26 January 2016

Where MLB Receives Its Revenue

Recently, there was an article in Forbes claiming that MLBs Revenues were $9.5 billion in 2015. This is interesting information, but doesn’t explain much detail. Does MLB receive the majority of its money via media deals, attendance or maybe merchandise? Furthermore, there are certain categories of revenue that are split evenly between all thirty teams such as licensing fees, national media payments and MLBAM revenues and there are certain categories of revenue that are kept by the team that earned them (even if they are subject to revenue sharing). How much of MLBs revenue is in each of these categories and how does that impact free agent spending?

In 2010, Deadspin received financial documents that discussed the amount and where certain teams received their revenue. The categories were the following: gate receipts – otherwise known as ticket sales, concession sales, broadcasting revenue – including both local and national media deals, sponsorship and advertising, merchandise and MLBAM.  These are largely the areas where MLB receives its revenue.

Likewise, in 2004, when Deloitte prepared a document discussing how the creation of the Nationals would impact the Orioles, they noted six areas where the Orioles would be impacted. These areas were attendance, broadcasting, concessions and novelties, premium seating, future naming rights and advertising.

MLB had roughly 73,760,000 fans attend a regular season game in 2015.  The average standard ticket cost $28.94 in 2015 while the standard premium ticket cost $96.84. If 13.7 percent of tickets are premium and 86.3 percent are standard, then MLB would earn roughly $2.8 billion via gate receipts. This revenue is subject to revenue sharing but is kept by the club that earns it.

The MLB Fan Cost Index also predicts each fan to spend roughly $24 in concessions and novelties on average including programs and parking. For all 73.8 million fans, this comes out to $1.75 billion. However, not all concession money goes to the MLB clubs themselves. Some of this cash goes to the state and the companies that actually sell the concessions. The document from Deloitte discussing the Orioles 2004 revenue suggested that for each $5.40 that the team earned from ticket fees, they earned $1 from concessions. The documentation from Deadspin suggests that in 2008, the ratio decreased to roughly 5 to 1. Presuming that this ratio remains accurate, it’s reasonable to presume that MLB earned roughly $560 million via concessions and novelties. This revenue is subject to revenue sharing but is kept by the club that earns it.

These numbers don’t include postseason revenue. While some postseason revenue goes directly to the players, the rest goes to the Commissioner’s office and the teams themselves. It is reasonable to presume that MLB earns another $100 million in postseason gate receipts and concessions. Much of this revenue is subject to revenue sharing but is kept by the club that earns it.

Fangraphs claims that the national TV contracts, pay MLB $12 billion from 2014-2021. Presuming a standard 4% increase per year, then MLB would have received roughly $1.35 billion for its national TV rights in 2015 split equally among each team. In addition, MLB Network’s subscriber revenue is predicted to be $222.5M and probably earns over $250M in revenue when taking advertising revenue into account. Any profit earned from this revenue is split amongst each team equally.

Teams also earn cash from local TV media deals. In 2013, an article in Fangraphs listed terms for each teams’ local deals. All of these deals are certainly out of date. NESN may have paid the Red Sox $60M in 2013 but paid closer to $100M in 2015. Likewise, YES paid the Yankees $90M in 2013 but $98M in 2015 due to standard inflation.

On the other hand, other numbers are completely incorrect. MASN paid $36M in 2013 to both the Nationals and Orioles, but $42M in 2015 while Fangraphs claimed that MASN paid both clubs $29M in 2013. For some reason, Fangraphs decided that the Angels received $150M in media rights fees in 2013 based on a new media deal that doesn’t go into effect until 2016 and starts at roughly $60M with a 4% increase. Likewise, the Dodgers received $220M in 2015 compared to the $340M annual average value of their deal. Fangraphs made similar mistakes for the Astros, Rangers, Padres and Mariners deals resulted in them significantly inflating the value of local media rights.

Per Fangraphs, the total value of each of these local deals combined is $1.7B in 2013. However, after taking new contracts, inflation and errors into account, it is more likely that teams earned about $1.8B in 2015 from both cable and radio deals. Without knowledge of each media deal, it is impossible for me to do anything more than make an educated guess.

According to the MLB IEG Sponsorship Report, MLB earned roughly $778 million in sponsorship money in 2015. This is an increase from $700 million in 2014.  The Orioles were one of seven teams that had below average sponsorship revenues. Fortunately for the Orioles, sponsorship money is split between all teams equally regardless of the source.

The Baltimore Sun suggests that MLB had a total of $3.4 billion in merchandise sales in 2014. Forbes argues that MLB broke $3 billion in merchandise sales in 2015. In general, MLB merchandise sales have remained around $3 billion per year over the past ten years. Scott Sillcox from the Licensed Sports Blog suggests that MLB receives a royalty payment of 12% of the $3.4B in sales or roughly $400 Million that is split equally between all teams.  In addition, MLB receives an unknown amount of licensing revenue from other sources.

MLBAM had revenues worth roughly $900 million in 2015 and has been earning a steady profit for MLB. Its revenues will likely take a hit as a result of the Garber settlement that forced it to offer single-team packages and reduce prices. This revenue is split equally amongst every team.

This comes out to roughly $9 billion compared to Forbes’ projected revenue of $9.5 billion. Some of the difference is due to other minor categories, while other differences are due to different methodologies.

In this article, Forbes creates a graphic that shows from which categories MLB earned $8 billion of its revenue in 2015. It ignores the $800 million earned via MLBAM, as well as another $200 million from other areas such as the all-star game where they claim money doesn’t filter down to the teams.

Their graphic looks like this:

My graphic looks like this:

Using this data and basic multiplication, it is possible to create a graph that shows where my calculations and Forbes calculations differ (numbers in billions).

There’s not much of a difference. My results have slightly higher attendance revenue and local media revenue, which is probably due to standard inflation. Prices increased from 2014 to 2015. Their results have slightly higher national media revenue, sponsorships and licensing fees. Their articles seem to indicate that they look at average media revenue as opposed to actual media revenue which would inflate their results. Their results also indicate that they’ve either been overestimating the amount of money MLB earns via sponsorships by over $100M or that the source I use is incorrect as well as potential differences in licensing. But, at minimum, our results are similar. This is a good sign given that we presumably didn’t use the same methodology and sources.

Gate receipts, premium seating, concessions, local media and postseason cash are subject to revenue sharing and are kept by the team that earns it, whereas national media, sponsorship, licensing, MLBAM and other revenue is not subject to revenue sharing and are split equally among each team. This is how the pie looks for revenue that is kept by individual teams and not shared equally for both Forbes 2014 numbers and my 2015 numbers.

Roughly 65% of unshared revenue comes from attendance while the other 35% comes from local media fees. This shows that while the amount of unshared revenue is increasing, it still lags far behind revenue from fans attending games despite the fact that the amount of total revenue earned via media (local, national and internet) is greater than that earned from attendance (gate receipts, premium seating and concessions).

The impact of media on MLBs revenue is considerably large. However, since most media revenue is split equally amongst teams, it has less impact on free agent spending than attendance revenue. It seems likely that attendance revenue will have more of an impact on free agent spending than media revenue until MLB is able to truly go international and convince people in Asia, South America and Europe to purchase their product.

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