What does Endeavor, Silver Lake’s foray into baseball mean for the minors?

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At that time, a year ago, Major League Baseball was completing its minor league reorganization, which included taking over the helm of minor league baseball and a reorganization that reduced the number of affiliated teams from 160 to 120.

This December there will be another event that is likely to reshape the minors for years to come.

Endeavor, a global sports and marketing company, will announce the purchase of six or more minor league teams as early as next week. Another six or more sales are expected shortly thereafter, with more to follow in the next year. MLB must approve all sales, but that is unlikely to be a problem.

Endeavor Group Holdings is a publicly traded company comprised of sports, entertainment and marketing companies. Silver Lake Partners, a private equity group, owns a significant stake in Endeavor.

In any normal year, the purchase of over 10 minor league teams would be considered seismic news. In the case of Endeavor, it will be a slowdown from its original pace. Limits have been put in place to ensure that Endeavor cannot purchase more than nine teams in one classification and no more than 24 teams in total before the end of the 2022 season.

This is most likely viewed as a temporary limit for MLB and current minor league owners to assess the impact of Endeavor’s big move to minor league baseball.

Several people involved in minor league baseball have said they wouldn’t be surprised if Endeavor eventually owns 30-40 of the 120 affiliated minor league teams.

Procedures are also expected to be put in place to ensure that Endeavor (or any other company that owns numerous teams) cannot dominate representation on the MLB-MiLB Executive Committee.

The Athletic first reported the likelihood of SilverLake / Endeavor buying minor league teams in October. An Endeavor spokesman declined to comment, as did MLB.

The sales prices are said to be above the current market prices, which is a powerful impetus for franchise sales, which had largely come to a standstill due to the reorganization of minors and the coronavirus pandemic. Several owners and operators around the minors said a large number of minor league teams have been contacted by Endeavor. Others have said that several teams, not contacted by Endeavor, contacted themselves to inquire about sales opportunities.

The main owner of Memphis Redbirds, Peter Freund, who is also a minority owner of the New York Yankees, is expected to play a significant role in the new Endeavor / Silver Lake company. Freund had also provided advice to MLB during the MLB’s takeover of the minors.

Franchise values ​​already showed solid resilience this off-season. Since the end of the season, the Double-A Binghamton Rumble ponies have been sold to Southpaw Resources under the direction of David Sobotka. Several other non-Endeavor sales are also expected. While Endeavor’s purchases are above market price, the other sales are expected to be exactly in line with pre-pandemic / MiLB reorganization prices. That has largely dispelled fears many had in 2020 that the underage reorganization would depress the value of minor league clubs.

Endeavor’s entry into the minor league industry can be seen as a promising indicator for the industry. This is a very well funded and diversified group that looks promising in buying minor league teams. The fact that the company wants to invest massively in the purchase of minor league teams is, after all the uncertainty of recent years, a clear vote of confidence in the economic potential of minors for the coming years.

There has been a lot of debate about the minors as to whether the Endeavor purchases are tied to the purchase of MLB teams from their minor league holdings, as MLB teams that have bought clubs using the Professional Development License structure are mostly buying clubs In order to avoid the worst results of belonging, you have to own it longer.

That doesn’t really seem to be the case. Endeavor is expected to announce the purchase of cornerstones associated with some of the largest franchises in the MLB. The purchases are expected to come from both privately owned teams and some MLB club owned teams, but it will mostly be teams in stellar markets or teams whose affiliations are tied to the biggest brands in the MLB.

So how can this make financial sense for Endeavor? The potential seems to lie in its ability to act on a scale never seen before in minors.

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Under the previous system of minor league governance, no single company was allowed to own more than one club in a league. These bans were lifted when the MLB took over the operation of minors with Professional Development Licenses. Mandalay Properties owned five minor league clubs at one point, but that pales in comparison to what Endeavor is likely to do.

For the smaller leagues, that would be a huge revenue, but for Silver Lake / Endeavor, it would be a more modest acquisition compared to some other endeavors. Endeavor bought 50.1% of the Ultimate Fighting Championship (UFC) for a reported $ 4.3 billion in 2016 (Silver Lake Partners also acquired a significant stake in UFC). Endeavor also recently announced the acquisition of Open Bet, a provider of betting technology and services, for $ 1.2 billion. Endeavor also owns Professional Bull Riding (PBR) and Euroleague basketball. The Learfield / IMG wing serves as the marketing arm for many college athletics programs, and IMG (owned by Endeavor) sells the media rights for the NFL and the Olympics. The IMG Academy (also under the Endeavor umbrella) has numerous MLB design candidates on its list every year. The William Morris Endeavor agency also represents baseball players (and other athletes).

Endeavor and Silver Lake are also partners in Fanatics Trading Cards, where they partner with MLBs (as well as other major US sports leagues and players’ associations).

In its quarterly third-quarter report, Endeavor forecast sales of $ 5 billion in 2021.

Minor league teams to buy are expected to cost Endeavor a few hundred million dollars, depending on how many teams the group eventually buys.

The big question nearly everyone in minor league baseball asks is how all of this makes financial sense for Endeavor / Silver Lake. In short, what do you know that no one else knows?

Minor league baseball is seen as a relatively stable but mature industry. A well-run team can definitely make a profit year after year, but not in the rate of return that most private equity groups seek (Silver Lake is a private equity firm that, according to its website, has assets of over $ 88 billion – Managed dollars. Endeavor is publicly traded on the New York Stock Exchange).

There is also the possibility of upgrading the franchise, but this has been somewhat marred by the PDL process. No team can be certain that it has a PDL after 2030, the expiration date of the current agreement. That was true under the old pro baseball agreements, too, but the industry largely acted as if they were perpetual licensing until the MLB made it clear in 2020 that it didn’t.

There are expectations of the minors that Endeavor will be able to lead his teams differently than individual groups were able to do. Endeavor may be able to pool its purchases to support marketing / sponsorship sales in its portfolio of holdings. It already manages multimedia rights for over 200 NCAA teams as well as some conferences through its Learfield / IMG wing.

Endeavor is expected to soon take over the marketing of the minor leagues for the MLB as well, although this deal is viewed as a separate deal and would not require the purchase of minor league teams.

It will likely look for efficiencies as well, which will likely mean some jobs currently being handled by individual minor league teams will be centralized (which will likely result in layoffs or job transfers). It will be able to market, promote, and aggressively sell tickets on a scale that most minor league teams cannot expect.

Endeavor is also said to be able to host numerous non-baseball events in the stadiums, as other companies it controls include events and concerts, as well as talent management for numerous acts.

The long-term effects of Endeavor’s major move to minor league baseball will not be fully recognized for a number of years, but they will likely be significant. This is a huge minor league baseball standards company getting into the field. It is also a company that both has clear connections and relationships with MLB, as well as the size to deal with MLB as a partner and on an equal footing.

And that leaves a lot of other minor league teams wondering what it will mean for them too. That is the question that no one has ever been able to answer.

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