MLB Owners’ Next Big Potential Moneymaker

Major League Baseball is a profitable enterprise, and (not surprisingly) MLB owners tend to benefit from that profitability, generally through revenues directly related to operating those franchises. However, MLB owners have also profited from ventures only partially related to MLB ownership, as well. They’ve made money owning television stations that also happen to air the games of teams they own. Owners are also in the process of spinning off the non-baseball related arm of MLBAM for billions. Notably, MLB owners have begun capitalizing on another revenue stream: developing the land near their teams’ ballparks.

When the Atlanta Braves announced they were leaving a 20-year-old Atlanta-based stadium for a new one out in the suburbs of Cobb County, it took many by surprise. Cobb County made an appealling offer to the Braves, and one of the Braves’ promises was a $400 million mixed-used land development surrounding the stadium. While this has some likely benefits for Cobb County, it has the potential to be very beneficial for the Braves, as well — and it was one of their reasons for leaving Atlanta.

Bucking the trend of pro teams seeking stadiums and arenas closer to the city center, the Braves’ new facility will be part of a 60-acre development near Cobb Galleria mall. Plant compared it to new ballparks in Cincinnati, San Diego and Houston, as well as L.A. Live, which hosts the NBA’s Los Angeles Lakers and Clippers and the NHL’s Kings at Staples Center.

“With our current location, we couldn’t control that process,” Plant said. “This site allows us to do that.”

In Cincinnati, the Reds have their Hall of Fame across the street. In Houston, the Astros took over Union Station. However, the first major attempt to control an entire area of land around the stadium had mixed results. In San Diego, real estate developer JMI, owned by John Moores, the previous owner of the Padres before a messy divorce forced the sale of the team, built up the area around the park, mainly with housing after original plans for more office buildings had to be scrapped due to economic conditions. The area is still in flux, as it was also a potential site for a new stadium for the San Diego Chargers.

San Diego was not the only team to experience some problems with their investment, but in St. Louis the result has been much more satisfying. When the St. Louis Cardinals built their stadium, which opened in 2006, they built it essentially next door to the old park, leaving a large tract of land formerly occupied by the old Busch Stadium. The Cardinals had big plans for the land, hoping to turn it into a mix of residential, retail, and office-space to include a structure that would overlook the stadium and provide rooftop seating.

The Cardinals were a success on the field, but an economic downturn prevented any development on the land, so it sat unused and a large hole on the property often filled with water, leaving an unsightly pond. The land was turned into a parking lot before the team hosted the All-Star Game in 2009, but the first phase of Ballpark Village was not complete until 2014, eight years after the stadium opened.

When asked about the potential increased revenue for the Cardinals at the time of its opening, Cardinals President Bill Dewitt III, son of Cardinals Chairman Bill Dewitt, Jr., indicated that the money would not be an instant windfall to the team, attempting to separate the Village slightly from the team as Ballpark Village was funded in partnership with Cordish Company, a real estate and development company.

“You have to look at those as part of the Ballpark Village economics,” team president Bill DeWitt III said. “There will be an element that eventually creates a waterfall that spreads to other aspects of the ballclub. But I think it’s premature to say with this revenue the spigot will open, bump up payroll. Ballpark Village is a big investment — a huge investment — by the club and Cordish. Short- and medium-term there are revenue streams that we need for a return on that investment”

Two years in, the 34,000 square foot building — filled with bars, restaurants, 500 extra seats per game, and the Cardinals Hall of Fame — is a big success. The delay in opening certainly caused some headaches, but the success of the first phase has encouraged the team to move forward in the hopes of getting closer to the original plan of mixed retail, residential and offices with the potential for the hotel. Some have criticized the development for causing restaurant closures, although the effect is not entirely clear. While these developments have the potential to improve downtown St. Louis, they also have the potential to enrich Cardinals’ owners. How much of that money goes into MLB’s revenue-sharing plan is not clear.

The Collective Bargaining Agreement (CBA) address the situation as follows:

“Defined Gross Revenue” shall mean the aggregate operating revenues from baseball operations received, or to be received on an accrual basis, as reported by each Club on an annual basis in the Club’s FIQ. “Baseball Operations” shall mean all activities of a Club that generate revenue, except those wholly unrelated to the business of Major League Baseball. Baseball Operations shall include (by way of example, but not by way of limitation):

(a) an activity that could be conducted by a non-Club entity but which is conducted by a Club because its affiliation or connection with Major League Baseball increases the activity’s appeal; and

(b) an activity from which revenue or value is received as a result of a decision or agreement to forego what otherwise would be Defined Gross Revenue.

In the realm of team-owned television networks, MLB can set a fair market value for television rights, but when it comes to network ownership, that revenue is not subject to revenue sharing. Using the same logic with regard to land development around a stadium, it would seem that neither the losses nor gains would be subject to revenue sharing. With this risk, team owners can reap great rewards.

The Cardinals’ rivals in Chicago, the Cubs, are just now beginning to unleash their financial might both on and off the field. As part of their current renovation projects, they plan to build a retail plaza right outside the stadium with a 180-room hotel across the street. Long-involved in lawsuits surrounding the rooftops outside of the stadium, the Ricketts family now owns — by way of Greystone Sheffield Holdings — nine of 16 surrounding area rooftops. A tenth is owned by the company which the Ricketts have hired to manage the other nine properties. The Cubs website, with a page devoted to the rooftops, directs consumers to a website of their “official rooftop partners.”

Given the mixed results for the the Padres’ ownership, St. Louis’s efforts in land development represent the most recent — and perhaps first — successful major project controlled by a team. The Chicago Cubs are well on their way to repeating that success and perhaps exceeding it. Whether the Braves benefit financially or not from the development, they seem to have already benefited by receiving a deal for a new stadium in exchange for attempting a potentially profitable development.

The next project? Down in Texas, the Rangers recently announced plans for a $200 million mixed-use project outside of Globe Life Stadium. Their partner: Cordish Company, the same company with which the Cardinals partnered to build their Ballpark Village. The success of these projects is dependent on the economy as a whole — not all have been immediate successes — and these projects come with more risk than simply owning a baseball team. However, as teams see the growth of newer projects, they will no doubt attempt to have one of their own and capitalize on a new revenue stream potentially outside the purview of MLB’s revenue sharing.