During a Sportico forum held yesterday, MLB commissioner said that future expansion fees could reach $2.2 Billion. $2.2 Billion also happens to be the average of franchises in 2021, so the figure serves as a starting point for future discussions. For now, MLB is not opening the gates to bidders.
As the Bay Area currently has two MLB franchises and isn’t looking to add more, expansion doesn’t seem like a relevant topic. However, if you look at it in terms of setting a market price for moving a franchise (*cough*A’s*cough), it quickly gains relevance. By setting the price at $2.2 Billion, Manfred is effectively saying MLB franchises are premium properties that don’t merit shortcuts, whether we’re talking about ballparks or media deals.
Sportico ranked the A’s as 25th out of the 30 MLB teams at $1.3 Billion. Over at Forbes, the ranking was 26th while the valuation was $1.125 Billion. The A’s lost $40 million in revenue during MLB’s pandemic-truncated 2020 season. Some uncertainty awaits thanks to the upcoming CBA expiration and negotiations. The good thing for the A’s is that their unique phaseout of revenue sharing apparently hasn’t affected their valuation at all, so even if revenue sharing doesn’t come back the asset should remain strong, if not the team’s operating revenue. Either valuation is roughly 5X a normal revenue year, higher than it used to be but not out of line considering how many different types of assets appear overinflated these days.
If you’re in Portland, Charlotte, Las Vegas, or even Montreal, the bar is set. You have to put together an ownership group that has $2.2 Billion, plus access to more to run the team. You also have to have a ballpark deal in place. Gone are the days when you could try to entice a team to play at a multi-purpose stadium for a few years while you hammer out a bespoke ballpark palace. Oh no, that won’t do anymore. Manfred – and probably the entire Lodge – wants new teams to hit the ground running. Remember that the last relocated team, the Expos-Nats, were actually contracted by MLB, then expanded. The Nationals played in venerable RFK Stadium for several years while the District worked out a new ballpark deal at Navy Yard. A true team relocation hasn’t occurred since the second version of the Washington Senators became the Texas Rangers in 1972.
Expansion occurred in the 90’s with the new teams taking advantage of existing multi-purpose stadia in Miami and Denver. Purpose-built domed ballparks were built in St. Petersburg and Phoenix to varying degrees of success. The markets being considered for expansion won’t have to worry about extreme weather situations like in the Sun Belt, but they will have to come ready to impress customers. Sad to say that an expanded AAA ballpark, no matter how nice, won’t cut it. If you look at the AAA ballparks built in Vegas, Nashville, and Charlotte, they’re not designed to add 25,000 seats, and even if they did it wouldn’t be optimal.
You might be thinking that perhaps one of those cities could lure the A’s or Rays away for cheaper than a $2.2 Billion expansion fee. You might be right. However, the same rules apply. A prospective city/county/state will need a stadium deal in place, preferably to open when the franchise begins play. Plus MLB will set a price for relocation, which is completely unknown at this point. It wouldn’t surprise me at all if MLB set a relocation fee of $1 Billion, to keep other team valuations high and to prevent those pesky shortcuts. So if you want a baseball team and you aren’t in an established MLB city you have to follow three easy steps:
- Have new stadium deal in place, up to $1 Billion in construction cost
- Buy A’s or Rays with intention to move for going market rate ($1.2 Billion)
- Pay $1 Billion relocation fee to MLB to buy their approval
Easy peasy, right? After all that, you’ll be lucky to have a franchise worth $3 Billion. You’ll have a ton of debt. On the bright side, you’ll be in an extremely elite club and you’ll have parked your money in a fairly safe place before interest rates rise. Good luck!