Endeavor: Investing In Minor League Baseball

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Hey friends,

We have talked about Minor League Baseball (MiLB) a lot this year.

After decades of mounting pressure from various advocacy groups, Major League Baseball recently took its first step in attempting to fix the living conditions that have historically plagued athletes competing in its lowest levels.

A new Minor League Housing Policy was unveiled last month, which will provide over 90% of all MiLB players with free housing accommodation options located at a reasonable and commutable distance from the ballpark.

Sure, given the average minor league player still only makes $10,000 to $15,000 annually, there is a long way to go, but improving living conditions for roughly 7,000 players genuinely seems like a step in the right direction.

But now we have our next interesting storyline brewing within the minor leagues.

Endeavor, the public holding company of various sports and entertainment assets like the Ultimate Fighting Championship (UFC) & Professional Bull Riders (PBR), announced last week that they would be forming Diamond Baseball Holdings.

Here’s the TLDR version — they plan to acquire a bunch of minor league baseball teams and leverage their experience with negotiating media rights, selling tickets, and digitally transforming business operations to derive additional value from these assets.

The holding company has already purchased or is currently in the process of buying at least nine Minor League Baseball teams, including:

• Triple-A

  • Iowa Cubs (Chicago Cubs)

  • Memphis Redbirds (St. Louis Cardinals)

  • Scranton/Wilkes-Barre RailRiders (NY Yankees)

  • Gwinnett Stripers (Atlanta Braves)

• Double-A

  • Mississippi Braves (Atlanta Braves)

• High-A

  • Hudson Valley Renegades (NY Yankees)

  • Rome Braves (Atlanta Braves)

• Low-A

  • Augusta GreenJackets (Atlanta Braves)

  • San Jose Giants (Low-A Giants)

So this approach is interesting to me for a few reasons.

First, with COVID-19 up-ending the entire operating model of professional sports last year, Major League Baseball decided to cut 25% of its minor league teams.

There were a bunch of rumors floating around, but if we’re being honest, the real reason is that these clubs don’t have large media deals like their MLB counterparts, impacting them to a much greater extent when they can’t have fans attend games.

And that decision ended up reducing the supply of these assets by 25%.

Minor League Teams (MLB Affiliates)

• 2019: 160 teams

• 2020: 120 teams (-25%)

Secondly, minor league baseball teams run some of the most asset-light operations (from a capital standpoint) that you’ll find in professional sports.

Of course, you still have the stadium, sales team, grounds crew, and more, but the most expensive assets in pro sports are typically players’ & coaches’ salaries. Those salaries & bonuses can run between $10 million to $15 million annually, but in minor league baseball, they are paid for by the big-league club.

The result is excellent margins.

For example, the Sports Advisory Group conducted a study years ago, and this is how the average financials looked for the top 20 teams across Minor League Baseball.

• Valuation: $21.2 million

• Revenue: $9.8 million

• Operating Income: $3 million

The study is pretty old, so maybe the overall numbers have increased, but you get the point — the best teams in minor league baseball have impressive operating margins.

Endeavor hasn’t laid out a detailed plan of attack yet. Still, I think this is an exciting story worth following. Their work on the UFC and PBR has given them the necessary expertise to increase ticket sales, maximize sponsorship income, and even potentially sell the media rights to a streaming organization.

We’ll see what happens, but as always, I’ll keep you updated as things change.

I hope everyone has a great day, and we’ll talk tomorrow.

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