How To Value A Minor League Baseball Franchise
There are different ways to determine the proper valuation for a minor league franchise.
In independent leagues, the valuation of a team is largely determined by its balance sheet. Take the team’s EBITDA (earnings before interest, taxes, depreciation and amortization), apply a multiple to it (usually between four to seven times the EBITDA) and you have an approximate value of the team that incorporates some version of the market, stadium, lease, fan base, etc.
Now, there is a floor to that valuation—a team that was just breaking even (or even losing money) still has some value because buying an expansion club requires a franchise fee. An owner looking to join the league could find some value in even a money-losing team, if only for the possibility that it will be purchased and moved to another city.
In that way, independent teams have been valued like a franchise in any other business. A prospective owner looking to buy a team looks at the assets, looks at the balance sheet and comes to a price based off of revenues and expenses.
That has not been the basis of affiliated minor league teams’ valuations in the current system. Those values have been derived more from scarcity than the balance sheet. There are just 150 teams within the “club” of Minor League Baseball—Appalachian League teams are part of MiLB but are all owned by MLB and cannot be purchased.
It used to be that affiliated minor league teams’ values were determined by their classification. Triple-A teams were worth more than Double-A teams, which were worth more than Class A clubs.
Mandalay’s sale of low Class A Dayton for close to $40 million in 2014 retired that idea. At the time, it was the highest price paid for any minor league team. And today, Dayton is still likely worth more than most Triple-A teams, because its revenues and profit margins are exceptional for a minor league operation.
The general consensus is that minor league clubs going forward will see their values tied much more to their balance sheets than has been the case in the past. But if there is some permanence to minor league franchises, i.e. they retain their affiliations to major league clubs, there likely will still be a premium attached because of the scarcity inherent in being part of an exclusive club.