MLBAM: The Stealthy Money Machineby Maury Brown
December 05, 2005
Let’s talk money. Cabbage. That mean, mean green.
Let’s talk profit. Lots of it. Truck loads of it.
Now, let’s talk Bon Jovi, former Creed lead singer Scott Stapp, Rowing, Track and Field, Tickets.com, fantasy stats, the MLBPA’s Website, the MLB Player Alumni site, the Umpire’s Union website, MLB.com, Collectibles, MLB Game Day audio, ringtones, wallpaper, video and games for your mobile phone, plus media for handheld devices. The future? IP Television (IPTV).
What’s the connection? Media. Content. The Major League Baseball Advanced Media (MLBAM).
When the discussion of revenue streams rises to the surface in discussions about Major League Baseball, almost always, without fail, television is the area where the media latch onto. But in recent years, a considerable revenue—and more correctly, profit source—has been the MLBAM.
Launched in 2000, MLB.com was funded by the clubs in an agreement that had them each investing $1 million a year over four years. The cost was targeted at $120 million. To the joy of the owners and MLB, the Website started generating excess revenue in only the second year of its existence, allowing them to invest only $70-$75 million before beginning to see a return on their investment.
When the decision to launch MLB.com occurred, MLB moved all of its Internet rights into a centralized location. No longer were team Websites controlled by individual clubs; now they were under a single umbrella. This was the start of a focused effort to completely control and centralize all products and services provided on the Internet by MLB.
To put just a few numbers into the discussion, from 2004 to 2005 sales on MLB.com rose 220% from the year prior with a 200% increase in sales through just the MLB.com Shop. MLBAM revenues for 2005 are expected to rise 88% to $260 million, and annual revenue is expected to jump 30-50% over each of the next five years. A huge cash cow for the 30 owners in MLB that get to split the profits. Last year, the MLBAM inked a deal with Microsoft and AOL to stream MLB games live onto PCs. That deal totals as much as $40 million over two years from just Microsoft alone. AOL’s deal totaled $9 million over the same period.
But where MLBAM has been extremely savvy has been in the diversification of holdings under the Advanced Media’s umbrella. Not counting the season’s $9.5 million in online ticket sales, MLB.com will still rack up an estimated $25 million this year in sales and auctions of licensed merchandise and collectibles.
In November of last year, Tickets.com was acquired by MLBAM. This allowed for broader control of and centralization of MLB related ticket transactions. It made good sense, as MLBAM had inked a three-year deal in 2003 to cover the lion’s share of ticket sales for MLB.com and was the exclusive online partner, providing service to 20 of the 30 franchises. The purchase price by MLBAM came in at $1.10 for all outstanding shares and totaled approximately $66 million.
Just last week, MLBAM acquired a 10% share in World Championship Sports Network (WCSN) and will be managing its website. The Network is known for global sports like track and field, rowing, wrestling and gymnastics. This move allows MLBAM to diversify into sports outside of baseball. WCSN has currently streamed around 150 hours of content over the last three months, but as MLBAM President Bob Bowman said in an interview, “There will be more coming.”
Beyond sports, MLBAM has inked deals with rock bands such as Bon Jovi and former Creed singer Scott Stapp.
Looking at what has transpired, it’s enough to make one shake his head. After all, MLB has been known for being glacial on change to the game and to the way business is conducted. The idea that some of the “Lords of Baseball” don’t use e-mail or believe in it seems well within the realm of possibility.
What really makes this arm of MLB stealthy and an absolute moneymaking machine came to light somewhat quietly in October when the major league owners decided to scrap plans for an initial public offer for MLBAM. Bank of America, Goldman Sachs, First Boston and J.P. Morgan tried in vain to get the owners to go forward with the IPO. After all, they had good reason to want to see it happen, as these analysts predicted the value of the IPO to be $2-2.5 billion.
The reason it didn’t move forward? Full public disclosure. MLB opening up the books? You must be joking. Besides, can you imagine how it would look to roll into the next round of collective bargaining after dispersing those kinds of funds around 30 ways? Somehow I doubt that selling a luxury tax again would gain much traction with the players’ union, and forget about ever discussing a salary cap in the near-to-distant future.
So on occasion, find your favorite search engine and type in “MLBAM.” In the biggest case of irony, the arm that controls all this Internet and media technology doesn’t even have its own website. As I said … stealthy.
Maury Brown is the editor of BusinessOfBaseball.com, co-chair of SABR's Business of Baseball committee, and covers the business of baseball at his blog, The Baseball Journals. His analysis and commentary has been published in the Boston Globe, CNN/Money, Toronto Globe and Mail, Los Angeles Times, Pittsburgh Post Gazette, San Jose Mercury News, and Oregonian. The opinions expressed here are solely those of the author and do not represent the opinion of the Society for American Baseball Research or its Business of Baseball committee. Maury can be contacted through the miracle of e-mail.