Profitability of Owning a Minor League Baseball Team
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About a decade ago, I was approached as a representative of my company to buy a bottom-of-the-barrel soccer... err... football team in the UK for one of the companies I managed. The idea was that it would be in lieu of spending marketing dollars - owning a football club would have supposedly catapulted us into the public consciousness, even if the club hadn't won a match in a decade. I spent about five minutes looking at the financials, which were somewhere between abysmal and disgraceful, another ten minutes looking at the economics of owning a crap football team, and I quickly determined that this was one of the worst ideas that this management team had ever had. This says something: this team also wanted to make a movie about their product (they sold a commonly available commodity product, and their iteration of it was, by their own admission, nothing special) and they once asked for forgiveness for spending 3x their revenue in ads for "branding."
The only good part of the football team idea of theirs was when they took me to a match and everyone there bought me a beer, which resulted in me throwing up on the side of the highway en route to my flight home.
They took photos of me doing that as blackmail that they never used.
I hadn't thought much about that day until my book fair dreams were dashed. My favorite thing about the book fair business model is that all of your retail labor is willing volunteers, and we all know that labor is one of the largest costs for any business. There is other labor cost in book fairs - warehouses, tech, sales reps - but you don't need that many of those people to run the business.
I started thinking about other business where the labor is essentially free, and I found a surprising example: minor league baseball.
Minor league baseball teams don't (usually) pay for their players or coaches. The major league team they are affiliated with does. This means that while a minor league team needs to pay for front office staff and seasonal labor, the main attraction - the game - is free to the owners of those teams.
This got me wondering: can you make real money owning a minor league baseball team?
While some minor league teams - those in relatively major markets - seem to make money, major league baseball has been taking a hatchet to the traditional farm system, dramatically cutting the draft (the source of players for minor league teams) and cutting about 40 mostly rural teams out of the farm system entirely, which would mean that those teams would have to start paying players and coaches themselves. Which means... they go bankrupt.
The economics of running a minor league baseball team hinge entirely on the free labor component.
Not that players and coaches in the minors actually make any money: most are well below the poverty line, working for a shot at making it. But without a clear path from the minors to the majors, it would be hard to convince someone to pay for an unaffiliated club.
The other costs in running a minor league team are substantial. There is a lot of rent to pay on those stadiums (which were often built by taxpayers), and there are fees to major league baseball to pay for the affiliation.
Then there is the central problem in owning one of these teams: unlike major league teams that make money off of TV deals and streaming, minor league teams rely almost entirely on ticket sales, concessions and merchandise. That means you need to fill the stands, week-in and week-out, to make money.
Some teams, like the Sacramento River Cats, have no issue with this, getting up to 9,000 fans a game and generating $20m+ in revenue in non-COVID years. Others in major markets report profit margins of 25-30% on revenue, and an average in the mid-teens for the best clubs.
This margin is only possible because of how major league baseball pays $5-$10m+ of salary costs per team (and sometimes more, including players who do rehab stints from the majors in a minor league team). Without that, none of the teams would be profitable. There are examples of teams that do well without any star players coming down or up – Dayton is a good example of this, as they focus on affordable family entertainment in a relatively populated area – but most don't.
Of course, teams that can't put butts in seats, which includes virtually all rural teams, don't make money. And much of the minor league system is rural, or places that used to be population centers that they ceased to be more than ghost towns decades ago as industry moved on.
So is this a good business? Yes, if you're located near a population center. Its another example of location, location, location being the driving factor in the business.
Well, that, and making sure that you can make money on the dirt cheap ticket prices by offering lots of other things to do at the park - one has rock climbing walls - to make it a great value for a dollar.
For those of you wondering what it costs to buy a minor league team, it's $30m+ for one in a good market.
Overall, this had surprising parallels to the book fairs for me: the free labor in both scenarios creates a massive margin opportunity that wouldn't otherwise exist, and both use somewhat predatory pricing on their stars (either players / coaches or author / illustrators) in order to enhance that margin: in baseball, it's paying a wage that is incredibly low. In the book fair, it's cutting authors out of the majority of the potential royalties and cutting production quality in order to have extra margin to work with.
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