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Major League Baseball (NKE, ERA) business model and strategy – Economics and Finance

Major League Baseball is big business, whether it’s the league or the team Listed company, Which means they don’t need to disclose their income to the public.Our understanding of MLB revenue is based on the reports of other companies in the baseball industry and the efforts of tenacious analysts to extract and analyze the data. annual report.

ForbesFor example, the average value of a baseball team in 2019 was estimated at $ 1.8 billion, an 8% increase from the previous year.About half of the league’s teams were worth more than $ 1.5 billion and the team’s average annual turnover was $ 330 million. Revenue dropped dramatically during the coronavirus pandemic, but the average team is still worth it $ 1.9 billion In 2021, second statisticalLet’s take a look at how MLB teams make money.

Key points

  • Baseball is big business, and half of the MLB teams are worth $ 1.5 billion or more.
  • In November 2018, Fox signed a 7-year media copyright agreement with Major League Baseball, which began in 2022 and is 50% more valuable than the previous eight-year agreement that ended in 2021.
  • National and local TV deals pay off handsomely for baseball because sporting events are one of the few TV shows where viewers still watch commercials.
  • Ticket sales, sponsorship and stadium franchising also contributed to the MLB team’s revenue.
  • Baseball revenue fell by more than half in 2020, mainly due to the coronavirus pandemic.

Major League Baseball Revenue Spotlight

The Yankees may be the most valuable MLB team, but in terms of annual revenue, they rank near the bottom. The Los Angeles Dodgers beat the field with $ 185 million in 2020, followed by the Chicago Cubs with $ 163 million and the Boston Red Sox with $ 152 million.

This is a steep drop from previous years, with an average revenue loss per team of $ 100 million. Over most years, ticket sales accounted for about 30% of Major League Baseball’s revenue, and that number dropped to zero when stadiums closed during the pandemic. As consumer spending decreased at the same time, merchandise sales and licensing agreements were also affected.

TV sale

National TV contracts are a huge source of income for professional sports. Baseball agreed to sign an eight-year contract with ESPN in 2012. Its television deal with Fox (covering the 2014-2021 season) also generated revenue, as did the deal with Turner Sports, a division of Turner. Private Broadcasting System.

In November 2018, Fox signed a new seven-year media copyright contract, which will begin in 2022 and is 50% more valuable than the previous eight-year contract. “This bodes well for subsequent deals with other national baseball media partners, WarnerMedia’s TBS and Walt Disney’s ESPN. These two deals will also expire after the 2021 season, ”according to Forbes.

The local television broadcast is also impressive. Some teams have their own sports networks: for example, since the 2014 season, SportsNet LA has become the exclusive source of home games for the Los Angeles Dodgers. The baseball TV deal is so big because sport is one of the few things people still watch live. This means that viewers actually see the ads instead of fast-forwarding them, and the company will pay a large amount of advertising costs while playing.

ticket office

In a typical year, 30% of MLB revenue comes from “ticket revenue,” which is another name for ticket sales.

ticket office

Baseball teams make money by selling season tickets and tickets to individual games, which can account for a third incomeThe average ticket price hit a record $ 32.99 in 2019, but fans can pay up to $ 114.50 for the league-wide average premium ticket, according to Team Marketing Report 2019 From the sports press of the same name.somesome

While some teams, including Boston, St. Louis, and Chicago, are nearly sold out in average home games, others have struggled with participation, most notably Miami, Tampa Bay and Baltimore. However, the number of seats in the stadium varies.someThe more seats a team can sell, the more fans actually enter the stadium, usually the fewer tickets purchased, the more chance the team has to convert ticket sales into other types of sales, such as parking, discounts and merchandising.

Discount

When fans spend money on food and drinks during a game, sitting in the seat means dollars in the bank. Franchising can bring millions of dollars in revenue to popular teams every year.

According to the Team Marketing Report, the average price of small draft beer at the baseball stadium in 2018 was around US $ 5.98. Prices range from $ 3.00 to $ 10.50, and the size of small beers is not always directly related to the price, which ranges from 12 ounces ($ 8 in Boston, $ 5.00 in Cleveland) to 20 ounces (9 $ in Chicago). Do you want a hot dog to pair with your beer? Baltimore could lose money on hot dogs, just $ 1.50, while New York, Miami and Chicago fans pay around $ 6.00.somesome

As with hot dog prices, parking fees vary from team to team. For a team that does not have its own parking, this does not exist. The rest charges an average of $ 15.42 per parking space. Combined parking and concessions account for less than 10% of MLB revenue.somesome

License and sponsorship agreement

License Income It is a major source of income for MLBs. Baseball has signed deals with some of the biggest names in the sport, including Nike (of) and New Era Cap Company, to provide officially licensed clothing for players and fans. Although Major League Baseball doesn’t release merchandise sales figures, Major League Baseball’s licensed merchandise sales have been reported to have set a record in recent years.

When the team has a winning record, when the big names are swapped, when the team changes shirts, the fans will buy more merchandise. Even teams with poor records can purchase authentic men’s jerseys in the MLB online store, starting at $ 74.99 and going up to $ 289.99.

Major League Baseball also has dozens of big names Sponsor: Bank of America (BAC), MasterCard Corporation (Well), Mela. (AAPL) And Amazon Web Services, to name a few. In 2017, the sponsorship contributed nearly $ 900 million to the MLB vault. The main contributor to the sponsorship revenue is the naming rights of the stadium.someThe Mets’ Citi Field name will bring $ 400 million in revenue within 20 years.someAlthough the name of Minute Maid Park’s Astros is worth $ 170 million over 28 years,someTwins’ Target Field name will attract $ 125 million over 25 years.somesome

Share of turnover

With many other types franchising, Major League Baseball teams participate in income sharing. This is a system that redistributes more income profitable Teams with lower profits to improve the balance of competition. The idea is to keep the less wealthy teams competing with the richer teams in their ability to attract the best and most expensive players.

According to 2017-2021 Collective bargaining Under the agreement, each team contributes a certain percentage of their local net income to a pool equally distributed among each team. High-income clubs pay more than they pay; low-income clubs get more than they pay.somesome

$ 2.3 billion

The cost of building Yankee Stadium in the Bronx in 2009.somesome

This means that, in a way, big-market teams like the Dodgers, Red Sox and Yankees will subsidize smaller transfer teams like Kansas City and Oakland. But if there is no small transfer team, the big transfer team will have fewer opponents, fewer games, and fewer opportunities to make money. The large market team not only makes more revenue from ticket sales, but also generates larger TV transactions. Revenue sharing means that each team earns as much money as possible in the interest of all teams.

MLB Income Frequently Asked Questions

What is the percentage of income earned by Major League Baseball players?

This is unclear, because MLB has not released detailed financial data to the public. In 2018, Major League Baseball President Rob Manfred estimated that “about 50%” of revenue goes to player salaries, although some estimate the figure to be close to 40%.

How much does the MLB team make from the playoffs?

Playoff revenue based on a little complicated The formula is based on tickets for the World Series, Divisional Series and League Championship. The largest share belongs to the World Series champion team, followed by the runner-up in the World Series, and so on based on their progress in the playoffs. According to data from Major League Baseball, the player pool in 2019 is worth $ 80.8 million.

Who has the most revenue: NFL or MLB?

In a normal year, the NFL’s income can easily exceed the MLB’s income. The National Football League received $ 12 billion in revenue in 2020. Reuters, A decline of US $ 4 billion from 2019. MLB’s total revenue in 2020 is $ 3.66 billion, which is less than half of the $ 10.37 billion raised in the previous year.

Bottom line

Although Major League Baseball makes a lot of money, it also has huge expenses. From player salaries (like the $ 330 million 13-year contract between Bryce Harper and the Philadelphia Phillies) to team employees, spring training facilities and insurance, the team needs money.someAnd the Major League Baseball team RatingWhile they may sound impressive, more than $ 1 billion, but compared to companies like Apple and Exxon Mobil, they look like Peanuts and Cookie Jack (XOM). In other words, as the value of sports teams, especially baseball teams, has grown significantly and rapidly, it’s hard not to argue that owning one of these franchises has huge profit potential.

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