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UPDATE (12/8): Endeavor announced its plans to purchase nine minor league teams.
At this time a year ago, Major League Baseball finalized its reshaping of the minor leagues, which included a takeover of the governance of Minor League Baseball and a restructuring that cut the number of affiliated teams from 160 to 120.
This December, there will be another event that will likely reshape the minors for years to come.
As soon as next week, Endeavor, a global sports and marketing company, is expected to announce the purchase of six or more minor league teams. Another six or more sales are expected soon afterward with more to come in the next year. MLB has to approve all sales, but that is not expected to be an issue.
Endeavor Group Holdings is a publicly traded company that has an umbrella of companies stretching across sports, entertainment and marketing. Silver Lake Partners, a private equity group, owns a significant share of Endeavor.
In any normal year, the purchase of 10-plus minor league teams would rate as seismic news. In the case of Endeavor, it’s going to be a slowing of its original pace. Limits have been put in place that will ensure Endeavor cannot purchase more than nine teams in any one classification and no more than 24 teams total before the end of the 2022 season.
That is seen as most likely a temporary limit so that MLB and current minor league owners can assess the effects of Endeavor’s big move into minor league baseball.
Multiple people involved in minor league baseball said they wouldn’t be surprised if Endeavor eventually ended up owning 30-40 of the 120 affiliated minor league teams.
Procedures are also expected to be put in place to ensure that Endeavor (or any other entity that owns numerous teams) cannot dominate representation on the MLB-MiLB Executive Committee.
The Athletic first reported in October on the likelihood of SilverLake/Endeavor purchasing minor league teams. A spokesperson for Endeavor declined to comment, as did MLB.
The sales prices are expected to be above the current market rates, providing a big kick start to franchise sales that had largely been shut down by the reorganization of the minors as well as the coronavirus pandemic. Multiple owners and operators around the minors said that a large number of minor league teams have been contacted by Endeavor. Others have said that multiple teams who weren’t contacted by Endeavor reached out themselves to inquire about sales opportunities.
Memphis Redbirds principal owner Peter Freund, who is also a minority owner of the New York Yankees, is expected to play a significant role in Endeavor/Silver Lake’s new entity. Freund had also served as a consultant to MLB during MLB’s takeover of the minors.
Franchise values were already showing solid resiliency this offseason. Since the season ended the Double-A Binghamton Rumble Ponies have been sold to Southpaw Resources, led by David Sobotka. Multiple other non-Endeavor sales are expected as well. While the Endeavor purchases are termed at above-market rates, the other sales are expected to run right in line with pre-pandemic/MiLB reorganization prices. That has largely alleviated a fear that many had in 2020 that the reorganization of the minors would drive down the value of minor league clubs.
The entry of Endeavor into the minor league industry can be seen as a promising indicator to the industry. This is a very well-funded and wide-ranging group that sees promise in purchasing minor league teams. After all the uncertainty of the past couple of years, the fact that the company wants to invest heavily in buying minor league teams is a significant vote of confidence in the economic potential of the minors for years to come.
There has been much discussion around the minors as to whether Endeavor’s purchases are tied to buying MLB teams out of their minor league holdings, since with the Professional Development License structure, MLB teams that purchased clubs largely to avoid the worst outcomes of the affiliation shuffle no longer need to own them.
That doesn’t actually appear to be the case. Endeavor is expected to announce purchases of cornerstone teams tied to some of the biggest franchises in MLB. It is expected that the purchases will come both from individually owned teams as well as some owned by MLB clubs, but they will largely be teams either in excellent markets or teams whose affiliations are tied to the biggest brands in MLB.
So how can this make financial sense for Endeavor? The potential appears to be in its ability to operate at a scale never before seen in the minors.
The new restrictions come after years of increased defensive shifting in the majors and a corresponding decline in offense throughout the game. There is just one problem. There is no evidence that banning shifts actually improves batted ball outcomes.
Under the previous system of minor league governance, no single entity was allowed to own more than one club in any league. Those prohibitions were eliminated when MLB took over the operation of the minors with Professional Development Licenses. Mandalay Properties owned five minor league clubs at one point, but that pales in comparison to what Endeavor appears likely to do.
For the minor leagues this would be a massive amount of sales, but for Silver Lake/Endeavor this would be a more modest acquisition compared to some of its other efforts. Endeavor bought 50.1% of the Ultimate Fighting Championship (UFC) for a reported $4.3 billion in 2016 (Silver Lake Partners purchased a significant stake in UFC at the same time). Endeavor also recently announced the acquisition of Open Bet, a betting technology and service provider, for $1.2 billion. Endeavor also owns Professional Bull Riding (PBR) and Euroleague Basketball. Its Learfield/IMG wing serves as the marketing arm for many college athletics programs and IMG (owned by Endeavor) sells the media rights for the NFL and Olympics. The IMG Academy (also under the Endeavor umbrella) has numerous MLB draft prospects on its roster every year. The William Morris Endeavor agency represents baseball players (and other athletes) as well.
Endeavor and Silver Lake also are part-owners of Fanatics Trading Cards, in which they are partners with MLB (as well as other major U.S. sports leagues and players associations).
In its Q3 quarterly report, Endeavor projected that it would bring in $5 billion in revenue in 2021.
The purchases of minor league teams is expected to eventually cost Endeavor a few hundred million dollars, depending on how many teams the group eventually purchases.
The big question almost everyone in minor league baseball is wondering is how does all of this make financial sense for Endeavor/Silver Lake? Or put more succinctly, what do they know that no one else in the minors knows?
Minor league baseball is viewed as a relatively stable but mature industry. A successfully run team can definitely make a profit year over year, but not at the rate of return that most private equity groups seek out (Silver Lake is a private equity firm that manages over $88 billion in assets, according to its Website. Endeavor is publicly traded on the New York Stock Exchange).
There is also the possibility of franchise valuation appreciation, but that has been somewhat clouded by the PDL process. No team can be assured of having a PDL beyond 2030, which is the expiration date of the current agreement. That was actually true under the old Professional Baseball Agreements as well, but the industry largely operated as if those were permanent licenses until MLB made it clear that wasn’t the case in 2020.
There are expectations around the minors that Endeavor will be able to run its teams differently than individual groups have been able to. Endeavor will potentially be able to roll up its purchases to help sell marketing/sponsorships across its array of holdings. Through its Learfield/IMG wing, it already handles multimedia rights for over 200 NCAA teams as well as some conferences.
Endeavor is also expected to soon take over marketing of the minor leagues for MLB, although that deal is viewed as separate and would not require the purchase of minor league teams.
It also will likely look to find efficiencies, which will likely mean that some jobs currently handled by individual minor league teams will be centralized (which will likely lead to layoffs or job transfers). It will be able to market, promote and aggressively sell tickets at a scale that most minor league teams cannot expect to match.
Endeavor should also be able to provide numerous non-baseball events at the stadiums, since other companies it controls include events and concerts as well as talent management for numerous acts.
The long-term effects of Endeavor’s big move into minor league baseball won’t be fully appreciated for several years, but they likely will be significant. This is a massive company by minor league baseball standards entering into the field. It’s also a company that both has clear ties and relationships with MLB, but also the scale to deal with MLB as a partner and an equal.
And that leaves many other minor league teams wondering what it will mean for them as well. That’s the question no one as of yet has been able to answer.
Major League Baseball is expected to adopt a trio of significant rules changes for the 2023 MLB season, with pitch clocks, a ban on infield shifts and larger bases all expected to come to the majors for next season.
Anthony Volpe had his best day since he was promoted to Triple-A Scranton/Wilkes-Barre.
The introduction of the current pitch clock at all full-season levels of the minors this year led to a reduction of 26 minutes in the average time of a nine-inning game through Sept. 8. Every level of the minors saw its average game time reduced between 18-31 minutes.
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