What does Endeavor, the Silver Lake push in underage baseball mean?
Around the same time a year ago, Major League Baseball finalized its minor league overhaul, which included a takeover of Minor League Baseball governance and a restructuring that reduced the number of affiliated teams from 160 to 120.
In December, there will be another event that will likely reshape miners for years to come.
Starting next week, Endeavor, a global sports and marketing company, is expected to announce the purchase of six or more minor league teams. Six or more more sales are expected shortly thereafter with more to come next year. MLB must approve all sales, but that shouldn’t be a problem.
Endeavor Group Holdings is a publicly traded company that brings together companies spanning sports, entertainment, and marketing. Silver Lake Partners, a private equity group, owns a significant stake in Endeavor.
In any normal year, purchasing more than 10 minor league teams would be considered seismic news. In Endeavor’s case, it will be a slowing down of its original pace. Limits have been put in place to ensure that Endeavor cannot buy more than nine teams in a single classification and not more than 24 teams in total before the end of the 2022 season.
This is most likely seen as a temporary limitation so that MLB and current minor league owners can assess the effects of Endeavor’s big leap in minor league baseball.
Several people involved in minor league baseball have said they would not be surprised if Endeavor ends up owning 30 to 40 of the 120 affiliated minor league teams.
Procedures should also be in place to ensure that Endeavor (or any entity with many teams) cannot dominate representation on the MLB-MiLB executive committee.
Athletic first reported in October the likelihood of SilverLake / Endeavor buying minor league teams. A spokesperson for Endeavor declined to comment, as did MLB.
Selling prices are expected to be above current market rates, giving a big boost to franchise sales that had been largely interrupted by the reorganization of miners as well as the coronavirus pandemic. Several owners and operators around the miners said a large number of minor league teams had been contacted by Endeavor. Others said several teams that had not been contacted by Endeavor contacted each other to inquire about sales opportunities.
Memphis Redbirds principal owner Peter Freund, who is also a minority owner of the New York Yankees, is expected to play an important role in the new Endeavor / Silver Lake entity. Freund had also served as a consultant to MLB during the takeover of the miners by MLB.
Franchise values were already showing solid resilience this offseason. Since the end of the season, the Double-A Binghamton Rumble ponies have been sold to Southpaw Resources, run by David Sobotka. Many other non-Endeavor sales are also expected. While Endeavor’s purchases are denominated at above-market rates, other sales are expected to be in line with pre-pandemic / MiLB reorganization prices. This largely alleviated the fears many had in 2020 that the underage reorganization would lower 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 diverse group that sees promise in buying minor league teams. After all the uncertainties of the past two years, the fact that the company wants to invest heavily in purchasing minor league teams is a big vote of confidence in the economic potential of miners for years to come.
There has been a lot of talk around minors as to whether Endeavor’s purchases relate to buying MLB teams in their minor leagues, because with the professional development licensing structure, MLB teams who bought clubs largely to avoid the worst results of affiliate shuffle no longer need to own them.
This does not appear to be the case in fact. Endeavor is expected to announce the purchase of key teams linked to some of MLB’s biggest franchises. It is expected that purchases will come from both individually owned and some MLB club-owned teams, but these will primarily be from teams in excellent markets or from teams whose affiliations are related to the biggest brands in MLB.
So how can this make financial sense for Endeavor? The potential seems to lie in its ability to operate on a scale never seen before in minors.
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Under the old system of minor league governance, no entity was allowed to own more than one club in a league. These bans were removed when the MLB resumed exploitation of minors with professional development licenses. Mandalay Properties owned five minor league clubs at one point, but that’s nothing compared to what Endeavor seems likely to do.
For the minor leagues that would represent a huge amount of sales, but for Silver Lake / Endeavor it would be a more modest acquisition compared to some of their other efforts. Endeavor bought 50.1% of the Ultimate Fighting Championship (UFC) for $ 4.3 billion in 2016 (Silver Lake Partners bought a large stake in the UFC at the same time). 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. Its Learfield / IMG wing serves as the marketing arm for many college track and field programs and IMG (owned by Endeavor) sells media rights for the NFL and the Olympics. The IMG Academy (also under the umbrella of Endeavor) has many MLB draft contenders on its roster every year. The William Morris Endeavor agency also represents baseball players (and other athletes).
Endeavor and Silver Lake are also co-owners of Fanatics Trading Cards, in which they are partners of the MLB (as well as other major US sports leagues and players’ associations).
In its third-quarter quarterly report, Endeavor predicted it would generate $ 5 billion in revenue in 2021.
Minor league team purchases are expected to ultimately cost Endeavor a few hundred million dollars, depending on how many teams the group ultimately purchases.
The big question facing almost everyone in minor league baseball is how does all of this make financial sense for Endeavor / Silver Lake? Or to put it more succinctly, what do they know that no one else among the minors knows?
Minor league baseball is considered a relatively stable but mature industry. A successfully managed team can certainly make year-over-year profit, but not at the rate of return most private equity groups want (Silver Lake is a private equity firm with over 88 billion dollars in assets, according to its website Endeavor is listed on the New York Stock Exchange).
There is also a possibility of appreciation in the valuation of the franchise, but this has been clouded somewhat by the PDL process. No team can be assured of having a PDL beyond 2030, which is the expiration date of the current agreement. This was also true under old professional baseball agreements, but the industry largely operated as if they were permanent licenses until the MLB made it clear that they were not. in 2020.
There are expectations around the miners that Endeavor will be able to lead its teams differently than individual groups have been able to. Endeavor will potentially be able to consolidate its purchases to help sell marketing / sponsorships across its range of holdings. Through his Learfield / IMG wing, he already manages the multimedia rights of over 200 NCAA teams as well as some conferences.
Endeavor is also expected to take over minor league marketing for MLB soon, although this deal is considered separate and would not require the purchase of minor league teams.
He will also seek to find efficiencies, which will likely mean that some jobs currently managed by individual minor league teams will be centralized (which will likely result in layoffs or job transfers). He will be able to aggressively market, promote and sell tickets on a scale that most minor league teams cannot expect to match.
Endeavor should also be able to host many non-baseball events in stadiums, as the other companies it controls include events and concerts as well as talent management for many acts.
The long-term effects of Endeavor’s big move to minor league baseball won’t be fully appreciated for several years, but they will likely be significant. This is a massive undertaking by the standards of minor league baseball entering the field. It is also a company that has both clear connections and relationships with MLB, but also the scale to deal with MLB as a partner and as an equal.
And that leaves many other minor league teams wondering what that will mean for them, too. This is the question that no one has yet been able to answer.