Major League Baseball is big business. But neither the league nor the teams are publicly traded companies, which means they aren’t required to disclose their revenues to the public. What we do know about baseball revenues is based on reports from other companies in the baseball business and the efforts of dogged analysts to dig up and analyze data that you can’t just pull up from an annual report. Forbes, for example, has calculated that the average baseball team was worth $1.645 billion in early 2018, 7% more than in the 2016 season, with almost half the teams in the league valued at more than $1.5 billion, and that average team revenue was $315 million. Let’s take a look at how the teams earn their money. (Related: The Pros and Cons of Sports Investing)
National television contracts are a huge source of MLB’s income. Baseball agreed to an eight-year contract with ESPN in 2012. Its TV deal with Fox, covering the 2014 through 2021 seasons, also generates revenue, as does a deal with Turner Sports, a division of privately held Turner Broadcasting System Inc.
Local television deals pay handsomely, too. Some teams have their own sports networks: For example, SportsNet LA became the exclusive source of home Dodger games in Los Angeles starting with the 2014 season. Baseball TV deals are so big because sports is one of the only things people still watch live. That means viewers actually see commercials instead of fast forwarding through them, and companies will pay big bucks to advertise during games. How big? The 2018 All-Star game generated nearly $45 Million in ad revenue, according to Kantar. This was the highest ad revenue of any of the major league exhibition games in the past year.
Baseball teams make money from selling season tickets and individual game tickets, and these account for perhaps a third of revenues. The average ticket costs about $32.44 in 2018, but fans can pay as much as $114.50 for the league-wide average premium ticket, according to the 2018 Team Marketing Report from the sports publishing company of the same name. (For related reading, see Why The Prices Of Sports Tickets Vary So Much and 8 Money-Saving Tips For Sports Fans.)
In 2018, some teams came close to selling out for the average home game, including St. Louis, Boston and Chicago. Other teams struggled with attendance, especially Miami, Tampa Bay and Baltimore. Stadiums vary in their number of seats, though. The more seats a team has available to sell and the more fans it actually gets to the stadium—usually fewer than those that buy tickets—the more opportunities a team has to turn ticket sales into other types of sales, like parking, concessions, and merchandise.
Butts in seats mean dollars in the bank when fans shell out for food and drinks during the game. Concessions can bring in millions of dollars annually for popular teams.
According to the Team Marketing Report, the average small draft beer at a baseball stadium costs about $5.98 in 2018. Prices range from a low of $3.00 to a high of $10.50, and the size of a small, which doesn’t always correlate directly with price, ranges from 12 ounces ($8 in Boston, $5.00 in Cleveland) to 20 ounces ($9 in Chicago). Want a hot dog to go with your beer? Baltimore probably loses money on hot dogs, charging just $1.50, while New York, Miami, and Chicago fans pay around $6.00.
Like hot dog prices, parking income varies widely from team to team. For teams who don’t own their parking lots, it’s nonexistent. The rest charge an average of $15.42. Forbes calculated that parking and concessions contributed 7% of MLB revenues in 2014.
Licensing Agreements and Sponsorships
Licensing revenue is another big source of income for MLB. Baseball has agreements with some of the biggest names in sports, including Nike Inc. (NKE) and New Era Cap Company Inc., to provide officially licensed apparel to both players and fans. While MLB doesn’t publicize merchandise sales figures, record sales of licensed MLB merchandise in recent years have been reported. When teams have winning records, when big-name players get traded, and when teams change uniforms, fans buy more merchandise. Even for a team with a poor record so far this season, like Baltimore, authentic men’s jerseys start at $74.99 at the MLB online store and go as high as $289.99.
Major League Baseball also has dozens of big-name sponsors: Bank of America Corp. (BAC), MasterCard Inc. (MA), Apple Inc. (AAPL) and Amazon Web Services, to name a few. Sponsorships contributed close to $900 million to MLB coffers in 2017. A major contributor to sponsorship revenue is stadium naming rights. The Mets’ Citi Field name will bring in $400 million over 20 years, while the Astros’ Minute Maid Park name is worth $170 million over 28 years, and the Twins’ Target Field name will draw $125 million over 25 years.
Unlike many other types of franchises, Major League Baseball teams participate in revenue sharing, a system that redistributes income from more lucrative to less lucrative teams in an attempt to improve competitive balance. The idea is to keep the less wealthy teams on an even competitive level with the more wealthy teams in their ability to attract the best and most expensive players. Under the 2017–2021 collective bargaining agreement, each team contributes a percentage of its net local revenue into a pool that gets divided equally among every team. Higher-earning clubs pay in more than they get back; lower-earning clubs receive more than they pay in.
What this means is that big market teams like the Dodgers, Red Sox, and Yankees subsidize smaller market teams like Kansas City and Oakland, in a sense. But without smaller market teams, big market teams would have fewer opponents, fewer games, and fewer opportunities to make money. Big market teams not only bring in more money from ticket sales, they also generate larger television deals. Revenue sharing means that it is in all the teams’ interest for every team to make as much money as possible.
The Bottom Line
While Major League Baseball has massive revenues, it also has huge expenses. Teams need money for everything from player salaries ($35.57 million for the Dodgers lefty Clayton Kershaw in 2018) to team employees to spring training facilities and insurance. And MLB team valuations, while they might sound impressive at more than $1 billion, look like peanuts and Cracker Jack compared with companies like Apple and Exxon Mobil Corp. (XOM). That said, with the large and rapid increases in the values of sports teams in general and baseball teams in particular, it’s hard not to argue that owning one of these franchises has the potential for great profit. (For further reading, see How To Invest In Sports Teams And Groups and Sports Stocks to Pump Up Your Portfolio.)