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Private equity hitting Minor League Baseball?

MiLBPrivate equity firm Silver Lake Partners is looking to buy up to 17 Minor League Baseball teams across all classification levels, with a focus on licensees owned by MLB teams.

Silver Lake would be partnering with Endeavor Group Holdings, owner of UFC and WME talent agency, on the deal. Also participating in the talks, we’re told: Peter Freund, owner of the Memphis Redbirds and a key participant in the MLB takeover of Minor League Baseball. The rumors about such a dramatic buy — representing a serious chunk of the industry — have been swirling for weeks, with the number of teams in the deal changing often.

Why the focus on MLB-owned teams? Because there’s no need for an MLB team to own an MiLB affiliate any more, and MLB teams can now monetize those assets with virtually no down side. In the past MLB teams owned MiLB teams to control their affiliates; no jockeying for new affiliates every two or four years, no needing to deal with pesky MiLB owners and their demands, no needing to work through St. Pete on facility standards. With the MLB takeover of MiLB, MLB teams now have total control over their affiliates in every respect. MLB calls the shots when it comes to facility standards, player treatment and most MiLB operations in matter big and small, including the likes of preferred vendors. With that level of control, there’s just no need for the Atlanta Braves to own the Mississippi Braves or the Gwinnett Stripers, and there’s no need for a New York Mets to invest money in Brooklyn Cyclones ballpark upgrades.

We’ve told this purchase could also include MiLB teams with a significant investment in MiLB teams. Not every MLB investment in an MiLB team is public, so there could be a few surprising names when a final list is announced.

As we noted earlier this week, Silver Lake has been an active partner with MLB in a variety of initiatives, including Fanatics. Both MLB and Fanatics are big investors in Fanatics, and earlier this year MLB made some waves in the merchandising and collectible industries when it switched from longtime partner Topps to Fanatics on the trading-card front. A new entity, Fanatics Trading Cards, then raised $350 million in Series A funding from a trio of investors — Silver Lake, Endeavor and Insight Partnersthat put a value of the new entity at $10.4 billion. (Yes, MLB holds a stake in the Fanatics Trading Cards spinoff.) The valuation comes partly as a result of the investments, and partly from the wide array of rights acquired by Fanatics: besides the MLB deal, Fanatics secured image rights from the MLB, NFL and NBA player organizations.

What makes the Fanatics Trading Cards deal so different: the firm is said to be focusing on direct-to-consumer (DTC) sales and downplaying the traditional distributor and retailer arrangements. DTC is where the action is; it’s no surprise that Silver Lake has been rumored to be part of talks surrounding a potential MLB DTC streaming service — and, maybe, Fanatics as well.

Getting back to the MiLB purchase: it looks to be an investment of $300 million or so by the time Silver Lake and Endeavor buys the teams and funds needed facility upgrades to meet the new MLB specs. The interesting question: How will the new entity make back its money? There’s certainly some upside when it comes to improving operations, and some of the team in question could certainly benefit from some investment. But there tends to be not too many efficiencies when it comes to running multiple teams in multiple markets: some back-office ops can be consolidated, but experience says ticket, sponsorship and group sales are best done locally. Consolidating merchandising buys can yield some savings, and that’s an area where some Fanatics experience and buying power could benefit their own teams. It could just be that Silver Lake and Endeavor see a set of undervalued assets and are willing to take a chance on a big purchase in an attempt to leverage other assets, like Fanatics, working out the details later. In any case, we could see yet another dramatic shift in the Minor League Baseball world — and chances are good all MiLB teams will be affected on some level with Silver Lake and Endeavor as major players in the industry.

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