Dodging a Giant Enterprise Risk
Pitchers and catchers report to spring training in two weeks. Ah, February, baseball’s month for hopes and dreams! Basking in all the optimism, you’d never know Major League Baseball is facing a serious enterprise risk: the gobs of revenue pouring in for decades from local cable television and radio broadcasting rights are likely to dwindle soon.
For some teams they already have. Diamond Sports, a former subsidiary of the Sinclair Broadcast Group doing business as Bally Sports, filed for Chapter 11 bankruptcy last year. Fourteen major league teams had broadcast contracts with Bally, which is still negotiating how much it will pay twelve of those teams this year, having completely abandoned the Arizona Diamondbacks and San Diego Padres. The Padres’ contract with Bally was worth around $60 million in 2023, an estimated twenty to thirty percent of the team’s total revenue. (Baseball owners have never opened their books, making it impossible to know how much they rake in, but it must be tons because franchise value has been soaring. Last year Forbes estimated the Padres’ value at $1.75 billion. The current ownership group bought the team in 2012 for $600 million.) No wonder the Padres traded away Juan Soto, a young superstar who becomes a free agent after this season. They can’t afford him anymore.
But why am I talking about the Padres? I’m the guy who wrote the book on the rivalry between the Los Angeles (née Brooklyn) Dodgers and San Francisco (née New York) Giants. Because Major League Baseball operates less as a unified creature than as a thirty-headed monster with each head out for itself, there is no centralized response to the collapse of the cable and radio audience beyond vague plans to switch to streaming. So the Dodgers and Giants, both wealthy (Forbes ranked them the 25th and 49th most valuable sports franchises in the world last year) have devised their own solutions to the impending shortfall.
Over the winter the Dodgers invested more than a billion dollars in a pair of superstars: Japanese native Shohei Ohtani, who played for the Los Angeles Angels the last six seasons and established himself as the modern Babe Ruth, an awesome hitter who can also pitch; and Yoshinobu Yamamoto, only 25 and the best pitcher in Japan the last three years. In so doing, the Dodgers made themselves the favorite American team of a baseball-mad Asian country (or should I say market?) with ample disposable income. The Dodgers might earn more than a billion dollars just from licensing merchandise in Japan. Selling broadcast rights there could compensate for any downturn at home. Dodger Stadium will become a destination for Japanese tourists, augmenting attendance revenue, and Ohtani and Yamamoto will make it more likely the Dodgers qualify for lucrative post-season play, including the World Series.
Whereas the Dodgers have chosen to broaden their fan base, the Giants have opted to diversify their portfolio. They’re the big money behind Mission Rock, a massive real estate development across from the ballpark that includes housing, commercial, and office space. The project has been in the works since well before the Bally bankruptcy, but it’s not hard to imagine Giants’ ownership foreseeing the enterprise risk of diminished broadcast revenue (cutting cable was already a trend when The Fabulous Wife and I did it more than a decade ago) and deciding to generate more income from non-baseball sources.
Will it work? Maybe, maybe not. Back in 2018 the Giants must have assumed demand for San Francisco office space would remain high — a laughable notion post-pandemic. And though they won’t say it, tying up their assets in real estate likely precludes them from competing with the Dodgers for premium players like Ohtani and Yamamoto, consigning them to perennial runner-up status. But if money is professional baseball’s most important metric — and how innocent if you believe otherwise — the Giants’ owners will at least have the consolation of finishing ahead of the Padres while both ownership groups envy the Dodgers.
