SBJ/September 12 - 18, 2005/Other News

MLB wants D.C. to lift club values

Major League Baseball isn’t just looking for a high-dollar score in the coming sale of the Washington Nationals.

League executives also are eyeing an overall increase in value for its 29 other franchises. (See Recent MLB Ownership Changes)

MLB, owner of the Montreal Expos-turned-Nationals since 2002, is nearing its long-awaited choice of one of eight bidding groups to buy the club. The deal will certainly exceed $400 million, league executives said, and perhaps reach $450 million. At either number, MLB sees a powerful statement about baseball that it believes will resonate nationwide.

New owner will get a sweetheart ballpark deal for the Nats, who now play in RFK Stadium.
“We think it’s almost inevitable that this upcoming piece of good news, along with other good news the sport is generating — that the overall floor [for franchise values] will be lifted,” said one well-placed MLB executive. “This has the potential to be a real flagship franchise and one that resets the market.”

To that end, rumors have begun swirling in industry circles that as many as six clubs could go up for sale in the next year or two as a result of the high-end Nationals deal. Officially, only the Cincinnati Reds are on the market along with Washington. The planned sale of more than 50 percent ownership in the Reds is expected to fetch $100 million to $150 million.

It’s the Nationals’ developing status as a flagship franchise, however, that has many within the investment community divided on whether the bullishness is warranted. Washington is America’s No. 8 media market, and the incoming owner will immediately inherit a high-end fan base long starved for baseball and a sweetheart stadium deal that will funnel the development cost to the District of Columbia and most significant ballpark revenue streams to the team.

The Nationals also are part of the Mid-Atlantic Sports Network, an operation that links the local TV rights of the Nationals and Baltimore Orioles in unprecedented fashion.

Two points loom large in the sale. The deal will provide perhaps the first full reflection of the surging value of MLB Advanced Media, the league’s fast-growing Internet arm. MLBAM profits are expected to reach $60 million to $70 million this year, new revenue streams are constantly being added, and the company is conservatively estimated to be worth more than $2 billion.

To ensure those facts were not lost on any Nationals bidder, MLB executives this summer brokered meetings with each group and MLBAM President Bob Bowman to discuss the division’s operations. A one-thirtieth share in MLBAM will accompany the Nationals sale.

Also notable is the fact that the seven groups that ultimately lose the chase for the Nationals are not all expected to lose their interest in owning an MLB team. Washington businessman Jonathan Ledecky, one of the bidders, is seeking a club for the third time.

“Will there be a positive effect from this? Yes,” said Sal Galatioto, president of Galatioto Sports Partners. “I do think the effect will be far more pronounced on other big-market clubs and less significantly on the smaller media markets, but if they get $425 million, $450 million, in this deal, that’s definitely good news for baseball.”

If the $450 million figure is reached, the deal will be topped in baseball by only the $700 million deal for the Boston Red Sox in 2002. That transaction included a dominant stake in the New England Sports Network.

Though a different sport and far different set of financial circumstances, Washington helped reset the market for NFL franchises when Daniel Snyder bought the Washington Redskins in 1999 for $800 million.

Some franchise sale advisers cautioned that even as baseball continues to post improving attendance and surging sponsorship dollars, big-market deals in Boston and Los Angeles did little to influence sales in Anaheim, Milwaukee and Oakland.

“I don’t expect a huge change out of this,” said Jeff Phillips, senior vice president for Houlihan, Lokey, Howard & Zukin. “There are quite a lot of unique circumstances here. Every deal is different, and you’re just not going to get eight qualified bidders in every market, so there are things here that just won’t translate.

“But if we’re $100 million or so over where we thought we’d be in this deal, that’s definitely some extra money for every other team when the profits get divided. And if I’m a seller, I’m definitely pointing to this deal,” Phillips said.

Baseball paid $120 million for the Expos in 2002, and by several industry estimates, have accumulated more than $80 million in operating losses since then.

The Nationals are profitable this season and on track to draw more than 2.7 million people at the RFK Stadium turnstiles this season. But MLB’s cost basis of more than $200 million in the club, and the expectation among the other 29 team owners for a good return on that investment, is motivating the push for a robust sales price.

MLB hopes to select the new Nationals owner later this month. Progress has been delayed, though, by a still-incomplete lease document between the district and MLB for the team’s forthcoming stadium in southeast Washington.

Return to top
Video Powered By - Castfire CMS Powered By - Sitecore

Report a Bug