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SBJ/December 5 - 11, 2005/Other News
The state of minor league baseball 2005
Published December 5, 2005
Minor League Baseball, despite a historic run-up in attendance, is grappling with coast-to-coast problems with franchise profitability.
Mike Moore, MiLB president, said roughly half of the 176 affiliated minor-league clubs are set to post net losses for the 2005 season, with 30 percent losing money just from operations. The ratios are virtually the same as in 2004, but arrive against a backdrop that saw a record aggregate attendance in 2005 of 41.33 million, sharply increased Internet traffic to minorleaguebaseball.com through a new relationship with MLB Advanced Media, and improved merchandise sales.
In the late 1990s, more than two-thirds of affiliated minor-league clubs were profitable.
Moore intends to make a formal call for heightened cost controls and improved fiscal prudence during prepared remarks he will make at baseball’s Winter Meetings, beginning today in Dallas.
“Most of what we’re seeing around the industry is good, but this issue regarding profits is very troubling,” Moore said. “We’re continuing to see new and improved stadiums and new locations, which is great, but also with cost structures that carry more long-term debt and more overhead.”
As a whole, Minor League Baseball is a money-making enterprise and a venture continuing to draw high-net-worth individuals and large corporations; collective 2004 profits were $45 million and 2005 figures, expected to be similar, are still being tabulated.
But 60 percent of that 2004 profit was concentrated among 16 top teams, a trend many franchise operators only see deepening.
A look inside the industry
During these phone interviews, executives were surveyed on a number of marketing topics, including budgets, advertising and promotions techniques, and ticket sales methods. Questions were asked using a five-point Likert scale, as well as open-ended and direct-response questions. Results for the questions that focused on ticket-sales breakdowns and the average marketing budgets are presented here.
“Life is very good for the haves in this industry. The have-nots, by and large, are getting killed,” said Mike Veeck, president of the Goldklang Group, which operates three affiliated minor league teams and three independent clubs. “I’m still very bullish on this business, but there are some clubs that are in real trouble.”
The financial crunch arrives from two key sources: stadium debt as team operators are receiving less help than before from municipalities paying for new construction, and soaring franchise prices. Team sales now routinely reach $15 million to $20 million, exponentially higher than even a few years ago.
As recently as 2000, a Class AAA team could easily be had for $10 million. Earlier this year, the Class A Lexington (Ky.) Legends of the South Atlantic League, and their home stadium Applebee’s Park, sold for $24 million.
“This is a tough business now, and the bets have clearly gotten a lot bigger. It’s not for everybody,” said Ken Stickney, chief executive of Mandalay Sports Entertainment, which operates five minor league clubs, including the rabidly successful Dayton (Ohio) Dragons. “There’s a real premium now on having very high-quality people around you and a smart business plan. You can’t just walk into this.”
And even team operators with newer stadiums are feeling competitive pressures to add additional amenities such as amusement park-type rides, party decks and high-end food service operations.
While MLB clubs pay the player and coaching salaries for affiliated minor league teams, the individual minor league teams are responsible for funding stadium operations, front-office staffs, equipment and team facilities and travel costs — all items feeling the full brunt of inflation.
The increased costs, in turn, heighten the need for revenue growth, and a recent survey of the business practices of the minor leagues by Colorado-based consulting group National Sports Services found several key areas lacking. While 86 percent of affiliated clubs allow fans to purchase tickets online, just 51 percent allow for at-home printing of those tickets, a figure that puts the minors behind trends now sweeping through leading national ticket providers, airlines, movie houses and other entertainment venues.
The survey also found the minor leagues generate just 26 percent of their total attendance from season-ticket sales, far below the 60 to 65 percent seen by many successful MLB teams.
“The [minor league] clubs that do well are the ones that have a strong market, a good facility, well-run operations and a good league,” said Matt Perry, National Sports Services chief executive. “Every team with problems is going to be missing one of those puzzle pieces.”
Despite the financial worries, the minors’ attendance patterns are showing extensive depth and breadth. The aggregate record set this year beats a 1949 mark posted when 448 minor league teams — 2 1/2 times the size of the current roster of affiliated clubs — were playing around the country. Thirteen of 15 leagues affiliated with Minor League Baseball posted increases from 2004, and the Pacific Coast, South Atlantic and Eastern Leagues also posted all-time records.
Moore said he expects further attendance growth in 2006, but only 1 to 2 percent at best.
“It’s going to depend in part on weather, of course, but I would expect it’s going to begin to level out some,” Moore said. “That why it’s incumbent on our industry to become more aggressive in creating additional revenue opportunities.”
Sales of licensed merchandise for the affiliated minor-league clubs is projected to hit $41.7 million when final 2005 totals are compiled, said Brian Earle, Minor League Baseball director of licensing. The figure is the organization’s sixth annual increase in a row, and third best total of all time, but it still trails the all-time best of $60 million in 1994.