MLB Advanced Media (MLBAM), the digital rights arm of Major League Baseball and includes MLB.com, has increasingly been a cash cow for the league. The group headed by President and CEO Bob Bowman (read The Biz of Baseball interview with Bowman from 2008), has been one of the most surprising money makers for MLB over the years.
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 site 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.
As early as 2005, the league looked to see just how much money MLBAM might be worth (see my article MLBAM: The Stealthy Money Machine on The Hardball Times). From “Stealthy Money Machine”):
What really makes this arm of MLB stealthy and an absolute moneymaking machine came to light somewhat quietly in October [of 2005] 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.
MLB decided not to go public then, so, it shouldn’t be terribly surprising to hear today’s news, although how much of a stake in BAM these investors are looking for isn't known.
The San Francisco Chronicle reports on MLBAM and how private equity firms are constantly looking to try and get a cut of the lucrative digital arm of baseball. MLB.com, through BAM is seen as the industry leader in its video streaming infrastructure, and is why other sports outlets, such as ESPN and CBS, have used MLBAM to host their video streaming. The offers reportedly have been in the $1 billion range, half the value of the IPO value garnered in 2005. As reported by the SF Chronicle:
A source close to the talks tells us the company gets "call a day" from private equity firms, but that the company isn't looking to sell a stake for a few reasons:
- It's already loaded with cash.
- Owners are already getting a huge dividend.
- Selling a billion dollar stake in MLBAM any time soon would make it very hard for owners to argue that they're broke in upcoming labor negotiations with players.
- Selling a stake could further complicate the ownership stake and perhaps even force a dreaded shotgun IPO.
Who's calling MLBAM? A source close to PE circles speculates that it's most of the biggies: TPG, Blackstone, Bain Capital, Elevation, Spectrum, and Quadrangle.
Initially, many, including this author, concluded that MLBAM could be used as a trump card – a holding that could be leveraged in an IPO should economic headwinds every tear at MLB’s bottom line. Given than baseball increased revenues through the worst economic downturn since The Great Depression, that seems unlikely. After all, MLBAM is now pulling in in excess of a half-a-billion dollars annually. Given that the revenues is centralized revenue shared across all 30 owners in MLB, don’t look for a them to cave to the investor’s fawning to get a cut of the action…. At least not for the foreseeable future.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
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