All great companies start from humble beginnings. Back in 2000, Major League Baseball created MLB Advanced Media (MLBAM) to essentially startup MLB.com and then spawn off websites for each of the team sites. Each team was required to commit $1M per year for four years, giving a total startup investment of $120M. After just two years, the investment started to show a return and the owners didn’t have to bootstrap any more of the investment, as ad revenues starting to not only self-fund it, but provide a return on the investment.
Fast forward fifteen years and now in 2015, under the steady presence of Bob Bowman, MLBAM is ready to spin off into its own media entity, known (for now, at least) as BAM Tech. Major League Baseball, perhaps more than any other televised media entity out there, is anticipating how to deal with cord-cutters that are getting rid of bulky cable TV packages in favor of more agile, a la carte-style of viewing formats. By quietly building up its back-end of the shop capabilities, MLBAM has a stout infrastructure that can stream events over computers and mobile devices, in addition to hosting content for channels like HBO.
In August, MLBAM closed a deal for distribution rights with the NHL to broadcast out-of-market games from the NHL Center Ice package. The deal is for $100M/year over a 6 year term. The two leagues will become entwined in production of content, as MLBAM is taking over NHL.com and every club website, while the MLB Network will share studio space with the NHL Network to develop shows. The NHL also bought an equity stake in MLBAM (soon-to-be BAM Tech), believed to be between 7 to 10% of the company, allowing MLBAM to de-risk some of the costs of the venture upfront. Previously, MLBAM dipped a toe in the water by purchasing distribution rights from the PGA for certain rounds of certain tournaments for distribution over the internet and mobile devices.
Could BAM Tech become a full-spectrum media content provider, not just sports? Anything is possible, from a partnership with a company like Netflix to just becoming their own producer of shows and movies. Or they could just stick to sports, of course.
When the spin-off occurs, it is still unknown how much involvement MLB will retain. With all revenues from MLBAM pooled and evenly distributed to the 30 MLB teams, it stands to reason that each team is going to come into quite a bit of money by sitting on this new media age giant. Coupled with the burgeoning revenues from TV, both locally and nationally, revenue from BAM Tech will lessen the importance for each MLB team to place on gate revenue. Of course attendance will always be important, but with the massive influx of digital media revenues and TV revenues, each team’s overall revenue will swell before one single ticket or one single jersey is sold.
It’s hard to see player salaries escalating in response to this new revenue stream, so in essence player salaries will be artificially depressed by this development. Owners will have so much revenue coming in the door that they won’t necessarily be as concerned about attendance numbers. In theory, this will help narrow the gap between the haves and have-nots, at least in the squishy middle of the league. Teams with substandard local TV deals or extraordinary TV deals, like the Dodgers with Fox Sports LA, will be on the outer edges of the incoming revenues. I fear that the Pirates signed their deal with ROOT just before the local TV bubble started to grow to the outsized proportions it stands at now.
Even if MLB retains a 50% stake in BAM Tech (with NHL taking 10% itself), on a potential $1 billion dollar company that’s still $500M of revenue coming in each year. Naturally, there are expenses in terms of human and technological costs, but there will still be quite a bit of “white meat” left on the bone. The distributed profits could pay for a lower tier free agent or for a small-market team, like the Pirates, to help sign young talent to contract extensions. That’s nothing to sneeze at, especially if you presume that BAM Tech will become more than a $1 billion dollar entity.