The Boston Red Sox Will Be Worth At Least $3 Billion By The End Of The 2018 Season

by Trefis Team
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The latest edition of Forbes’ annual valuation of Major League Baseball (MLB) teams values the Boston Red Sox at $2.8 billion – making it the fifth most valuable baseball team. While the Red Sox are a financially strong organization with a ranking of #4 in the MLB in terms of revenues – after the Yankees, Dodgers and Cubs – and #3 in terms of operating income – after the Cubs and Phillies – the team’s comparatively lukewarm performance over the last two seasons has weighed on its valuation – dragging the club down two spots from the #3 position in 2017 (after the Yankees and the Dodgers).

The Red Sox have had a good run so far this season, and could potentially go on to win the World Series this year (which generally boosts revenues and valuations). But either way, we estimate that the team’s value should cross $3 billion for the first time by the end of this year. We arrive at this figure using our interactive dashboard model for the Boston Red Sox, which captures trends in the club’s revenues over recent years and forecasts our expectations for key revenue drivers in the future, as detailed below

Gate Receipts

We forecast gate receipts for 2018 through two components: Regular Gate Receipts, and Premium & Postseason Gate Receipts

Regular Gate Receipts: This represents the team’s gate receipts from selling tickets to regular seats for all home games in a season. These revenues, in turn, are dependent on:

  • Average Ticket Price, which is the average price a fan pays to buy a ticket to regular seats at Fenway Park. This figure is compiled annually in Team Marketing reports, and has increased from under $50 in 2013 to almost $56 in 2017. With the Red Sox raising ticket prices by 2.5% for the 2018 season, the average figure this year is forecast to be almost $57.
  • Average Attendance per Home Game, which will largely depend on how well the team performs (though they regularly sell out games regardless). The attendance has largely hovered around 36,000 over recent years – or roughly 96% of Fenway Park’s capacity of ~37,500. As the team is performing well this season, we expect attendance should be above average. Accordingly we forecast an average attendance figure of 36,400 for the 81 home games.

Taken together, this works out to revenue of $168 million for the Red Sox in the form of regular gate receipts this season, as shown in the chart below.

Premium & Postseason Gate Receipts: This represents the team’s gate receipts from selling tickets to premium / club seats for all home games in a season, as well as the total gate receipts from postseason games. While the premium gate receipts are correlated with regular gate receipts each year, the postseason gate receipts depend completely on whether the team makes the playoffs and how it performs. Clearly, the two teams making it to the World Series will generally have played more postseason games compared to any other team in the MLB, so postseason gate receipts will therefore be generally higher for more successful teams.

We forecast premium & postseason gate receipts for a year as a percentage of regular gate receipts, as shown in the chart below. Notably, postseason gate receipts for the Red Sox spiked in 2013 when they went on to win the World Series – resulting in these receipts being almost 27% of regular gate receipts. On the other hand, a poor showing in 2014 led the figure down to just 11%. The premium & postseason gate receipts have seen a visible upward trend due to an increase in the price of premium tickets each year. As we assume for now that the Red Sox will fare largely how they did last season, we estimate that premium & postseason gate receipts will be 18% of regular gate receipts – or just over $30 million.

Adding up the two gate receipt components gives us an estimate of $168 million + $30 million = $198 million for total gate receipts in 2018.

Concessions & Souvenir Revenues

This represents the revenues attributable to the team from the sale of food and beverages at home games as well as from the sale of team souvenirs. We calculate these revenues using Bloomberg’s 2013 estimate of $38 million as the base figure, and then estimating the impact on these revenues each year due to changes in the following figures:

  • Fan Cost Index for the team, which captures the year-on-year change in ticket price, concessions, souvenirs as well as parking fees at Fenway Park as compiled in Team Marketing reports. We only consider the concessions and souvenir part of the Fan Cost Index (by removing the impact of changes in average ticket cost as shown above, and for changes in parking costs) to determine annual change in these revenues. Although the most recent Team Marketing report shows a reduction in the FCI, the decline is due to a reduction in parking fees under a new sponsorship agreement. We expect concessions & souvenirs to cost roughly 4% more in 2018 compared to 2017
  • Attendance at the stadium (including postseason games), which is derived from the forecast for gate revenues above.

Using this, we expect concessions & souvenirs to rope in $40.7 million in revenues for the Red Sox this season.

Sponsorship & Other Revenues

This includes revenue generated by the team from multi-year sponsorship contracts as well as from the sale of local television/radio broadcasting rights for home games. While these revenues are expected to grow steadily over time, they have outpaced gate receipts over the last decade – primarily because of each team’s share in Major League Baseball Advanced Media, which owns and operates MLB.com, in addition to MLB’s deals with media partners such as Fox Sports and ESPN.

A strong performance by a team in a given year can provide a boost in future years – while many TV and radio deals are largely fixed in nature, a strong season can boost ratings and can help in negotiating future local broadcasting agreements.

These revenues have increased by more than 55% between 2013 and 2017 – jumping from $142 million to $222 million – and we expect the figure to increase further to over $240 million in 2018. Combining this with the other revenue streams above, we forecast total revenues for the Boston Red Sox to be about $483 million in 2018.

Valuation Estimates

To identify the trend in revenue multiple for the Red Sox over the years, we plotted Forbes’ estimates for the team’s revenues and valuation as shown in the chart below. This showed a steady increase in the revenue multiple from 4.2x to 6.2x between 2013 to 2017 – something we attribute to the fact that the team’s revenues have grown at a faster rate than expenses. Also, the World Series win in 2013 triggered the single biggest year-on-year jump between 2013 and 2014 (from 4.2 to 5.7).

 

As we assume the Red Sox’s performance in 2018 to remain largely unchanged compared to 2017, a revenue multiple figure of 6.2 looks appropriate for 2018 too. This works out to a valuation of $3 billion for the Boston Red Sox by the end of the 2018 seasonHowever, if the Red Sox go on to win the World Series this year, their valuation could jump even higher.

It should be noted that there are more factors that determine actual team valuations than just revenues and operating income – most of which are intangible in nature – but this analysis is strictly looking at the fundamental value of the business.

If you do not agree with our forecast, you can come up with your own estimate for how much the Boston Red Sox are worth by making changes on our dashboard.

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