One morning midway through April, Ken Young awoke to the chilling realization that none of the five minor-league baseball teams he owns would play a game this season.
Unlike owners in Major League Baseball, MLS, NASCAR, the NBA, the NHL and other properties that will salvage some revenue from media rights and sponsorships by playing games without spectators, owners of minor-league sports franchises rely almost entirely on ticket sales, concessions, merchandise and parking.
Without games, that revenue will fall to nearly zero.
“For my franchises, we will survive this,” said Young, the majority owner of the Class AAA Albuquerque Isotopes and Norfolk Tides, Class AA Huntsville (Ala.) Stars and Bowie (Md.) Baysox and Class A Frederick (Md.) Keys, all of which have built up considerable equity since he purchased them. “But I will tell you, the losses are staggering.”
The North American sports industry will miss out on about $6 billion in stadium revenue generated from 116 million lost spectators as a result of games canceled or played in empty stadiums and arenas this year, a Sports Business Journal analysis of available data showed.
That includes game-day revenue shortfalls from tickets, concessions and merchandise, but not media rights or sponsorships.
While well short of the $3.8 billion in ballpark revenue that MLB clubs will miss out on this season, the $521 million in game-day proceeds that affiliated minor league clubs will forfeit with the entire season canceled could prove even more devastating, since they will be left with little else.
MiLB’s 30 Class AAA clubs each typically generate $10 million to $20 million annually, including revenue from sponsorships and naming rights. This year, most will be lucky to salvage $100,000 from whatever events they can cobble together, such as college baseball summer leagues, kids camps, or even the occasional wedding, Young said.
While some sponsors have paid upfront and will look forward to make-goods next season, many are local businesses that are equally endangered and unable to pay.
“All of our revenue is pretty much wiped out,” said Peter Freund, majority owner of the Class AAA Memphis Redbirds and short-season Class A Williamsport (Penn.) Crosscutters and co-owner of the Class A Charleston (S.C.) RiverDogs. “It’s just gone.”
Young’s Albuquerque, Norfolk and Bowie franchises and Freund’s clubs in Memphis and Williamsport were among at least 85 MiLB affiliates that were approved for a combined $70 million in forgivable loans through the federal government’s Paycheck Protection Program. Albuquerque and Memphis each were approved for up to $1 million; Norfolk and Bowie up to $350,000; and Williamsport less than $150,000.
Those loans saved 5,515 jobs across MiLB. But they were not enough to get clubs through the whole summer.
On June 30, with his funding from PPP exhausted, Young laid off the bulk of staffs ranging from 16 to 35 at his clubs. Six to eight people per club who were deemed vital to either get through this span, or lead a restart, were retained but took pay cuts.
Even after all that, Young said he is certain some of his clubs will lose upward of $2 million. Freund expects the same.
“And that’s not any accounting games,” Young said. “Those are cash losses that we’re going to incur.”
The crisis has raised concerns that some clubs will face insolvency. Escalating franchise values have created equity that many can dip into or borrow against to fund the next 18 months, but some likely will be forced to sell or enter bankruptcy.
“It’s not an ideal situation, but there should be enough equity that … you write a check because you believe sports is going to come back,” Freund said. “I’m going to write a check for three or four [million dollars] because I don’t want to lose a $30 million asset. And that’s everybody’s scenario. I really believe that.”
Further complicating matters, the pandemic hit as MLB was in the midst of an overhaul of the minors, with expectations that it would sever relationships with at least 40 affiliates. All of that has been on hold for months, leaving some franchises uncertain about whether to take loans to cover expenses for a business likely to fold.
“When you say you can roll over sponsorship dollars and ticket dollars for the next year, what do you do if you’re one of the teams on the list to be eliminated as an affiliate?” said Freund, whose Williamsport franchise was one on the original list of those MLB planned to cut. “We don’t even know if we open our doors next year. And that is where the real insolvency issue comes. You talk about putting good money after bad. I’m happy to continue to invest in Memphis where the St. Louis Cardinals are my partners and I’m not at all concerned. But when you think about a Williamsport, what do you do? Because there may not be a 2021 season.
“That’s the tricky part.”
Research Director David Broughton contributed to this report.
