Historically a mom-and-pop business that would either break even or lose money, over the last 10 years minor league baseball has proven profitable. The upshot is that now the minor leagues are attracting big league investors-like $60 billion market cap Comcast Corp., for example-who are acquiring multiple teams and running them like small businesses.
“If you’re going to get into this business and operate it in a successful way, you have to own multiple teams,” said Tom Dickson, owner of Professional Sports Marketing LLC (PSM). PSM currently operates the single A team Lansing Lugnuts, as well as the AAA class Charleston Alley Cats. PSM is closing its purchase of the AA franchise Orlando Rays in the upcoming months, which will begin play in Montgomery, Ala., in a new stadium next April. (Teams designated as AAA are the highest level, closest to Major League Baseball, while single A teams are the lowest.)
Advisory work, meanwhile, is going to the niche players, if to anyone at all.
The best known name in minor league advisory work is Moag & Co., founded in 2001 by former Legg Mason sports investment banker John Moag.
Sal Galatioto, who heads the sports advisory and finance group at Lehman Brothers, said at $5 million to $10 million a deal, minor league takeouts are too small for it to be worth Lehman’s while.
Aaron Wade, a Moag associate who specializes in minor league advisory work, had this to say about fees: “They are lower than traditional M&A banking fees primarily because the transactions are smaller. Being a boutique bank, we have created a niche in minor league baseball and can justify smaller fees.”
Another player in the space, which does a few minor league deals a year, is Boston-based Game Plan LLC. Game Plan President and former New England Patriot Randy Vataha said that for financial advisors, “If you really know the industry there is clearly a business.” He added, “It’s a very good business.”
Vataha said he understood Galatioto’s point that it may not be profitable for a bank the size of Lehman’s advise on such small deals. Minor league team transactions take up as much time as the major league assignments Game works on, he said. Most recently, Game advised the Orlando Rays on its sale to PSM.
There is some broker advisory presence in the industry, said Marvin Goldklang, who owns three teams through The Goldklang Group. But brokers typically only find buyers for teams that want to sell, rather then execute due diligence and other typical investment banking mandates, he said.
Goldklang owns five teams-two independent and three major league farm teams. He said he plans to buy one or more teams “in the next year or so.” But for those deals he won’t tap an investment banker, since “in our case we know as much or more about the industry as any investment bank.”
But if advisors wanted to break into the space, the opportunity is there. Multiples paid for teams continue to rise, as do prices paid for teams.
Moag broke down the numbers as follows: AAA teams typically sell for $10 million, AA teams for an average of $7.4 million and single A teams for $5 million, on average.
As for multiples, Moag tracks them based on paid attendance. Moag says multiples on recent deals are slightly higher than last year, at 40.9 times attendance, versus 40 times in 2002 and 29 times in 2001. The number of overall minor league baseball team sales has decreased in the last few years, which Moag attributes to fewer buyers.
Unlike major league teams, which sell for hundreds of millions of dollars, minor league teams now can be bought for between $1 million to $13.6 million for marquee franchises. Comcast paid that high figure in 2000 for the AA Bowie Baysox, as part of a three-team deal. In 2002, the Altoona Curve sold for $12 million, the New Haven Ravens sold for $8.5 million this year. Goldklang purchased his teams in the early ’90s and late ’80s for around $1 million each, or less.
Also unlike major league teams, most minor league teams are profitable. By some estimates, around two-thirds of minor league teams operate in the black. In the majors, it is less than one-third. Among the reasons why the minor league is more profitable than the majors-major league teams pay farm team players’ salaries.
“We looked at [minor league baseball] because we thought it was a compelling investment with extremely attractive unit economics,” said Bill Luby, a partner at New York-based Seaport Capital. Seaport, a private equity firm, made a $20 million investment in Mandalay Sports Entertainment LLC last year. Mandalay recently expanded its ownership to five minor league teams.
“The business is in transition from a mom-and-pop, less sophisticated ownership to owners that view it and run it like a business,” said Luby. PSM’s Dickson, for example, has organized all his minor league teams as freestanding LLCs. He said he sells shares of the teams to wealthy individuals.
Minor league owners have also realized that with a little marketing and imagination, coupled with relatively cheap admission prices, games can be promoted as an alternative to the amusement park or movie theater.
Admission at many parks is as low as $3. Compare that with a New York Yankees bleacher ticket of $8 to $10 at Yankee Stadium, about as much as the most expensive minor league tickets.
Goldklang described how fans at his parks are seated by “ushertainers,” unemployed actors who lead fans to their seats before leading them in cheers. Fans then can call the stadium “concierge” to have dinner delivered to their seats or even book a hotel room.
A guest at a Goldklang event may also witness the spectacle of actor Bill Murray coaching the team. Murray is co-owner of The Goldklang Group. In one St. Paul Saints game, Murray stepped in to coach third base during a disappointing outing, and went on to wave in the tying and winning runs. Goldklang also owns the Hudson Valley Renegades, the Charleston Riverdogs, the Fort Myers Miracle and the Sioux Falls Canaries, and Murray attends games with those teams as well, though not always as coach.
Philadelphia-based Comcast, a cable company, is one of the new corporate owners. Frank Miceli, VP of minor league operations at Comcast subsidiary Comcast Spectacor, said the firm had clear strategic reasons to buy its three teams in Maryland.
Comcast already owned a minor league hockey team and professional teams the Philadelphia 76ers and Flyers. Comcast’s wholly-owned Global Spectrum, operates stadiums and its Ovation Food Services supplies concessions.
Three years ago, John Moag-then still at Legg Mason-brought Comcast the opportunity to buy three teams in Maryland, the Baysox, the Delmarva Shorebirds and the Frederick Keys. Miceli said the minor league teams provided a synergistic opportunity, linking with its already existing sports assets. According to Moag, the deal price was $29 million.
Being affiliated with a large corporate parent like Comcast has its advantages. SpongeBob, the popular children’s television character, has appeared at the games. Comcast’s airs Viacom International Inc.’s Nickelodeon, which produces the SpongeBob show.
Looking ahead, the owners interviewed for this article all wanted to expand, even if they were vague about their plans. Vataha said he has several clients right now looking to buy teams and there has been a steady increase in such interest over the last few years.
Another owner, Don Beaver, benefited recently from interest in minor league teams. A long-time owner of five teams, Beaver sold his Tennessee Smokies and Winston Salem Warthogs.
Asked about the market for a minor league franchise on the block, Beaver said, “The teams people want to sell seem to be able to find a buyer.”
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