Mlb expansion : It isn’t going to happen anytime soon. In reality, it could be a decade before that happens.
But, if Major League Baseball decides to grow in the future, would it be priced out?
The Catch-22 of Rob Manfred’s $8 Billion MLB Expansion
That’s the question being asked as the idea of adding two more clubs to MLB’s current 30 franchises (and possibly reorganising the league into eight divisions of four teams each) gains traction.
The issue at hand would be the high cost of hosting an expansion team for any would-be owner and location.
MLB commissioner Rob Manfred spoke about the topic during Sportico’s recent roundtable on MLB valuations.
“I believe that’s kind of a lodestar in terms of where you would start in terms of analysing expansion opportunity if these assets are worth an average of $2.2 billion,” Manfred added.
If the expansion price is now $2.2 billion per expansion club, you must factor in that this represents about half of the overall cost of acquiring a franchise.
A state-of-the-art MLB ballpark would cost close to $2 billion, bringing the total cost to roughly $4 billion.
Knowing that properly expanding the league would necessitate not one, but two new clubs to balance the league out, Manfred appears to be setting up a nearly impossible scenario for markets and baseball boosters, who would have to come up with $8 billion without falling into the revenue-sharing system’s revenue takers
The following markets have been considered as potential expansion markets or already have a baseball booster group in place: Charlotte, North Carolina, Las Vegas, Montreal, Nashville, Tennessee, Portland, Oregon, and Vancouver, British Columbia are among the cities shown.
All of those areas, including Montreal, with a metro population of 4.2 million people, would be under severe debt servicing strain for several years.
That takes into account the fact that auxiliary mixed-use development would encircle the ballpark in a “ballpark town” in any case of enlargement.
Even if a market could somehow generate enough fan attendance and media rights to pay off its debts, the franchise’s ability to maintain a competitive player payroll would be jeopardised.
And that’s just for the two new markets. With two new clubs, central revenues would be distributed 32 ways instead of 30 as they are now. On the panel this week, Manfred brought up the subject.
“From the standpoint of the present shareholders, expansion is not completely additive,” he explained.
“If 32 was the expansion number, there are large shared revenue streams that are diluted as a result of having 32 as opposed to 30 as your denominator, and that has to be taken into account as well.”
Manfred has told me on several occasions that he sees Major League Baseball as a growing industry.
Indeed, among North America’s big four, the other three major sports leagues have all expanded more recently than MLB.
However, Manfred must justify the $4.4 billion one-time infusion in expansion fees against the long-term reduction of central revenues, which may be approaching a plateau around national media rights after the next deals kick in in 2022.
So Manfred is in a Catch-22 situation: The league’s expansion will result in a one-time payment, as well as two new severely leveraged ownership groups and diminished centralised revenues.
None of this, of course, addresses the delicate question of clubs intruding on two or more existing broadcast regions.
Remember when the Montreal Expos moved to Washington, D.C., and Baltimore Orioles owner Peter Angelos vowed to sue the league unless he was compensated?
If the league requires 75 percent of owners to authorise expansion, the owners who claim a certain expansion candidate market as part of their television zone will almost certainly vote no. Six clubs claim the market in some places, such as Las Vegas.
While there’s a chance that clubs will want to take the quick cash from expansion fees to offset the pandemic’s losses, forecasts show that ballparks will expand their capacities this summer as more people become vaccinated.
This should mitigate the financial shock, reducing the allure of the rapid cash grab.
Major League Baseball will expand at some point. However, in the next five years—and possibly longer—this does not appear to be the case.
Whether Manfred or the next commissioner tackles the problem, the tricky catch-22 will undoubtedly persist.