The Captain's Blog

The Covid-19 pandemic was a brushback pitch that sent MLB’s financial health sprawling, but in 2021, the sport dusted itself off and now stands poised to resume its prior growth.

Forbes’ Estimate of Annual MLB Revenue, 2003 to 2021

According to Forbes’ latest “Business of Baseball” report, revenue (net of stadium debt service) not only increased 160% off last year’s Covid-impacted total, but climbed within 8% of the record $10.4 billion reported in 2019. Almost every penny of the decline was attributable to an approximately $900 million deficit in gate receipts, which bodes well for the future as last season’s attendance restrictions have all been lifted.

Forbes’ Estimate of MLB Gate Receipts, 2021 vs. 2019

Compared to 2019, Forbes estimates that gate receipts were still down a significant 31% in 2021, with all but three teams remaining below pre-Covid levels. Only the Rangers, which opened a new ballpark and faced no attendance limitations, the World Champion Braves and resurgent White Sox managed to record an increase in gate. At the other end of the spectrum, 11 teams, ranging from the small market Pirates to large market Yankees, remained 40% or more off their pre-Covid levels.

Forbes’ Estimate of Annual MLB EBITDA, 2003 to 2021

In 2020, every team in the league recorded significant operating losses, but thanks to MLB’s rebound in revenue, the sport moved from red to black, turning a $1.8 billion loss into a $645 million gain. Leading the charge back to profitability was the Texas Rangers, whose new ballpark helped fuel an impressive EBITDA of nearly $100 million. The Atlanta Braves and Baltimore Orioles were right behind with an operating profit just over $80 million, illustrating that from a financial standpoint, tanking can bring about just as much success as winning the World Series.

Despite the overall profitability of the sport, several teams still recorded losses, chief among them being the Mets, who alone lost nearly $100 million. The crosstown Yankees also lost a hefty sum, thanks in large part to the aforementioned decline in gate recipients, largely stemming from Stadium capacity restrictions in the first half of the season. In fact, most of the big city teams ranked among the losers, but don’t cry for them just yet.

Forbes’ Estimate of Cumulative Franchise Value, 2003 to 2021

Even though revenue and profit remain off 2019 levels, Forbes’ franchise valuations have continued to climb, rising nearly 10% in 2021. The Rangers’ increase was again tops in the league, but that franchise’s $2 billion valuation still pales in comparison to the Yankees and Dodgers, whose estimated enterprise value increased by a healthy 14% to $6 billion and $4 billion, respectively. In total, Forbes estimates the combined value of every franchise to be $62 billion, with only the Miami Marlins remaining under $1 billion.

Estimated MLB Team Valuations: Forbes vs. Sportico

If the last two years were about recovery from the Covid disruption, the next several are likely to be about substantial growth. Simply recovering the lost gate receipts due to Covid restrictions would alone push MLB back above pre-pandemic levels, but that’s just the tip of the iceberg. Revenue growth is also expected to result from increases in sponsorship fees, including jersey patch deals, new national and local TV contracts, and streaming arrangements with the likes of Amazon, AppleTV+ and Peacock. And, that’s before even taking into account the vast opportunities being presented by the burgeoning internet gambling industry, for better or worse.

MLB Player Compensation vs. League Revenue

For interactive charts comparing each team’s investment in payroll relative to revenue, click here.

Also working in MLB’s financial favor is the signing of a new CBA, which promises at least five years of relative stability. Although some of the concessions made by owners are likely to result in players seeing their total compensation increase over the term of the new agreement, the revenue prospects remain so bullish that owners could still end up with a higher share when it comes time to negotiate the next labor pact. That’s a problem for another day, however. In the meantime, the business of baseball remains very good.

Footnotes

Forbes Methodology:

“Forbes’ 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 teams. Revenue and operating income (earnings before interest, taxes, depreciation and amortization) are for the 2021 season and are net of revenue sharing, competitive balance taxes and stadium revenue used for debt service. Ownership stakes in regional sports networks, as well as related profits or losses, are excluded from our valuations and operating results, as are investments in real estate and other businesses. Sources include sports bankers, team executives, public documents like leases and filings related to public bonds, and media rights experts.”

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.