Bloomberg Valuation of the Atlanta Braves: What It Means

Jamie Squire

Financial service Bloomberg recently re-evaluated all MLB teams value wise; what these numbers mean for the Atlanta Braves now and in the future.

Recently Bloomberg decided that it needed to re-do the valuation of MLB teams after the Dodgers sold for up to 50% more than anybody expected. The Internet and especially Twitter's first response was to scoff at the amount paid for the Dodgers. But would savvy business people really make a mistake in the team's value by a factor of .5? That seems unlikely, as Bloomberg stated:

When the Los Angeles Dodgers sold for $2.15 billion last year, the purchase price - 54 percent more than prevailing estimates - didn't just elevate the fortunes of the team's owners. It raised the valuations of every franchise in Major League Baseball. Bloomberg News spent nine months compiling and analyzing the numbers behind the business, and determined that MLB's 30 teams are worth about 35 percent more on average.

The driver of this change, unsurprisingly, is TV revenue. Much has been made of the "mancave" leading to the demise of live sports attendance. But the flip side of this phenomenon is that it has made media rights deals become much more valuable. While gate receipts were once the primary driver for team value, it's quickly become media rights and regional sports networks.

Now, let's look at how Bloomberg values the Braves, which can be found in the infographic that accompanies the article:

The first number we will examine is the total revenue for the Braves. Bloomberg breaks it down as $225M, and gives a partial list of subcomponents for gate receipts ($52M), concessions ($20M), sponsorship ($22M), media rights ($103M), parking ($5M) and revenue sharing ($0). There is some missing data here, as these subcomponents summed yields $202M, which is $23M short of what Bloomberg gives for total revenue.

Next up, we will look at the valuation that this revenue number leads to for the team. Bloomberg puts team value at $648M. How team valuation works is by taking revenues and then using a team specific multiplier to arrive at team value. So, the Braves' $225M in revenue is then multiplied by a factor of 2.88 to get $648M. 2.88 is a pretty middle of the road multiplier, which is unsurprising as almost all teams' revenue to team value multiplier was very close to 3, with the exception of the Yankees (who are obviously an outlier for any number of reasons. Having 27 championships in the largest media market will do that for you) and the Dodgers. The Dodgers had a multiplier of 5.66, which is almost entirely a function of the impending finalization of their regional sports network (RSN). But since it doesn't yet exist it couldn't go in the RSN column, so it had to show up in the multiplier.

One number that shocked a lot of Braves fans was the listing of them as having the 3rd highest media rights value, at $103M. It's not exactly clear where this number comes from. Some outlets have reported the Braves' local TV rights deal to be in the $10-20M range in revenues per year, meaning that to reach this $103M number, radio and national TV deals would have to be something like $80M, which seems unlikely. However, in an interview with David O'Brien, Terry McGuirk said that the reported $10-20M numbers were inaccurate. For what it's worth, Bloomberg gave a confidence rating of 4 stars for their information on the Braves, indicating they were more confident than average about the quality of this information (about half the teams got 3 stars in their confidence ratings, the other half 4). The $103M number for total media rights value seems somewhat suspicious, but it's difficult to evaluate its accuracy any further than that without knowing where the numbers exactly came from.

However, one issue I will point out is that the "3rd place" rating of the Braves media rights is more than a bit misleading. For the Braves, this number likely includes all value obtained for their TV contracts. However, for most of the teams ahead of the Braves in value, the overwhelming majority of media rights value actually comes from the RSN category, which Bloomberg lists separately. Since the Braves don't have a RSN, their TV value is solely accrued under the media rights header. Consider the Boston Red Sox, who have a media rights valuation of $89M in revenue for 2013. However, that isn't counting the value the team gets from NESN, which is likely somewhere in the neighborhood of $180M per year. So, while the Braves at first glance appear to hold a $103M v. $89M advantage in terms of media rights value, the 'real' number is probably something more like a $270M v. $103M disadvantage for the Braves, as compared to the Red Sox.

The only teams that are ahead of the Braves in valuation without a RSN are the Dodgers (who have a deal for an incredibly lucrative RSN that's all but wrapped up), the Phillies (whose local deal is about to expire, and thus opens them for a possible RSN or at least a more lucrative media rights contract), the Tigers and Cardinals. Every other team that is worth more than the Braves has a RSN deal in place already.

This highlights perhaps the most damaging aspect of the Braves' TV deal, not the dollar amount, but the length of it. When the Dodgers saw a revenue to value multiplier of nearly 6, it was because the new buyers could "see the light at the end of the tunnel" on the Dodgers' old Fox media rights deal that was set to expire soon. For the Braves, who are just six years into a twenty year contract, that tunnel is indeed long and any light is dim at best at this point.

One possibility that has been discussed is the chance the Braves could "get out of" their current deal. There are two avenues under which this could be achieved, both of which, at least for the moment, seem unlikely. First, it's at least theoretically possible that the contract could be voided. According to multiple sources the Braves have been doing their due diligence on this possibility for a couple years at least now. It is clear that the Braves' current TV rights deal wasn't negotiated at arms' length (a legal term of art meaning that the parties on the two sides making the deal weren't completely separated). In some cases, contracts like this have been voided. However, we are six years into the contract, and usually when contracts are voided on such grounds, it needs to happen relatively quickly. Further, the Braves have already gone through an ownership change since. What this means is that a judge would likely find that the current ownership knew what the contract was, and that its bad value was (or should have been) priced into what was paid for the franchise, i.e. that it would be a windfall gain if Liberty Media paid less for the Braves due to the TV contract, and then was able to nix the deal and gain all of the profits. So, yes, unfortunately an actual voiding of the contract seems unlikely.

A second possibility is that the Braves' TV deal could be "bought out," i.e. if the contract got so debilitating to the team's fortunes that it would actually be worth it to all parties involved to dissolve the deal, with the Braves paying the other side off with cash (or other considerations). However, the problem with this scenario is that, obviously, it would cost a lot of money. There isn't a pre-negotiated buyout for the contract, meaning that if the Braves were to buy their way out of the contract, they'd have to pay the other parties enough money that they'd voluntarily agree to end the contract. It seems fairly obvious that the conglomeration of TV stations that are the beneficiaries of this deal are making a fairly large bit of money off it, and it would likely take a lot of money to convince them to give that up. About the only way this could be achieved would be if the potential creation of a RSN could fund paying off the previous media deal. This scenario would obviously create an increase in revenue, but mostly because of the created buyout debt, which in the end wouldn't leave the Braves much better off at all. They'd be making more in revenue, but they'd also have to use much of it to pay off the debt created. Such a scenario would likely help the Braves, but it wouldn't be the game-changing reversal of fortunes that the Dodgers saw, since the Dodgers simply waited out the end of their previous TV contract. For the Braves to buy their way out of the deal early would likely provide a modest increase in value at most.

One comfort for Braves fans though should come in the form of taking the Bloomberg infographic and then sorting by wins. What we see is that team values aren't terribly well correlated with wins, especially for any given single year. This is largely due to the fact that baseball salary structures allow six of a player's most valuable years to come at a substantial discount. That is, if the Braves can continue to draft and develop talent at an incredible rate, they could remain competitive, despite financial constraints that will become tighter and tighter as years pass. The downside is that out-drafting and out-developing other teams is becoming harder and harder as the gap in talent evaluation and development seems to be closing. It also unfortunately means that it's going to become tougher and tougher for the Braves to retain that talent past the initial six years of team control, something we may see play out with Jason Heyward.

We're on the verge of seeing a large scale inflation of salaries, as more and more teams create RSNs or negotiate larger media rights deals as their older deals expire. The Braves are 14 years away from being able to benefit from a RSN or renegotiation. Further, national TV money is set to flood the market as well. When guys like Heyward and Mike Trout hit the market at young ages (if they don't sign lucrative long term extensions prior to doing so), the numbers are going to be truly dizzying. This massive inflation on the horizon is why we're hearing that it's not unrealistic that Brain McCann could see a $100M contract this offseason. Heyward could easily be a $30M per year guy if he stays healthy, given inflation and the age at which he'll hit free agency.

These sorts of numbers certainly aren't the end of the world, but they are definitely a rather large hurdle the Braves will have to overcome. As far as valuation of the Braves go, I think as the TV deal gets worse and worse, and other teams' comparative deals get better and better, we will steadily see the Braves' value drop, until we near the end of the deal, and the value sees a large increase, as the light of the tunnel for a new TV deal begins to emerge. But those intervening years could be dark indeed if the Braves aren't incredibly adept at developing young players and incredibly careful with the extension and free agent money they do spend.

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