 Hello, everybody, and welcome to the latest edition of Forb Sports Money. Bob Lorenz, along with my co-host, Michael Ozanian of Forb's Media, and we're joined by our yes colleague, Jack Curry, and we're going to begin with a very interesting conversation that's out there regarding baseball right now, or maybe it's just a concept. Jack, I want to start with you. It's this idea that Major League Baseball could play some games starting in Arizona. I guess we could loosely call it the Arizona plan with empty stadiums. What are you hearing within the baseball community about this? Bob, I think it's apropos to call it a concept as you did during these very uncertain, depressing, and trying times. Major League Baseball is talking about finding a plan, finding a solution that allows it to get its players back on the field, to have some games, to be able to provide that entertainment. They are taking their cues from the medical experts about whether or not they can go forward, spoke to one Major League Baseball official who said, listen, this Arizona plan has been floated, it has been discussed, but that is one of many things that have been discussed in meetings, and he emphasized that there is nothing that is concrete or nothing that is firm because they don't know when, where, or if we might see the next Major League Baseball game. You know, the one thing, Michael, about this, there are so many smart people in baseball and that run these baseball teams. They're going to work with all the health officials, all of the government officials, to make sure that this plan is even feasible. They're not going to go ahead and put their players, their organizations, or any of the public in danger. I think that's why it feels like such a concept right now. Yeah, Bob, I have to question that. You know, I mean, look, health is paramount right now for everybody. And my question is, you know, if you're a player, regardless of what health officials may say, and they're saying it's safe or whatever, are you going to really want to go there? Are you going to want to bring family members there? And what about the folks who will assist these players, you know, in terms of, you know, people at hotels or restaurants or any of that? I mean, this to me, in terms of the health, for health reasons, just doesn't make any sense. I think for that reason alone, it would make more sense to wait until this pandemic has, you know, gotten a lot more under control. And I do think that's something they're going to keep a close eye on. And Jack, that proposal that was out there did have some pretty rigid plans as if the players and teams, et cetera, all of the people involved almost live in a bubble in a way, right? Right, I think that was one of the things. And I was reported by ESPN's Jeff Pass and he had a lot of details in his article. Major League Baseball did come out with a statement the next day that said, whoa, basically breaks on this statement. We're still having discussions about this. But to Michael's point, he brings up a great point. They're going to be pros and cons with any plan going forward. They're going to be negatives and positives. There's no perfect plan in 2020. Everything has changed for Major League sports in 2020. I think trying to play the games in Arizona, there's actually some sense with that because less travel during this time. That sounds like a decent idea to get everybody together. But then as Michael just brought up, once you get everybody together, how are you figuring out the logistics? Major League Baseball was going to have 26-man rosters in 2020. I think if they come back, that's changing. Those rosters are going to have to be hyped in some manner. So let's say we're talking about, before you even add support staff and coaching staff, talking about 1,000 people in an isolated or sequestered area for four months. And yes, that is a logistical question that brings on dozens, if not hundreds, of more questions. So what about the umpires, right? I mean, they tend to be more of the age of people that supposedly are more susceptible to this virus. And you're going to ask players to buy in. Look, on one hand, you could sell them on. You're going to make some of your salary, which is something obviously they'd have to figure out. But also, by the way, buy into this, you're going to have to be away from your family and kids and wife for potentially four or five months. So again, that's just one of the many layers that they're going to have to sort through if this concept even moves beyond the point it's at. I spoke to former players about this plan and said, what would you have done if this was laid in your lap? And one player said, listen, everyone's situation is different. And I think that there's a part of me that would have said, there is no way I could leave my family. But if leaving your family meant that that's how you drew your paycheck for that year, you might have to make some very difficult decisions. And by the way, following up on Passon's article, Ken Rosenthal did an article for the athletic where he brought up the possibility that that idea was not so rigid, that there might be family involved. But then guys, you're raising the number of people who are going to be sequestered or isolated even more. And you have to take that risk, Jack, and it becomes riskier health-wise. And as you pointed out, you're going to take on that added risk for less money if you're a player. So that clearly falls into the equation as well. Again, those are all those things that have to be worked out between baseball, the players union, et cetera. You know, Ozzie, I want to ask you about one thing, though. We talked about this earlier when we were discussing this before this. And the one thing that would be the allure, there would be empty stadiums. They'd be living in this bubble. But I think you could still baseball in the community, all baseball fans on, hey, if my best shot at getting some baseball back early is just to watch it on TV, watch it on all of the networks, et cetera. I can do that for a month or two while stadiums return to normalcy and hopefully the country and the world returns to normalcy. Bob, for me, as a big baseball fan, I love the idea. I could sit in the safety and comfort of my own home and watch baseball. That's great for me. But just turning to economics for a minute, I don't see economically, guys, how this works out for Major League Baseball. Baseball gets the biggest single chunk of its revenue from its gate, club seat, and luxury seating. That constitutes, in last year, $3.2 billion, the biggest single chunk. That would be gone under a scenario with no fans in these stadiums. That means you'd have a tremendous impact on revenue sharing. There'd be less money to give because that falls into the revenue sharing formula. It's part of local revenue. That hurts teams in low revenue markets like Kansas City, Tampa. There's a big impact there. To me, it also impacts, you're talking about what happens in terms of what's the limit and how does this fit into what's the most we can pay players? You'd have to recreate the whole revenue sharing formula, the whole free agent, which you could pay players, that formula, luxury tax, what's not included in that. We know, as baseball fans, how long it could sometimes take the players' union and the owners to agree to a basic collective bargaining agreement over a course of a couple of years. Coming up with an agreement like this over just a couple of weeks seems like a daunting challenge to me. Jack, it's interesting because as we're talking about all these baseballs right now that we're juggling and things that would have to happen, I think of it from your and my perspective and from journalists' perspectives, how do they cover the game? How do they get interviews? Do we cover the games and do a pre-game and post-game from home? Are the studios accessible? Again, these are all part of those different layers, but we want to find, in some way, shape and perform to bring baseball to people and fans. Right, we're not oblivious to what is going on around us. As we're talking about baseball and the economics of the game and getting it back on the field, we all know what is happening hour by hour around us. All of that being said, having spoken to some MLB people, they said if they get the green light from medical officials, they believe that there are healing properties within baseball. And I agree with that, too. And I'm not trying to be trite and it's not a cliche, but that if the country did push its way back to some normalcy, there would be people who would love to see baseball games on. Again, I'm not oblivious. I watch the news every day, too. I see the death numbers rising and it's awful to see that. But if we get to a point where baseball can offer some healing properties, I think that's something that the country is going to go from. Hey, Jack, I got a question for you. You're really wired into the baseball community. Would the players and people that you talked to involve in baseball, would they prefer to see the scenario we just talked about and Bob summarized in Arizona starting, let's say, in May or early June with empty stadiums for a month or so? Or would they prefer to wait and let's say July, early July start the season, albeit with fewer games, but with stadiums that are full of fans? When I've spoken to players and former players, Michael, a lot of them have almost answered the question with the understanding that they're not expecting fans to be playing, to be there for the games. I don't think we can predict the future. I don't even know if we know by July if people are going to be going to a movie theater, going to a baseball game, going to a restaurant. So when I've spoken to players and former players about that, it's almost always been under the idea that yes, you're going to be playing in an empty stadium. I will say this, that a lot of the people I have spoken to have talked about 100 game season. Try not to push it much beyond that. If you could get 100 games in, that would seem to them like a legitimate season. And with what we've just said, guys, it always circles back to this. As much as uncertainty as there is, it all comes back to staying healthy, staying strong, making good decisions. We know a lot of Yankees fans are doing that. We certainly appreciate it. All right, that's good to do it. For this conversation, Jack, great seeing you once again. And after a quick timeout, Ozzie and I are going to go over the latest major league baseball valuation. We know you missed the games and the advent. The adrenaline and the excitement. The green grass in the ballpark. I do miss the pizza and the Bronx. The energy, the crack of the back. The way that ballpark just feels like home. But for now, if we have to be alone, let's do it together as teammates. Stay safe. Stay strong. Stay healthy. Stay with us. Yes, we're here. And we welcome you back once again to Forbes Sports. Money, as Ozzie and I go over the latest major league baseball valuations. And Ozzie, before we do that, I always want to remind our viewers, there's a lot going on in the world right now amidst this pandemic all around the globe. But the business world never stops turning. So what have you been keeping your eyes on in terms of the business of baseball? Well, Bob, I went ahead and did our annual MLB valuations. And as you pointed out, it's a tough time to focus on that. When you see people in your own community, the hard times they're going through, business is shutting down. But the business of baseball is continuing. So I took a look at the annual valuations again. All right, so it is that time of year for it. How are the numbers holding up right now for major league teams? Well, by my calculations, Bob, the average team is now worth $1.85 billion, only a 4% increase from last year. And for a little context, that's the smallest annual increase since 2010. All right, so it is good to own a team, but you're saying that it's not completely bulletproof, like any other business right now. Is that fair to say? Sure, absolutely. When the businesses in the outside world are hurting, baseball hurts. And actually, obviously, there's nothing going on right now. People aren't going to games. But the reality is, we won't see any major transactions among baseball teams in terms of buyers or sole sellers. The Metz transaction is temporarily scuttled. So nothing's going to happen until people figure out exactly what baseball is going to do and when it's going to restart, because that's going to impact the economics. Now, Ozzy, every time you give us valuations, I always kind of think of you like a mathematics professor. But you had to become a history professor in taking the valuations this year and going back to the sale of Chicago Cubs. What were the connections, the connective tissue there? Well, fortunately, Bob, I didn't have to go too far back in history. You know, I went back to the last recession we had in 2008, 2009. And to give you an idea of how baseball teams hold up their value even during times when the economy is doing very bad and the stock market's terrible and the financial markets are in turmoil. At that point, the Cubs sold for $845 million, including their 25% stake in a regional sports network. $700 million of that price tag was assigned to the Cubs in Wrigley Field. That was the highest price at that time ever paid for a baseball team. To give you a little context, the previous big market team that was sold before the Cubs purchased with the Red Sox in 2002, $380 million of that $700 million price tag was assigned to the Red Sox in Fenway Park. So in other words, in the course of seven years, despite the fact that we were going through terrible economic times, the Cubs sold for 80% more than the Red Sox. All right. So always important to be one of those big market teams. You've already mentioned the Mets. Let me ask you quickly about that. Forbes valued them at $2.4 billion. They had a deal on the table pre-pandemic with Steve Cohen for $2.6 billion, but that fell apart. You ever think they're going to see that deal again? No. How's that for an answer? No, I don't because I think they're going to revise that deal as you recall, Steve Cohen was not going to take control of the team for five years. I think in the next deal, which won't happen until after baseball gets underway, will be for a price less than that and whoever buys the team will assume immediate control. All right. That's something we'll keep an eye on. As you said, big sales probably aren't going to happen at least during this short-term period. In the meantime, baseball, we've talked about this on our past shows, stays insulated in some ways because of consistent revenue streams and they still have some of those certainly in terms of the TV deals, right? Yeah. I mean, the TV outlook is still very bullish for Major League Baseball. That's tied into their national sponsorship and advertising and licensing revenue. If you look at that package, which totals $3.2 billion, the network portion of that for national broadcasting of games with ESPN, Turner, and Fox is $1.55 billion a year. Fox has already signed to renew its deal beginning. I think it's in 2022 for almost a 50% increase. Turner and ESPN, based on the people I've spoken with, are going to increase their rights fees for a similar amount. So that's very bullish for Major League Baseball. Hey, Bob, one great thing about the national TV deals, baseball teams will get all of that money, even if some games are missed. And then you kick it down to the local level and there have been a couple teams over the past couple of years that have gotten much nicer local deals. Is that right? Oh, yeah, Bob. We've got to help them out of that. You know, we've been hearing how, you know, local rights fees are going to get killed. They're not going to increase that much, but there have been two deals very recently, just within the last few months. For small market teams, though less, the Tampa Bay Rays and the Kansas City Royals, both of those deals, their cable deals went up by 50%. So that's a spectacular increase. You know, it's not the doubling, maybe, that we saw a few years ago, but it's still very positive. A lot of the same teams knew that top five. In fact, the top five have team values of three billion or more, led by the Yankees, Ozzy, who are the first team ever to hit the $5 billion mark. Yeah, Bob. The Yankees generate by far the most revenue baseball. In the 2019 season, the Dodgers were second in revenue, but they were $127 million behind the Yankees to give you some perspective. Besides being in a big market, the most valuable teams, so about Yankees, Dodgers, Red Sox, and so forth, all those other teams worth over three billion. They all have very lucrative cable deals. And that, because it's not shared equally, like the national media revenue, those teams that have the richest cable deals also tend to be among the most valuable baseball teams. All right, so I looked at your valuations, and I know you did, in writing about it, you didn't call it this, but I'm going to call it the Bryce Harper effect on two teams, the Washington Nationals and the Phillies. Both of their team values are up. For the Nationals, is it as simple, even though they lost out on retaining him, they win by winning a title. Yeah, it was very interesting. Just based on the postseason, Bob, I estimated that their revenue, the postseason, added 30 million to their coffers last year. So obviously they had a great year, despite not having Bryce. And also, we tend to look a little forward in our valuations, and when you win that World Series, Bob, as you know, that really tends to increase fans' desires, to pay for luxury suites, and for those advertisers to advertise in the ballpark. So, you know, winning that first title really helped boost the value of the Nationals. And the Phillies did not do that well in the standings with Bryce on their team in the first year, but he did have a positive ripple effect for the Phillies, right? Yeah, you know, it's funny. Oh, they finished fourth in the National League East. I think they were like a 500 team or something. But their attendance went up by like, I think it was 27 percent. It was like 600,000 fans or something like that. So, you know, he really added to their ticket revenue, which helped boost their value. And, you know, the only player who sold more jerseys than Bryce Harper last year was Aaron Judge. So, you know, having that megastar certainly helps the value of the team. Yeah, that Harper Nationals jersey lost a little value. You had to go buy them a jersey, right? They're the Phillies, if you're a Harper. I'm glad I didn't have one of those. A final question for you, just kind of bringing it full circle. You talked about there's still some business being done, but with games not being played, nearly not as much as we would normally see in a normal year. Is the pandemic probably going to have an effect on some people in baseball or in ownership groups? I think it's going to impact limited partners, Bob, guys, especially guys that own less than 5 percent. Their businesses, as we talked about on the top of this segment, have been clobbered because of the pandemic shut down. So, the guy who owns maybe a 1 percent stake in a team and maybe is worth five, six million dollars because he owns a car dealership, he's worth a lot less today. So, if some of these baseball teams lose money and there are capital calls, which is when the general partner says, hey, you guys got to put in more cash, these limited partners are going to be selling. And I think we could see that happen particularly, particularly if baseball has a significant drop in revenue because many games are played in empty ballparks. All right. That's something we're going to have to keep an eye on, obviously. Ozzy, great stuff as always. Good to see you on the latest edition of Forbes Sports Money.