Rob Manfred’s $8 Billion MLB Expansion Catch-22

 Rob Manfred’s $8 Billion MLB Expansion Catch-22

It isn’t on the horizon. It could be as long as a decade away. But when Major League Baseball decides to expand, could it be pricing itself out?

That’s the question raised as the topic of planting two teams in the league would expand it from the current 30 teams to 32, creating the possibility of eight divisions of four teams, each.

The issue at hand would be the hefty price tag that comes for any would-be owner and city looking to host an expansion team. As part of Sportico’s panel on MLB valuations, MLB commissioner Rob Manfred weighed in on the subject.

“If in fact these assets are worth an average $2.2 billion, I think that’s kind of a lodestar in terms of where you would start in terms of evaluating expansion opportunity,” Manfred said.

If the expansion fee is currently $2.2 billion per expansion club, you have to consider that is roughly halfway to getting the total together to land a franchise. The cost of a state-of-the-art MLB ballpark would come in at close to $2 billion for a whopping total of around $4 billion. Knowing that to do expansion properly would require not one, but two new clubs to balance the league out and what Manfred is ostensibly doing is creating a nearly impossible scenario for markets and baseball boosters to cobble together without bumping into a need for these two to join the ranks of the revenue takers in the revenue-sharing system.

The following markets have been mentioned or have some form of a baseball booster group together already as possibilities for expansion: Charlotte, North Carolina; Las Vegas; Montreal; Nashville, Tennessee; Portland, Oregon; and Vancouver, British Columbia.

All of those markets – even Montreal, with a metro population estimated to be approx. 4.2 million – would be saddled under the intense pressure of debt service for several years. That takes into account that in any instance of expansion, ancillary mixed-use development would incircle the ballpark, ala “ballpark village.”

And even if a market were to somehow have the fan attendance and media rights deal to meet debt obligation, the ability to have a competitive player payroll would be under strain.

And that’s just the two expansion markets. In bringing in two new clubs, central revenues would be split 32 ways, as opposed to the current 30 clubs. Manfred touched on that issue this week on the panel.

“Expansion is not purely additive, right, from the perspective of the existing owners,” he said. “There are huge shared revenue streams that are diluted as a result of having 32 as opposed to 30 as your denominator, and if that was in fact the expansion number, and that has to be taken into account, as well.”

Manfred has said to me on more than one occasion that he sees MLB as a growth industry. Indeed, it is the last of the big four major sports leagues in North America to expand. But he has to sell the one-time infusion of $4.4 billion against the long-term dilution of central revenues, which could be nearing a plateau around national media rights after the next deals kick-in in 2022.

So, Manfred has a catch-22 on his hands: expand the league and get a one-time lump sum of around $8 billion to the owners, knowing that to make that happen two new ownership groups will be heavily leveraged but in doing so it dilutes the centralized revenues the 30 current owners enjoy. And none of this deals with the thorny issue of clubs encroaching on two or more current television territories. Remember when the Montreal Expos relocated to Washington, D.C. and Baltimore Orioles owner Peter Angelos threatened to sue the league if there wasn’t some form of indemnification? If the league needs 75% of the owners to approve expansion, you can almost assuredly start with the owners that claim that market as part of the television territory to vote no. In some locations, like Las Vegas, six clubs claim the market.

While there’s the outside shot of taking the fast money in expansion fees to offset the losses from the pandemic, projections seem to point to ballparks increasing their capacities over the course of the summer as more people get vaccinated. That minimizes the financial blow which lessens the luster of the quick cash grab.

Expansion will one day happen for Major League Baseball. But when and how it happens doesn’t appear to be something that will happen in the next five years – maybe longer. Whether it’s Manfred or the next commissioner to take on the issue, be sure in knowing the thorny catch-22 will remain.