Teams Fear New Minor League Landscape Will Damage Franchise Values, Business Relationships
This is part of a series evaluating the ramifications of MLB's overhaul of the minor league system. To see all the stories, click here.
The new minor league reality also will translate to a hit to teams’ franchise values.
The drop in franchise value will be the most significant for teams left out of the 120. Teams that had been purchased for $15-20 million in the past decade will be joining leagues in which teams can normally be purchased for a few million dollars.
Others are now part of summer wood bat leagues, where franchise values are still hard to estimate.
When it comes to the business of the minor leagues, so much is unknown. MLB has spelled out in detail its plans to sell advertising inventory that in the past had been sold by the individual teams. For the more successful teams, MLB’s plans to reduce the number of sponsorship categories each minor league team can offer as an exclusive to three—soda and two categories of the minor league team’s choice—will cause issues.
This issue long been one of the thorniest. A minor league team can pick two categories to retain as exclusive sales in their market. If a team claims banks and financial services, it can promise a bank that it will be the only bank advertised in the ballpark. Beyond the two categories—and soda—the minor league team picks, it cannot promise exclusivity to any in-market advertiser.
If automotive is not one of the two categories the minor league team claims, any deal it makes with a local car dealer is done knowing that a different brand of car could also be advertised prominently in the stadium as part of a separate MLB deal.
Numerous Triple-A teams have five, 10 or even 20 exclusive categories right now. There will likely be many difficult conversations between teams and local sponsors in the upcoming months.
The purpose of these changes is to allow MLB to close more national advertising deals. It is possible that doing so will make more money for minor league teams than they do selling the same inventory locally. However, there are no guarantees in the agreement that assures that for minor league teams.
MLB and minor league teams will split the revenue from national sales 50/50 after MLB’s expenses have been covered. But minor league teams do not know if their national revenue will top, equal or be less than what they have been able to sell those same items for themselves. MLB has set no floor on what revenue it will distribute to minor league teams.
Multiple minor league owners and general managers shared their fears that even if they can break even on that revenue, it could damage relationships with key local partners.
Minor league teams know some expenses will increase. The travel changes—two buses, three additional hotel rooms per night on the road and potentially some bus trips becoming flights—are expected to cost teams an additional $50,000 to $150,000 a year depending on the team.
They also know that they will either have to foot the bill or convince their municipalities to bear the expense to upgrade their ballparks. The cost for well-equipped stadiums will likely be hundreds of thousands of dollars. For stadiums in need of more upgrades, the cost will be in the millions.
By far the biggest questions many minor league teams will face center around the economics of minor league baseball over the next decade and beyond.
Specifically, teams want to know how much they will be paid if MLB decides to leave their market when their license expires in 10 years. The answer will eventually be decided by an as-yet-unestablished executive committee of officials from the major and minor leagues.