Endeavor to Buy Nine Minor League Teams

Major league baseball remains in a holding pattern. There’s a lockout, the two sides are intermittently negotiating, and nothing can happen until they reach an agreement. That’s major league baseball, though, not all of baseball, and some interesting economic shenanigans are afoot across the minors.

As Baseball America’s J.J. Cooper reported last week, Endeavor Group Holdings is purchasing nine minor league baseball teams: the Gwinnett Stripers, Mississippi Braves, Rome Braves, Augusta GreenJackets, Iowa Cubs, Scranton/Wilkes-Barre RailRiders, Memphis Redbirds, Hudson Valley Renegades, and San Jose Giants; The Athletic’s Daniel Kaplan and Evan Drellich first reported the possibility in October. These transactions aren’t yet final, but they’re very likely to be approved, which will make Endeavor (via new subsidiary Diamond Baseball Holdings) the largest MiLB owner.

Endeavor, a publicly traded company partially owned by private equity group Silver Lake Partners, is already in the business of sports, though not specifically minor league baseball. They own a little bit of everything, from agencies to sports organizations. Their marquee holding is the UFC, but seriously, the list is endless: Professional Bull Riding, Euroleague Basketball, the IMG Academy that turns out baseball prospects, the Madrid Open, the William Morris Endeavor agency. It’s a broad portfolio, much of which is made up of directly-sports-related operations; an arm of the company also sells media rights for the Olympics.

What would a diversified sports holding company like that want with minor league baseball teams? In a word: money. I don’t want to be overly reductive here, but that’s mostly why companies buy things. In the past, plenty of minor league team sales have been driven by non-monetary reasoning. In 2017, for instance, the Brewers bought the Carolina Mudcats, an A-Ball team in the Carolina league. It wasn’t because they saw untapped profit potential in Zebulon, North Carolina. Rather, they wanted to avoid the affiliate shuffle that frequently saw minor league teams switch major league parents; the Braves owned three of the four Atlanta affiliates Endeavor is purchasing for similar reasons. That’s no longer an issue after 2020’s minor league restructuring, and Endeavor isn’t a major league team anyway. This purchase is all about dollars.

Given that, what should we expect from it? From an on-field perspective, almost nothing will change, and that’s by design. The Professional Development League system, in addition to contracting more than 40 teams, standardized the relationship between minor and major league teams, putting guidelines around facilities and leaving the on-field personnel and player development operation in the hands of the parent clubs.

But let’s be honest, that’s the boring part of a minor league team. Endeavor bought the fun parts: the crazy promotions, the wacky marketing, and the lucrative merchandise. In the 8-K form Endeavor submitted in support of its purchases, it listed a wide range of value-adding propositions:

“(Diamond Baseball Holdings) will support its clubs with ticket sales, partnerships, naming rights, food & beverage, merchandise, content strategy, collectibles/authentics/NFTs and media rights, tapping into the broader Endeavor network… for expertise across the various disciplines.”

That’s a heaping helping of corporate euphemisms, but the general idea is that Endeavor is going to run the business side of its minor league portfolio. The game on the field won’t change, and given the new license, the players will have uniform playing conditions. Endeavor will try to come up with new window dressing to monetize the games.

There’s a ghoulish part to all of it, naturally. Private equity firms love to acquire and pick apart companies. It’s more efficient to spend $20 dollars and make $50 than it is to spend $100 and make $120, so slashing away huge parts of a going concern is a popular way to increase profits. I don’t think that will be the central story here, though. That might be a bonus for Endeavor, but it’s not a key feature of the company’s existing holdings. You don’t buy the UFC and look to reduce its scope, but that doesn’t mean there won’t be cuts. Endeavor got rid of roughly 15% of the UFC workforce when it first acquired the brand, though it has continued to grow in the years since. I’m not saying these are benevolent corporate overlords, but neither do they appear to be the cartoonish type of PE villain that buys a company and literally sells the factory for spare parts.

What kind of money is involved here? It’s hard to say, because minor league sale prices are rarely disclosed. We can approximate, though. First, Forbes occasionally creates a list of minor league franchise values. The last one, which was released in 2016, valued the Sacramento River Cats first among all minor league franchises, at $49 million. As an added bonus, Forbes collected some 2016 sale data. The bands were wide, but franchises sold for anywhere between $10 million (A-ball) and $40 million (also A-ball, but the Dayton Dragons are a prized franchise). Double- and Triple-A teams tipped the scales at anywhere from $20 million to $35 million.

Baseball America reported that Endeavor’s purchases were expected to be above pre-existing market rates, while some other minor league sales this offseason have been reported as roughly flat compared to pre-pandemic levels. That’s a good sign for the health of the minors as a whole, or at least, for the teams that secured PDL licenses in the 2020 reshuffle.

All told, I estimate that Endeavor is spending something on the order of $200 million to acquire these franchises. This will likely mean taking on some debt. Endeavor currently carries roughly $5 billion in long-term debt, a significant portion of their balance sheet. They’re built to expand quickly by taking on debt; their revenue was growing by roughly 20% per year before 2020 threw a wrench in the works, fueled by acquisitions. The pandemic dealt their business a huge blow — live sporting events weren’t exactly in vogue in 2020 — but they weathered the storm and used the proceeds of a 2021 IPO to consolidate their control of UFC. Their recent earnings suggest a return to their earlier rapid growth might be imminent. That likely means there will be more purchases to come, and indeed, sources told Baseball America that Endeavor might eventually purchase 35-40 affiliated minor league teams.

That rapid growth isn’t without pitfalls. It’s all well and good when you’re buying new things and making the pie bigger, but at some point, the acquisition-fueled growth part stops, and the revenue increase you’re aiming for has to come from increasing the efficiency of existing businesses – or perhaps spinning them off if they aren’t working out for you. Throwing the typically sleepy world of minor league baseball into the world of acquisition-driven financial growth doesn’t sound like a happy marriage.

But perhaps they’ll find the hoped-for revenue increase by improving existing operations. There are real efficiency gains to be had here. It might sound bland, but just combining minor league ticket sales departments would be a meaningful gain. Some of it is a personnel issue – one person to answer the phones costs less than two – but that’s small potatoes. Sharing a ticketing website and software? Replicating promotions across different teams? That will all strip down costs without hurting revenue.

I reached out to J.C. Bradbury, an economics professor at Kennesaw State University who researches the economics of sports. Bradbury sees these economies of scale as key to the deal. “You could develop a good website and share it across all your franchises like MLB does,” he told me. “You could hire one general manager to run five teams.” In addition to pure numerical advantages of scale, Bradbury noted that owning so many teams would make developing new promotions more efficient, as good ideas could be replicated across teams, while bad ideas are quickly discarded.

Broadcasting rights don’t make up a huge part of the minor league pie, but Endeavor listed them as part of what they’re hoping to make money on. Merchandise might be a bigger part of the plan. In 2019, minor league teams combined to make $85.7 million in merchandise sales. None of the nine teams Endeavor is acquiring were among the top 25 clubs in sales (individual revenues aren’t reported, but the top 25 is). Bradbury suggested that a group of teams might be able to secure a combined merchandise and uniform deal with better terms than individual teams achieve. If they’re able to both expand the pie and increase their share of it, that could be a meaningful source of income, though again, given murky data, it’s hard to say just how much it would move the needle.

Using the venues to host events when the teams aren’t playing is a natural fit given Endeavor’s other holdings. NFTs, which they mentioned in their 8-K, are less so. There’s an air of “just name some things that could make money” to that filing, which makes sense: it’s more of an aspirational statement than a marching plan.

How likely is this all to work out? It’s far too soon to say. Predicting how a basket of minor league teams will do when it comes to off-field revenue generation is beyond the scope of this article, never mind how they’ll mesh with a multi-billion-dollar corporation. Given Endeavor’s plans, the success of this venture will say a lot about how the minor league game experience looks for years to come.

In a perfect world, that doesn’t have to mean a dull corporate makeover of the wacky minor league landscape. The Savannah Bananas, an independent team, have become wildly successful – and no doubt profitable – by leaning into the silliness, both on the field and off. PDL teams can’t copy Banana Ball, but the promotions and entertainment that come with the game are open for innovation. The highest-earning Triple-A franchises were clearing more than $5 million in annual profit before the pandemic, and if Endeavor thinks it can match or exceed that number, their franchises might be able to combine good business with affordable entertainment.

Bradbury thinks that this potential for increased profit drove Endeavor to buy in bulk. “If they show that minor league franchises are undervalued, the price of a team might go up,” he noted. By buying as many teams upfront as possible, there’s less chance that Endeavor will need to chase higher valuations as they expand their minor league empire to its fully-planned scope.

Regardless of what happens, there will be some individual upheaval. For now, Endeavor reportedly plans to keep most of the staff of the teams they’re purchasing, but in the long run, that’s unlikely to be the case. That doesn’t mean every departure will be due to new management, but let’s be honest: one way to boost profit is by having fewer people do the same amount of work, and that will almost certainly happen here. Centralizing ticket sales might save money, but it also means laying off the now-extraneous ticket salespeople.

Even beyond that, minor league teams and their local communities don’t always live in harmony, and centralizing ownership is unlikely to change that dynamic. Bradbury noted that the Gwinnett Stripers have the ability to opt out of their lease after the 2023 season. That sets up a potential conflict between team and city, assuming that the conditions for the opt out are met. Endeavor, insulated somewhat from local community backlash by the scope of their operations, might be more willing to drive a hard bargain than the Atlanta Braves, the previous owners, would have been.

In the broad scope of baseball, this move isn’t seismic. If you don’t go to minor league games in person, you might never notice the difference in ownership. It’s still a meaningful shift in the economics of the sport though, and in this winter of economic discontent, every change in the future financial landscape of baseball is worth examining.





Ben is a writer at FanGraphs. He can be found on Twitter @_Ben_Clemens.

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sadtrombonemember
8 months ago

I hope to be wrong about this but the history of private equity buying lots of companies in debt-fueled purchases usually ends with those companies getting broken. Maybe there is less risk of that with standardized agreements between MLB and MiLB but I’m pretty sure that major league teams are not going to enjoy working with a corporate owner who owns so many AAA affiliates (and the Braves with a corporate owner might own all its affiliates).

MikeSmember
8 months ago
Reply to  sadtrombone

It seems quite odd and I had a lot of different thoughts reading the piece.

First I thought it was odd that MLB recently reduced the number of minor league teams because they were losing money, then along comes Endeavor buying up minor league teams, presumably because they think they can make money on minor league baseball.

Then I thought that Endeavor can’t do the old Pirate Equity thing because they don’t even pay the players and those are the biggest costs (and assets) any MiLB team has. It’s not like Endeavor can sell the rights to Adley Rutschman or Bobby Witt Jr. to the highest bidder. Or prevent Marty Pevey from getting a major league job. What is there to sell off at a profit here? They can’t dismantle the ballpark for parts. But I guess they can slim down the workforce some to reduce costs. They could also jack up prices of tickets or concessions. I’m not sure how well that will work in these markets.

Lastly, I figured that the MLB teams would protect their affiliates a little from raider-type behavior since they want good conditions for their players to develop in. Then I remembered what they tolerate now in terms of that and realized I was being idealistic and silly.

I guess from MLB’s perspective, nothing really changes. They contracts with the affiliates probably stipulate a wide range of obligations that the new owners will have to meet, but as long as they meet those minimum requirements then the big league teams are just dealing with a different person about the same things and very little changes.

troybrunomember
8 months ago
Reply to  MikeS

another reason they can’t “do the old pirate equity thing” and engage in “raider-type behavior” is because… they are a public entertainment/content company? and what you’ve described isn’t anything remotely resembling their business strategy?

quincy0191member
8 months ago
Reply to  MikeS

It’s not particularly odd that a) reducing the number of things makes the remaining things more valuable, or b) in a list of 120 or so businesses, some of them might not be doing well enough to survive on their merits. Look specifically at the list of teams being bought here; they’re mostly in relatively large/affluent markets, they’re AAA/AA teams (so longer schedules with more recognizable players), and they generally have a history of stability. They’re not buying teams in tiny markets playing rookie ball on backfields. MiLB’s issue wasn’t (isn’t?) that it’s not viable as a business – as mentioned, the RiverCats are worth $50 million – it’s the range of viability of its individual operations and simultaneous interdependence of teams. The RiverCats will be fine, but they need someone to play against, and those teams can’t be on the verge of bankruptcy.

I suspect that between MLB’s more active involvement in the minor leagues will limit some of Endeavor’s ability to cut costs – that was the point of the restructure, and we’ve seen a bit of it in setting housing standards for players. And more generally, having another Large Corporation to negotiate with on a systemic basis is likely good for both parties; MLB can set standards that are more uniformly enforced across affiliates because they’re not talking to 100 different owners.

Which really leads us into the best question: why isn’t MLB doing this, and why didn’t they do it more when the minor leagues were reorganized? Teams owning their affiliates made all the sense in the world, and the advantages that come with Endeavor managing these teams (as opposed to 30 franchises individually) could absolutely be seen if the league took over operations. Buy the franchises, operate them through the league office to reduce cost and as a de facto revenue sharing mechanism (every team pays into a general pot to manage all MiLB teams, so the Yankees are likely subsidizing the Rays’ operations). Rosters, coaching staffs, and player development assets come from the team, while IT, promotions, and janitorial work goes through the league.

sadtrombonemember
8 months ago
Reply to  quincy0191

“Which really leads us into the best question: why isn’t MLB doing this, and why didn’t they do it more when the minor leagues were reorganized?”

YES YES YES

It makes so much sense for these operations to be integrated. I’m totally confused why teams that owned their affiliates decided to sell them.

troybrunomember
8 months ago
Reply to  sadtrombone

1000% agree with this.

res
8 months ago
Reply to  troybruno

Because there is little to no profit margin in owning a minor league team. It’s basically assuming expensive obligations for marketing rights in tiny markets.

David Cornuttmember
8 months ago
Reply to  sadtrombone

In the case of the Braves, it may have been to raise some money to retire debt. There’s some debate about it at Talking Chop, but some people think that the Braves may be running fairly close to MLB’s debt limits, due to the amount of money borrowed for the Battery development.

troybrunomember
8 months ago
Reply to  sadtrombone

“the history of private equity buying lots of companies in debt-fueled purchases usually ends with those companies getting broken” — setting aside the fact that Endeavor is not a private equity group, how do you support this statement?

sadtrombonemember
8 months ago
Reply to  troybruno

Ah, interesting, looks like they went public? That will probably constrain them a bit. These sorts of deals tend to be leveraged buyouts, where private equity swoops, buys an asset, loads it up with debt, strips it down as much as possible, funnels as much money as possible to the parent company, and then lets it declare bankruptcy.

In baseball, we actually have some things that sound vaguely like that, with Frank McCourt and Jeff Loria. It is also looking increasingly like other teams have done some weird accounting by pulling value out of the franchise by loading it up with debt as it appreciates. But it’s not technically the same thing since baseball won’t be happy if franchises declare bankruptcy, and the ownership stake is appreciating so fast they can’t run it into the ground if they want to.

In any case the non-baseball world, the most infamous example is Toys R Us, a company which actually was okay before private equity swooped in. It works a lot better when you swoop in and buy an asset that won’t make it anyway; I can’t think of any examples that I feel confident in, but I get a vague sense Radio Shack was like that. But the decision to purchase these franchises is especially weird, because MiLB is not profitable by design. They are auxiliaries of major league baseball teams rather than competitors, and those parent clubs are wildly profitable. If you have a group coming in and buying a whole bunch of MiLB teams and rips them up to make them profitable, that could have some bad effects on the major league product because it depends on their minor league teams focusing on developing players rather than making money.

(worth noting not all private equity is bad, just some of these actors)

troybrunomember
8 months ago
Reply to  sadtrombone

I have no interest in carrying water for the PE industry, which I generally regard as a financial rent taker which adds no value in the grand scheme of things…

That said, it seems clear that this entity is trying to be a content growth equity — and will therefore be judged over time by success of revenues and not margins. While all acquisitions typically come along with some friction, I assure you EDR would not be paying these prices (or what they have paid for other businesses) if their intent to was cut costs and try to milk cash. Given they bought OpenBet in September (for $1.2bn), I suspect in-game betting in MiLB might be one avenue.

And while I will reiterate my caveat about PE, the most headlines the industry has gotten over cost-cutting tend to be in retail. And the unfortunate fact is that Toys ‘R’ Us and other retailers’ issues have not been ownership or cost-cutting, but ecommerce. Regardless of who owns them, the Bezos bell has tolled for many a store. Did Toys R Us have way too much debt when it was folded? Yes. Was that the reason there are no more Toys R Us stores? No.

sadtrombonemember
8 months ago
Reply to  troybruno

Toys R Us was actually a different than all the others–they were still making money. They just couldn’t keep up with the debt. This is somewhat different from others that simply couldn’t compete (Radio Shack, Circuit City, Borders).

eph1970member
8 months ago
Reply to  troybruno

Banks, homeowners, casinos, construction firms, Chinese property firms, the NHL, and Lehman should be on your list too. The advantage of debt, if done right, is that you claim the upside and someone else claims the big risks. Remember the Great Recession? Highly leveraged people and firms got hammered.

kick me in the GO NATSmember
8 months ago
Reply to  eph1970

Debt magnifies gains and loses. Firms usually take on debt cause it causes small gains in profits to look like huge gains percentage wise. The stock price goes up faster. But it takes away slack for the down years. CEOs that get paid bonuses by raises in the stock price will borrow money and use it to buy stock. That’s how you get rapid jumps in stock prices in the short term.

kevinthecomicmember
8 months ago

Yep, debt is the prototypical fair-weather friend. It makes the good times better and the bad times worse.

dukewinslowmember
8 months ago
Reply to  troybruno

I wonder what WME’s baseball book looks like and how that will affect things

kick me in the GO NATSmember
8 months ago
Reply to  troybruno

Bad management and poor customer service are as much to blame as e-commerce. Business professor here.

dukewinslowmember
8 months ago

I’m a marketing prof and if I want to be a real jerk at an IO/structural talk I ask about how consequential whatever e commerce site provided the data is. Everyone thinks e commerce is this huge proportion of the market when it’s not.

dl80member
8 months ago
Reply to  sadtrombone

Some other examples: Sears, Anchor Hocking Glass, Fairway, Shopko, and probably many others.

Not every private equity-owned large company goes bankrupt, but most large companies that go bankrupt are owned by private equity/vulture capital funds.

Roman Ajzenmember
8 months ago
Reply to  sadtrombone

I go the other way, and the fact the Braves sold all of their affiliates to Endeavor shows that MLB teams may not have an issue here. While PE gets characterized as if every investment becomes Toys R Us, that’s objectively not true, and in any case Endeavor is a publicly traded company so it will approach the investment differently.

More importantly, notwithstanding the PDL, MLB teams may come to appreciate having a more professional and consistent counterpart at the MiLB level. Endeavor will also have significantly greater access to capital than the average MiLB ownership group to ensure compliance with the PDL and invest above and beyond the minimum if a return is achievable.

John Churchmember
8 months ago
Reply to  Roman Ajzen

Just to be clear about a few things:

1) Endeavor is not a PE shop. It is owned (in part) by a PE (Silver Lake), but Endeavor is not a PE and does not operate like one.

2) Minor League Baseball already mandates a standard website across minor league teams. I’m not sure how owning multiple minor league teams allows for economies of scale in that respect. It might work for ticketing.

3) There are already a number of businesses that own multiple minor league clubs and look for savings on promotions and sponsorships across those clubs (notably, the Goldklang Group, co-owned by Bill Veeck’s son Mike, which owned 9 or so clubs in both affiliated and independent leagues – one of the clubs they owned is included in this sale).

MikeDmember
8 months ago
Reply to  John Church

Has Goldklang done cross promotions and utilized a more centralized infrastructure across its properties? I’m not saying they haven’t, but I didn’t get that impression, for example, when attending a Hudson Valley Renegade game.

I almost wonder why Endeavor didn’t buy out Goldklang to gain ownership of all four teams. The St. Paul Saints, part of Goldklang, sure seems like a team Endeavour wold like to add to its portfolio. I guess it does take two to tango.

John Churchmember
8 months ago
Reply to  MikeD

I can’t speak to recently, but they used to in a few respects. One, there was typically some promotional giveaway that would be coordinated among all Goldklang owned clubs. Most promotional giveaways are branded to the team, of course, but there would usually be one that was just quirky that all teams would participate in.

Two, they would often hire in the same act across multiple teams (often tied to some broader promotional opportunity with that act).

I imagine in both cases they saw some savings for the bulk order. But I wouldn’t imagine it was anything dramatic.

I’m pretty sure they also required all of their teams to use the same ticketing system, but could be wrong about that. They did not consolidate all ticket offices, however, and I’m not sure how they could have effectively done so given the number of walk-up sales, local group sales, etc.

Similarly for sponsorships, most are local businesses without a big geographic footprint. You aren’t getting a nationwide company as a sponsor, except Coke or Pepsi because they’re your soft drink supplier. Otherwise, it’s your local car dealerships, that sort of thing. So hard to generate additional revenue by going for a group-wide sponsorship, or cut costs on the sales dept by consolidating across markets, because the local relationships are so important. I’m sure they are more creative than I am, though, so I’m curious to see what they come up with.

MikeDmember
8 months ago
Reply to  John Church

Appreciate the input as that’s more than I knew they did. I agree on your last sentence, although applying it to me. They will be more creative, so I’m curious to see what marketing opportunities they create, perhaps on a more national scale.

In the end, as a fan, I’m hoping that a company funded by private equity might actually help MiLB. I’m not sure that will happen, but it will be interesting to watch what comes of this.