Major proponents of the minors (from left): Sam Bernabe, Pat O’Conner, Tom Dickson and Larry Freedman Photo by: GRANT BALDWIN
Minor League Baseball is stronger than ever.
At least, that’s the refrain heard from many in the industry these days — and upon further examination, it’s easy to see why there’s such confidence. Franchises are increasing in value: In 2014, the Class AA Frisco (Texas) RoughRiders sold for $30 million and the Class A Dayton (Ohio) Dragons sold for $40 million, well above prices paid for minor league clubs historically. There’s also been the continued development of BIRCO, MiLB’s internet rights company, which manages digital media for the minor league clubs and leagues, as well as Minor League Baseball Enterprises, the group’s marketing department.
With last month’s Class AAA All-Star Game played just blocks from the editorial office of SportsBusiness Journal/Daily, we invited four league executives to visit before the game to discuss their business and the key issues surrounding it. Comments were edited for clarity and brevity.
See below for the executives’ video responses to questions.
■O’CONNER: There’s never been a better time to be involved in Minor League Baseball than today, either as an owner, as an executive, as a fan or as a player. We’ve drawn over 41 million fans for seven straight years, we’ve noticed increases for five straight years [and] been over 42 million for the last two years, so we’re trending in a positive direction. We have some concerns this year because of the horrible weather in April and May and we have some teams really trying to play catch-up. But we had a fabulous June.
Secondary to the attendance numbers is the money and how the money’s flowing. How are the sponsorship dollars flowing? How are the per caps flowing? And both of those are strong; it is trending positive.
Franchise values are the highest they’ve ever been, and the forecast for sales show they’re going to stay there. If you’d told me 20 years ago that we were going to sell a club for eight figures and it would start with a 3, I would have said you were crazy. Now we’re doing that, and the people that are buying those aren’t buying with their hearts, they’re buying with their heads and their wallets. These numbers are being supported by the metrics that they’re using to value the clubs.
The executives gathered while in Charlotte for last month’s
Class AAA All-Star Game. Photo by: GRANT BALDWIN
■FREEDMAN: It’s an experiential business, and it’s important to know in aggregate attendance, other than Major League Baseball, we outstrip the NBA (21.9 million fans in 2015-16), the NHL (21.5 million in 2015-16), the NFL (17.5 million in 2015) and MLS (7.3 million in 2015) by significant multiples. The way we do that is through that experience. People are looking for a more social experience, and people are looking for other types of experiences. That is how we grow the game: by engaging the younger fan base, the elusive millennial. But it’s clearly about family entertainment, and oftentimes it’s more about what’s going on between innings than on the field.
■O’CONNER: The game experience is such that people are coming multiple times, and you can still bring a family of four to a minor league game for less than $64. When you go to a major league game, because of the competition and the intensity of it, fans tend to lean in. But when you go to one of our games, they tend to rest and relax and sit back and commune with their family. It’s less about the athletic event and more about the communal/community experience.
■DICKSON: We built our ballpark in Lansing, Mich., for $13 million in 1996 and put $27 million into it last year to renovate it and put an apartment building in center field with 84 units that are all leased out. These are gathering places, and the more you can have going on around these ballparks, the better it is for the community — and obviously the better it is for the club and our attendance.
■O’CONNER: I’ve probably been in 125 of the 160 parks we play in and I can’t think of any two that are exactly the same. You cannot become irrelevant in your market, and we maintain relevancy at a very high level. We’ve crafted our parks in a way where we’re able to approach 100 percent of our marketplace. We’ve adapted everything we do to maximizing the fan experience.
Bermabe: “It just comes down to a really simple formula: safe, clean and fun.” Photo by: GRANT BALDWIN
■DICKSON: The ballparks that are being built now are really small versions of major league ballparks, with all the bells and whistles, and I would argue, in many ways, more enjoyable because the sight lines are better. You’re closer; they’re more intimate. Look at Charlotte, El Paso, Toledo. They’re just magnificent. That just didn’t exist 10 or 15 years ago, and it takes a slightly different economic model; it takes a more sophisticated ownership group to put together financing on a $50 million to $60 million ballpark. It’s a different world.
■BERNABE: It just comes down to a really simple formula: safe, clean and fun. If the ballpark isn’t the safest and cleanest place you can go to, then you don’t have to worry about the fun side of it — because they’re not coming anyway. So that’s how we base our growth: those two key components of the three overall, then the growth comes with it. That’s what we work our hardest at.
■O’CONNER: The level of sophistication that new owners bring and the understanding of key business principles to the operation has been a huge benefit. They’re also bringing a passion, because most of these people who are coming in now had day jobs, were very, very successful, and this is something they’ve always wanted to do. They don’t need to do it, so they bring a level of passion and heart backed up by sophisticated business practices, key experience, contacts, all of the things. It’s enabled us in the last 10 years to form BIRCO and a company that bundles 160 teams’ internet rights. It’s allowed us to form Minor League Baseball Enterprises. We’re talking about a group that’s 114 years old, that from day one, all the rights rested with the clubs. We have now been able to — through hard work and the trust we’ve built — have them send rights back to us. That’s not easy to do. We probably wouldn’t have been able to do that without this evolution of ownership. So it’s clearly more sophisticated; it’s a healthier environment.
Freedman: “It’s the professionalization of what had traditionally been a mom-and-pop business.” Photo by: GRANT BALDWIN
■FREEDMAN: It’s the professionalization of what had traditionally been a mom-and-pop business. You look at who acquired some of the teams from [Mandalay Baseball] when we divested most of the portfolio. You have David Blitzer, a founder of Blackstone and co-managing partner of the Devils and the 76ers, and his lead partner in that was David Abrams from Apollo. We sold the Dayton Dragons to a group led by Nick Sakellariadis, who had been a 20-plus-year banker at [Citigroup-related companies], and the Erie Sea Wolves we sold to Fernando Aguirre, whose prior employment was the CEO of Chiquita Bananas.
You look around the room and you see a lot of people who are in that second or third act in their career, and they bring such unbelievable business experience and acumen. It’s really become a fascinating melting pot of experiences. You walk into a ballpark like here in Charlotte or in Frisco, Texas, or in Lansing, and they’re beautiful and state of the art. In Oklahoma City, we’re putting in a brand-new HD video board that’s a monster, and with the control room equipment that’s a $1.6 million investment.
■O’CONNER: Our level of sophistication from five years ago, 10 years ago, 20 years ago, is remarkable. We’ve got a great ownership group operating in communities and running great operations. Developers are seeing the value of our product, and we’re getting inner-city development.
■BERNABE: It’s a terrible concern. In the Pacific Coast League, we change owners in that league like we change our underwear. It’s a constant churn, but a lot of that has to do with the fact that they’re in good cities, good markets and there are a lot of people interested in those opportunities. It is tough to buy a team in the Pacific Coast League, as we have the most rigorous vetting process of anybody in baseball. Part of that criteria comes down to local ownership. In Des Moines, I’m not sure there’s a handful of people that are capable of buying a $30 million operation. Maybe in the state of Iowa there are some people interested. I’d probably have great interest out of some investment people out of Chicago. It’s very disconcerting when you lose that partnership of local ownership because that’s what we live by. If you can’t walk into the bank president’s office at any given time and say, “Hey, let’s go have a drink” or “Let’s go play golf,” then you have a problem. And it’s a concern for us in the Pacific Coast League.
■O’CONNER: All things being equal, you would prefer a local owner who has a true commitment to the community. Are they willing to go there? Are they going to buy a house and live there? Are they going to keep the successful staff in place? One can’t buy a minor league club until you sit down and talk to me. You’ve got to come to my office, in my building, meet my staff, and you have to explain to me why you should be an owner of a minor league team.
We turn down very few ownership prospects because by the time they get to me, the leagues have done such a good job of vetting.
■BERNABE: We turn down regularly in the Pacific Coast League, so it doesn’t ever get to that point. Over the last few years, we’ve probably turned down 15 different ownerships.
■DICKSON:It’s great if you can have an owner that’s from that community, but there are great examples of where people bought teams and ended up spending so much time there that they ended up moving there. Craig Brown, the owner of the Greenville (S.C.) team, a very successful team: Craig was a senior advertising executive in New York, bought the Greenville Braves, had a home in Naples (Fla.), but now he’s selling his home in Naples and moving to Greenville and building a house. He’s very integrated in that community. Bob Fregolle, who was head of worldwide sales for Procter & Gamble, bought a team in the Florida State League and has moved down there and literally runs the team. You do have to be integrated in the community. I would argue you don’t have to have grown up there, but you have to get yourself there. I’m not from Lansing, but I know everybody really well and I think I’m pretty close to the folks there.
■O’CONNER: The conversations were about the power of one: One entity addressing all of our needs. To replicate what we can do through our “baby BAM,” through BIRCO — 160 clubs couldn’t do. The way this has been bundled and the economics of it, all the clubs are better off financially. We are now able to convert historical costs to either net-neutral cost or a positive cash flow line item. We stream more events on the internet than any other sports organization in the world, by far. But 20 years ago we wouldn’t have been able to convince owners to make that switch because they would have been so locked into their 35-mile territory. Anything outside of that, the heck with it, it didn’t matter. To now see that we are in a global economy and we now can participate in a global economy because of this and the power of one — one entity with 160 elements to it — it’s exponentially more powerful, stronger and cohesive.
■BERNABE: We still got a few kicking and screaming, though. It’s still a battle to get everybody on board. [It’s about] that 35-mile radius around their little world, their bubble. They’re just not going to do it any different because that’s the way they’ve been doing it for a long time. Nobody’s going to tell them, “It needs to be this way.”
■DICKSON: We had 160 teams each selling their own sponsor inventory. The obvious question became, Why are we not selling it at the national level? Why are we not bundling this? Because it’s completely additive, right? There are so many categories that no minor league team, no matter how successful they are, could possibly go sell. Think about big consumer package goods companies: They’re not doing business with those teams, but they’re looking for national reach. So we brought in David Wright [from MLS] and we’re in the process of completely transforming the way we sell national sponsorships. For the first time ever, we’re going to be able to walk into major companies around the country who don’t even know who we are and tell our story.
Dickson: “We had 160 teams each selling their own sponsor inventory.” Photo by: GRANT BALDWIN
Many think of us as “Bull Durham” still; they don’t know what we really are. But when we walk in and start having conversations with those brands about the collective power of 160 teams, 42 million people, millions upon millions of social media users, and aggregate that together and start telling that story, it’s going to be pretty powerful. We’re starting to see the fruits of it even in the last six months. Five years from now, look out, because we’ve got a major story to tell. The future of sponsorships at a national level for Minor League Baseball is just extremely bright.
■O’CONNER: One of the principles of Enterprises is creating inventory the clubs cannot create and sell it to people they cannot sell it to. This is an additive step to a machine that’s already in place. So in aggregating and common-theming the asset, that’s where the reach is going to come. You can walk in to Fortune 50 companies and have a meaningful conversation backed up by independent research data. We would have never thought 20 years ago about going out and getting independent research data. We never thought we could afford it and we wouldn’t have known what the hell to do with it. So that’s part of the evolution.
■ DICKSON: We just announced a couple weeks ago our newest national partner, Esurance. They also happen to be a Major League Baseball partner, so it’s really a neat opportunity. Most of that program is going to be digital. They are sponsoring a program based around when guys get called up from the minors to the majors. We’re not trying to take outfield signs away from the Iowa Cubs and say “We’re going to go sell that nationally.” That’s not what we’re doing. We’re creating new space, white space that never existed, and there’s just an unlimited amount of things we can do. …
Enterprises is funded by the clubs. There is a payout to the clubs to pay back the initial capital, then the rest is shared more or less equally depending on attendance to some degree. But there’s also a component to it across all 160 teams because we’re selling all the teams. They’re rewarded slightly differently. But at the end of the day, there’s a lot of sharing to it because it is an enterprise based on the power of one.
■O’CONNER: There is recognition for stepping up and investing in the company. There is a multiple return, somewhat of an annuity. Then there’s some recognition in the payout to how many eyeballs you bring to the process. Then there is an element to the payout because you’re part of this enterprise, because you’re a minor league team, then you get a portion. …
For many years, Minor League Baseball was lowercase, and it showed up in the way we viewed our own product. But we have started to convert that mindset, which is a very tough thing to do. We have technology behind us, Major League Baseball behind us, and 75 percent of the country lives in one of our markets. The limitations on Minor League Baseball will be the ones we place on ourselves. As long as we’re realistic, we work within our means, we never stray from our core, we’re going to be OK. We’re going to continue to grow and we’re going to reach heights that no one could have imagined 20 years ago.
■O’CONNER: The Richmond market has growth potential, and with a new building, will catapult even higher than it is today.
■BERNABE: One market that comes to me right away is New Orleans. We’ve got ownership there now that’s active in Lou Schwechheimer, who is a longtime veteran of this business and very, very good and highly respected in our business. I think you’ll see those numbers down there change dramatically over the next three to five years with his mindset and operational abilities.
■DICKSON: Keep your eye on San Antonio. Another good-performing team, but there’s discussion of a new ballpark, and that’s a very vibrant market. My guess is they’ll kill it there when they get that ballpark built.
■O’CONNER: I don’t worry about the games. What I worry about is what happens in Washington and on Wall Street, because those two variants can singularly change our game and change the structure and change the animal that we call Minor League Baseball. So I think the next 12 to 24 months are going to be critically attuned to what’s happening outside of baseball. We’ve got a major legal issue on players’ salaries and what’s going to be the outcome of that. …
O’Conner: “The story in the next year or two is growth.” Photo by: GRANT BALDWIN
Future growth is predicated on two things. One, we can never stray from our core, which is the fan experience. Minor League Baseball is an experiential business. We are then able to successfully expand our reach by working with developers in developing inner cities. That will not work for everyone, but it has been a proven commodity. Two is our technological reach, using BIRCO. That’s where our growth is.
If athletics is your gig and that’s your juice, you can go to a game on any given night and you will see a big leaguer play in a minor league game. We’re the research and development lab for Major League Baseball. And oh, by the way, we’re going to throw a heck of a block party. We’re going to mean more to the community than just about everything else that’s going on.
■FREEDMAN: With BIRCO, we are trying to drive as much traffic as possible. A bigger focus will be on our First Pitch app and getting more features and functions into that, to get more people using it and drive ticketing. The more we can drive ticketing online and get people to buy packages and renew their tickets online, the better off we’re going to be.
■DICKSON: The opportunity that our industry has to bring in significant corporate partners at multimillion dollar, multiyear deals will be transformative to our business. Success will be multiple national partners at fairly big numbers, multiyear, strategic partnerships. That is the element in this industry that I’m most excited about.
■O’CONNER: The story coming out of Minor League Baseball is going to be the evolution of Enterprises. We’re going to tell an old story in a new way — about what this product is and what it means and what it represents, and we’re aggregating and we’re sophisticated. The story in the next year or two is growth. We talk about the difference between more money and new money in Minor League Baseball. New money is expanding our reach through programs like Enterprises. That’s the story. It’s really going to be an exciting time, and the trend of it being a good time to be in Minor League Baseball is going to continue.
