straight year, some teams benefitted more than others. Six teams enjoyed a double-digit revenue boost, led by the Tampa Rays (thanks to a new cable TV deal), whose top line increased by 16%. At the lower end of the spectrum, five teams either recorded flat revenue or a slight decline, with the Giants seeing the biggest drop at -2%. Also of note, the league’s three highest revenue teams all saw very modest growth gains, perhaps suggesting saturation (as well as the absence of significant post season revenue).

Growth on the bottom line was also broad-based, as all but seven teams recorded a higher EBITDA than the year before. Even the hapless Baltimore Orioles joined the party by parlaying 108 losses into a whopping EBITDA increase of $63 million. Tanking clearly has its advantages. Meanwhile, the New York Mets, who were somewhat aggressive during the off season, suffered the opposite fate. The team’s EBITDA declined by $23 million, leaving it with the second lowest operating profit in the league, ahead of only the Miami Marlins, who recorded the game’s only operating loss.

In terms of enterprise value, the trend remained up, but much more muted than in the recent past. As a whole, league enterprise value increased 4% in 2019, the lowest level in 10 years. Still, nearly every team’s trajectory remained positive, with only the Pirates and Marlins suffering small declines. Topping the list was the Yankees, who recorded the league’s highest enterprise value growth for the second straight year. According to Forbes, the team’s 9% jump to $5 billion makes the Yankees the world’s second most valuable sports franchise, trailing only the Dallas Cowboys.

Top-5 and Bottom-5 Teams by Valuation, Net Revenue, EBITDA – 2019

Note: See below for relevant footnotes pertaining to financial metrics
Source: Forbes.com

As mentioned above, contributing to the league’s healthy operating profit were flat payrolls.  For the second year in a row, and only the second time since at least 2001, owners kept more than half of the game’s revenue. Thanks to stagnant compensation (salaries, benefits, and postseason awards), the players’ share of the revenue pie in 2019 dipped to only 46%. This trend had been expected to reverse thanks to increased spending in the winter, but with the status of the season in doubt and the impact on revenue and salaries unknown, the relative share in 2020 remains a big question mark.

MLB Player Compensation vs. League Revenue

Notes: Data Labels represent “year over year comp growth / total comp as percentage of net revenue”. Revenue is net of stadium debt service. Total compensation is actual payroll + player benefit costs + players’ share of the postseason revenue pool. For pre-2015, benefit costs were determined by working backward from the known 2015 amount and assuming a 4% growth rate (CBA calls for increases up to 10%).

Source: MLB releases published by AP (actual payroll), baseball-almanac (postseason revenue) and Forbes (net revenue)

In addition to the player’s overall share contracting, so too has the disparity between teams, at least on the high end. In 2019, the Washington Nationals posted the highest percentage of revenue spent on players, but at only 55%. In past years, the top spending team could be expected to spend anywhere from 70% to 90%, but now, the scale has shifted lower. As a result, one-third of the league now spends less than 40% of revenue on player costs, including mega-market teams like the Yankees and Dodgers, who hovered around only 35% in 2019.

2019 Discretionary Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams

Note: Red shading indicates NL teams; Green shading represents AL teams.
Note: See below for relevant footnotes pertaining to financial metrics.

Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

Despite MLB’s strong position, the fallout from the COVID-19 pandemic is likely to take a significant toll on the game’s financial health. The degree of the impact will be based on how much of the season can be played, and what percentage of those games take place in front of paying customers. According to Forbes, gate receipts accounted for about 30% of 2019 revenue, or about $3.2 billion, so if a substantial portion of the season is played in front of empty seats, MLB’s robust margins could be sliced razor thin. Luckily, other sources of revenue, including sponsorships and local/national media rights, appear more resilient, provided, of course, there are games to play. For that reason, it seems likely that MLB will cobble together a season, but either way, the booming baseball business is sure to take a hit, and that’s not an ideal way to head into a new round of collective bargaining.

Footnotes

Forbes Methodology:

Our team values are enterprise values (equity plus net debt) calculated using a multiple of revenue. The multiples are based on historical transactions and the future economics of the sport and team. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2019 season.

Our figures include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. Ownership stakes in regional sports networks, as well as related profits or losses, were excluded from our valuations and operating results. Sources include sports bankers, public documents like leases and filings related to public bonds and media rights.

In addition to team-specific net revenue figures, Forbes also estimated total gross revenue at $10.5 billion, broken down as follows: gate receipts: $3.2 billion; central revenue: $3.1 billion; local media: $2.2 billion; sponsorships: $1.1 billion; and other stadium revenue: $925 million.

Forbes uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measurement of operating income. Although usually defined as EBIT, Forbes not only adds back interest and taxes, but depreciation and amortization expenses as well. As a result, Forbes operating profit can appear higher than stated figures.

Payroll is based on final figures (not AAV) for each year released by MLB and does not include benefits.

Because Major League Baseball teams share revenue, but are not subject to a salary floor, teams can pretty much guarantee a hefty profit by maintaining a low payroll. However, according to the collective bargaining agreement (CBA), clubs are supposed to use revenue sharing to enhance their winning percentage, not their bottom line. The MLBPA isn’t convinced that every team is operating in accordance with that stipulation, and the recent trend toward tanking seems to back up their claim. Unfortunately, MLB’s revenue sharing plan remains shrouded in a bit of mystery. Not only is the formula very complicated, but the exact inputs remain elusive. However, there is enough information available to build an educated model from which to assess the plan’s effectiveness.

MLB really has two revenue sharing components. The first is the Central Fund, which collects revenue derived from national sources (e.g., network TV rights and merchandizing) and then distributes an equal share to each team. According to Forbes’ estimates, in 2018, about $2.76 billion was allocated in this manner. The second component involves local revenue, which Forbes estimates to be about $7.29 billion, a portion of which funds MLB’s “Revenue Sharing Plan.”

As defined by Article XXIV of the CBA, the basis for the revenue sharing plan is a percentage of each team’s “Net Local Revenue”, which is basically the money a team makes in its local market (mostly ballpark and media related receipts) minus the cost of stadium expenses, including debt service. Also excluded from this total are distributions from the Commissioner’s Discretionary Fund as well as post season revenue. After making all required deductions, what remains is net local revenue. However, the formula for the plan is not as simple as multiplying this figure by a constant rate. Rather, each team’s contribution to or receipt from the plan involves a multi-pronged, retrospective accounting of net local revenue. A hypothetical calculation is detailed in the model link above and outlined below.

Please note, for this exercise, Forbes’ net revenue estimate is used. However, that figure includes post season revenue and revenue sharing transfers, so, though the net transfer amounts of the plan should be accurate (assuming Forbes’ estimates are), individual team contributions or receipts may be under or over stated.

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