Multiple sources confirm private-equity firm Silver Lake Partners and Endeavor Group Holdings, owner of UFC and the WME talent agency, have filed paperwork to buy five MiLB teams, with another five filings expected in coming weeks.
This is not a surprise: In October we reported the pair was looking at buying up to 17 MiLB teams, concentrating on teams owned by MLB teams. Technically, the pair have filed five Control Interest Transfer (CIT) applications for licensees, the first step in the process, with another five expected across all classifications.
(There are other team sales coming down the pike at the Double-A and Triple-A levels, we are told, unassociated with the Silver Lake/Endeavor move.)
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 Rome Braves, and there’s no need for a New York Mets to invest money in Brooklyn Cyclones ballpark upgrades.
As we noted in October on the changing financials behind baseball, 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 Partners — that 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. So the circle is closing.
There’s one thing that has MiLB insiders befuddled: exactly why the pair is making such a large investment in Minor League Baseball? Getting back to the MiLB purchase: it looks to be an investment of at least $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. How will the new entity make back its money? There’s certainly some upside when it comes to improving operations, and some of the teams 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. And with owners able now to own multiple teams in a league, the rules are certainly relaxed when it comes to large purchases. (We expect to learn more at the Winter Meetings next week–while the MLB side could be canceled, the MiLB meetings are expected to take place as planned.)
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.