Last week, Forbes released their annual look at the values of all 30 Major League Baseball teams. As they have been over the last few years, the Rays continue to be one of the least valuable franchises in MLB. Someone has to be last, and the Rays are it.
However, the Rays value increased 29% over 2014, from $485 to $625 million. That's a nice return on investment for Stu Sternberg and friends, who have earned 199% since 2006. Cork Gaines at Rays Index posted this chart that goes a little further back than the Forbes page.
However, how does the valuation relate to some of the other measurements Forbes gives us? This post will explore the Rays 2015 data and look at Rate of Change with past Rays data. We will look at how the Rays compare to other teams in a future post.
Let's first look at the rate of change in franchise value as compared to the rate of change in revenue used for debt payments. Maybe as revenue goes up, so does franchise value. That should make sense.
From 2007 to 2012, we see franchise value and revenue moving almost hand-in-hand. That's interesting. Then in 2012, the franchise value jumps 40% and the rate of change in revenue is only 3%. In 2014, both increase 8%. Then in 2015, franchise value sees another huge spike. Perhaps these factors are not tied together.
Let's look at some other factors for similarities and patterns.
Here is the rate of change in revenue and the rate of change in attendance from 2006 to 2014. We don't have 2015's attendance yet so we stop at 2014.
There are few similarities here. Perhaps revenue lags attendance by a year. Maybe the funds generated by attendance are not counted until the following year. I'm not an accountant, so I am not sure how that works. But there are years that stand out. In 2011, attendance dropped 18%. In 2012, revenue only dropped 2%. In 2013 and 2014, attendance decreased both years, yet revenue increased.
Perhaps these factors are not related as much as people think. There are of course, many other revenue streams, such as television, merchandise, and concessions. And the Rays also make money from the rest of Major League Baseball due to revenue sharing. So even if attendance goes down, the Rays could still make money. As a matter of fact, they could still make a lot of money. Further proof that while good for appearance, attendance really doesn't matter.
Here is another interesting chart comparing the rate of change in franchise value and the rate of change in player expense (aka payroll).
Perhaps what we see here is that the value of the franchise does not increase much when the rate of change in payroll increases more rapidly than the value of the franchise (2009-2011). In 2012, player expense was slashed 27%. Franchise value dropped a bit, but not much. Since 2013, the franchise value has gone up more than the increase in payroll.
Update: Contributor Josh Simmons pointed out a very interesting coincidence: The change in value matches the changes in player expense at the same time revenue stops matching valuation. Could this be coincidence or an effect from a change in Forbes' methodology?
Here are the two charts side-by-side. I added a line at 2012 for clarity:
Now let's look at the Rate of Change in Value versus Rate of Change in Player Expense versus Rate of Change in Revenue on the same chart.
While all three moved in unison from 2007 to 2008, rate of change in player expense decoupled from 2009 to 2012. Meanwhile, rate of change in value and rate of change in revenue moved similarly. Then in 2012, rate of change in player expense increased and decreased at a similar path as value, while revenue moved only slightly.
Could be coincidence. Could be something more.
Update 2: E-migo and reader William Juliano, lead writer at The Captain's Blog, provided some insight into the franchise value and payroll trend.
and
and
Big thanks to everyone who provided insight!
Overall, interesting stuff from Forbes.
My one major problem with the Forbes data:
According to Forbes, the Rays make $31 per fan. This is the most misleading number in the study. "Revenue Per Fan" is defined as "Local revenues divided by metro population with populations in two-team markets divided in half."
So $31 multiplied by the 2.8 million metro population is $86.8 million in local revenue. This would mean the Rays make a little over $100 million in other revenue (cable, revenue sharing, etc.). Gate receipts are $33 million. That means $53.8 million comes from local revenue not ticket sales.
But let's look again at "Revenue Per Fan". Everyone knows there is a wide array of fans in the Tampa Bay area. They do not all support the Rays. As a matter of fact, according to demographic studies, less than 60% of the Tampa Bay area are Rays fans. But for a rough estimate, let's use 60%.
Before we do that, we have to consider only 50% of Floridians are baseball fans. So to begin, we have 1.4 million baseball fans in Tampa Bay.
60% of the 1.4 million baseball fans equals 840,000 Rays fans in Tampa Bay.
Let's divide $86.8 million in local revenue by the 840,000 Rays fans. The math shows each Rays fan contributing $103.33 per season to the franchise.
That's a little more realistic.
However, the Rays value increased 29% over 2014, from $485 to $625 million. That's a nice return on investment for Stu Sternberg and friends, who have earned 199% since 2006. Cork Gaines at Rays Index posted this chart that goes a little further back than the Forbes page.
However, how does the valuation relate to some of the other measurements Forbes gives us? This post will explore the Rays 2015 data and look at Rate of Change with past Rays data. We will look at how the Rays compare to other teams in a future post.
Let's first look at the rate of change in franchise value as compared to the rate of change in revenue used for debt payments. Maybe as revenue goes up, so does franchise value. That should make sense.
From 2007 to 2012, we see franchise value and revenue moving almost hand-in-hand. That's interesting. Then in 2012, the franchise value jumps 40% and the rate of change in revenue is only 3%. In 2014, both increase 8%. Then in 2015, franchise value sees another huge spike. Perhaps these factors are not tied together.
Let's look at some other factors for similarities and patterns.
Here is the rate of change in revenue and the rate of change in attendance from 2006 to 2014. We don't have 2015's attendance yet so we stop at 2014.
There are few similarities here. Perhaps revenue lags attendance by a year. Maybe the funds generated by attendance are not counted until the following year. I'm not an accountant, so I am not sure how that works. But there are years that stand out. In 2011, attendance dropped 18%. In 2012, revenue only dropped 2%. In 2013 and 2014, attendance decreased both years, yet revenue increased.
Perhaps these factors are not related as much as people think. There are of course, many other revenue streams, such as television, merchandise, and concessions. And the Rays also make money from the rest of Major League Baseball due to revenue sharing. So even if attendance goes down, the Rays could still make money. As a matter of fact, they could still make a lot of money. Further proof that while good for appearance, attendance really doesn't matter.
Here is another interesting chart comparing the rate of change in franchise value and the rate of change in player expense (aka payroll).
Perhaps what we see here is that the value of the franchise does not increase much when the rate of change in payroll increases more rapidly than the value of the franchise (2009-2011). In 2012, player expense was slashed 27%. Franchise value dropped a bit, but not much. Since 2013, the franchise value has gone up more than the increase in payroll.
Update: Contributor Josh Simmons pointed out a very interesting coincidence: The change in value matches the changes in player expense at the same time revenue stops matching valuation. Could this be coincidence or an effect from a change in Forbes' methodology?
Here are the two charts side-by-side. I added a line at 2012 for clarity:
Now let's look at the Rate of Change in Value versus Rate of Change in Player Expense versus Rate of Change in Revenue on the same chart.
While all three moved in unison from 2007 to 2008, rate of change in player expense decoupled from 2009 to 2012. Meanwhile, rate of change in value and rate of change in revenue moved similarly. Then in 2012, rate of change in player expense increased and decreased at a similar path as value, while revenue moved only slightly.
Could be coincidence. Could be something more.
Update 2: E-migo and reader William Juliano, lead writer at The Captain's Blog, provided some insight into the franchise value and payroll trend.
@TBBaseballMkt @JoshuaRJSimmons Forbes valuations are based on multiples of EV, so the three-year link to player cost is coincidental.
— The Captain's Blog (@williamnyy23) March 31, 2015
and
@TBBaseballMkt @JoshuaRJSimmons EV=enterprise value, or basically total equity - total debt (measure of what it would cost to buy the team)
— The Captain's Blog (@williamnyy23) March 31, 2015
and
@TBBaseballMkt @JoshuaRJSimmons Key event was LAD sale, which forced Forbes to increase multiples. Before 2012, they used about 2x for TB
— The Captain's Blog (@williamnyy23) March 31, 2015
Big thanks to everyone who provided insight!
Overall, interesting stuff from Forbes.
My one major problem with the Forbes data:
According to Forbes, the Rays make $31 per fan. This is the most misleading number in the study. "Revenue Per Fan" is defined as "Local revenues divided by metro population with populations in two-team markets divided in half."
So $31 multiplied by the 2.8 million metro population is $86.8 million in local revenue. This would mean the Rays make a little over $100 million in other revenue (cable, revenue sharing, etc.). Gate receipts are $33 million. That means $53.8 million comes from local revenue not ticket sales.
But let's look again at "Revenue Per Fan". Everyone knows there is a wide array of fans in the Tampa Bay area. They do not all support the Rays. As a matter of fact, according to demographic studies, less than 60% of the Tampa Bay area are Rays fans. But for a rough estimate, let's use 60%.
Before we do that, we have to consider only 50% of Floridians are baseball fans. So to begin, we have 1.4 million baseball fans in Tampa Bay.
60% of the 1.4 million baseball fans equals 840,000 Rays fans in Tampa Bay.
Let's divide $86.8 million in local revenue by the 840,000 Rays fans. The math shows each Rays fan contributing $103.33 per season to the franchise.
That's a little more realistic.