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Baseball's secret $uccess $tory
MLB.com means a flood of new dollars for teams -- and maybe a more level playing field.
December 23, 2005: 11:23 AM EST
A weekly column by Chris Isidore, CNNMoney.com senior writer
MLB.com has more live streaming video on its site than any other network.
MLB.com has more live streaming video on its site than any other network.
MLB.com's online retail offering has kept the site busy in the baseball's off season.
MLB.com's online retail offering has kept the site busy in the baseball's off season.
SportsBiz SportsBiz Column archive Sports Illustrated email Chris Isidore

NEW YORK (CNNMoney.com) - The most successful, and most valuable, franchise in baseball in the last few years isn't the New York Yankees or their rivals, the Boston Red Sox.

It's Major League Baseball Advanced Media, which is worth more than those two deep pocket teams combined -- an estimated $2 billion to $2.5 billion, according to investments banks that looked into a possible initial public offering for the business a year ago.

And because of the success of MLB.com and other parts of MLBAM, the advantage that the Yankees, Red Sox and other rich teams have over the have-nots could shrink, eventually.

It probably won't happen in five or 10 years, but in 20 years, MLBAM could make the sport the share-the-wealth socialist paradise that has been long entrenched in the National Football League.

It all goes back to June 2000, about three months after the Internet stock bubble burst and no one was sure if any teams would ever make money on their Web sites. The Major League owners agreed to combine all their Internet operations in one unit and split expenses -- and any eventual profits -- evenly.

It was a little noticed move at the time, but that agreement could end up being a turning point for the game, the way the first national TV deal for the National Football League in 1960 was for the NFL.

After a couple of years of teams kicking in a relatively modest $1 million each to fund the start-up of MLBAM, the online operations became profitable.

In 2000 MLBAM had revenue of $5 million. This year baseball says the number will be about $265 million, up 92 percent from a year ago.

And it produced cash flow -- profits before interest, depreciation and other items -- of about $55 million in 2004, which is about what the Yankees get in television rights, by far the richest TV deal in the league.

More growth ahead

Fans used MLB.com to watch streamed video of games more than 7 million times this past season, and that doesn't count the times they watched highlight packages or listened to radio broadcasts.

MLBAM, which streams more live content than any other Web site, has only started to make baby steps in selling commercials on those broadcasts, a very attractive offering for advertisers looking to run ads that viewers won't use a clicker or TiVo to avoid.

Right now only about 10 percent of MLBAM's revenue comes from advertising. Look for that to grow, as online ads are seeing the fastest gains in the media business.

MLB.com's online retailing is so successful that the site drew nearly three-quarters of the traffic that went to NFL.com on the Friday after Thanksgiving, and almost twice the traffic on NBA.com, even though baseball is the only one of those three sports that's out of season.

MLBAM now owns Tickets.com as well as a stake in World Championship Sports Network, which provides online coverage of such Olympic sports as track and field, gymnastics and rowing. It also manages the Web sites for most Major League Soccer teams, and it is moving into wireless game broadcasts to cell phones.

MLBAM CEO Bob Bowman won't give estimates as to how fast or how far his business can grow, but he wouldn't rule out online revenue eventually topping that of local television -- deals that are the biggest factor creating an uneven revenue playing field in baseball.

"I don't think it'll be more important than ticket sales. But nobody knows how big it'll be," said Bowman.

"Certainly if the past is the prologue, the new delivery mechanism is going to be more important than the old delivery mechanism. Radio replaced newspapers, TV replaced radio. All survived, but television is now dominant."

A lift for smaller teams

Experts say dollars from MLBAM are already allowing poorer teams to spend more on players this off season, and on what buyers are willing to pay for those franchises.

"This is a very interesting asset being created that is creating a lot of value for baseball," said Sal Galatioto, a sports investment banker. "The only problem is you can't project 20 years ahead in terms of growth rates."

Spending on players might have soared even more if there had been an IPO for baseball's online business and each team had gotten a check for $20 million to $25 million for the sale of a 30 percent stake in MLBAM.

"I think they would spend it (IPO proceeds) like drunken sailors," said Maury Brown, editor of BusinessofBaseball.com.

Probably because of that, and the upcoming labor talks with the players union a year from now, baseball has put a dot.com IPO on the shelf.

Bowman says the decision not to go public was so the unit could concentrate on growing and improving the business, rather than on road shows for investors and bankers.

An edge on weekly sports?

NFL.com still has somewhat more traffic on average throughout the year than MLB.com, but the gap is much smaller than it is between the two sports' TV ratings. And MLB.com beats the traffic on all the other sports' Web sites, including Nascar, according to Internet traffic trackers Nielsen/NetRatings and Media Metrix.

The NFL and Nascar, the two sports with the best television ratings, have the ideal once-a-week weekend schedules for drawing large audiences that television advertisers love.

But baseball, with its every-night schedule and a relatively large percentage of fans pulling for teams outside the market in which they live, is an ideal sport to draw viewers, and advertisers, to its Web site.

"With NFL or Nascar, you're talking a relative handful of games, a handful of races. With baseball you're talking 162 games for each team. That's much more content," said investment banker Galatioto. "Content is everything. The more content there is, the more opportunity there is to sell."

In fact, Nielsen/NetRatings shows MLB.com already getting more page views on average than NFL.com during the last 12 months.

Not surprisingly, it was much easier to get everyone to share equally when there's a relatively small pie. That's how revenue sharing came to rule the day in the NFL.

That league's first national television deal with CBS in 1960 brought in just $600,000 over two seasons. Even adjusted for inflation, that comes to only $1.98 million a year today.

Now, it's possible the rich teams in baseball could start pushing for a bigger share of MLBAM's very sweet pie.

But the experience in the NFL shows that once there's an agreement to split money evenly, it's tougher for the big market teams to back out. And as long as the money keeps growing rapidly, everyone should stay happy.

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For a look at recent changes in the economics of baseball, click here.

For a look at baseball's current good financial health, click here.

For more on the business of sports, click here.  Top of page

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