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Minor-league baseball begins to drive in major-league profits

BLOOMBERG, ST. PAUL, MINNESOTA
Tuesday, Apr 30, 2002, Page 19

Like most minor-league baseball owners of his era, Marv Goldklang bought the Utica Blue Sox in 1982 so he could be involved in professional sports.

Now, a new breed of owners such as billionaire investor Warren Buffett and former Capital Cities/ABC Inc President Daniel Burke are getting into the business for other reasons.

Minor-league baseball, which used to be a money-loser, is now a profitable business. While Major League Baseball said its 30 teams lost a collective US$519 million last year, more than two-thirds of the 120 minor-league clubs with major-league affiliations made money in 2000, the most recent year for which figures are available.

"In the major leagues, many owners just hope they don't lose any money with their clubs," said former National Football League player Randy Vataha, president of Boston-based Game Plan LLC, which advises owners of several professional baseball teams. "In the minors, you have more owners looking at how they can get a return on their investment."

Minor-league baseball, where superstars like Sammy Sosa and Alex Rodriguez started as pros, has been around almost as long as its major-league counterpart. The National Association of Professional Baseball Leagues, now known as Minor League Baseball, was formed in 1901 with 96 clubs. By 1949, there were a record 484 franchises.

While major-league expansion and television forced many franchises to fold in the decades following World War II, minor-league teams are now drawing new investors like Buffett and Burke.

Buffett is part-owner of the Triple-A Omaha Royals in Nebraska, while Burke owns the Double-A Chattanooga Lookouts in Tennessee and Portland Sea Dogs in Maine.

"There are definitely more financially sophisticated people getting into ownership," said Goldklang, the founder of MS Goldklang Inc, which owns five minor-league teams and operates three others.

Today's minor-league owners can make money because of the sport's relatively low costs -- player salaries are usually paid by the major-league affiliates -- and loyal fans who appreciate the affordable ticket prices and smaller stadiums that allow them to get closer to the players.

Goldklang says he bought the Blue Sox when he was 40 years old "because I figured maybe I could pitch" for them. While that plan didn't work out and he sold the team in 1984, minor-league baseball has turned into a profitable business for him.

He said all his teams are making money -- he won't say how much -- largely because the clubs have favorable stadium leases and successful marketing plans. His marketing chief is Mike Veeck, son of the late Bill Veeck, a former major-league owner and master promoter.

Mike Veeck is continuing that tradition in the minor leagues, where he's come up with promotions involving mimes, lawyers and whoopee cushions.

On "Lawyers Night," attorneys are charged double admission and fans are invited onto the field to resolve conflicts in a setting similar to the television show People's Court.

In an upcoming promotion, fans will receive whoopee cushions with Major League Baseball Commissioner Bud Selig's face on one side and players' union leader Don Fehr on the other.

That kind of marketing is paying off.

Last year, the 120 minor-league teams affiliated with major-league clubs drew an average of 3,738 fans a game, up 2.2 percent from 2000 and 10 percent from 1999. No figures were available for teams that play in independent leagues, which aren't affiliated with the major leagues.

The average Triple-A team, the highest rank in the minors, had a profit of US$193,000 in 2000 on revenue of US$3.1 million, according to Minor League Baseball. That was up from an average US$86,766 profit a year earlier.

Bigger profits have driven up the cost of buying a minor- league team. Triple-A teams in large media markets can cost as much as US$20 million, said Pat O'Conner, Minor League Baseball's chief operating officer. Double-A teams can cost as much as US$15 million, while the average Single-A team goes for about US$3 million.

When former Baltimore Orioles All-Star Cal Ripken Jr purchased the Single-A Blue Sox for US$3 million in February and moved them to Aberdeen, he outbid Honeywell International Inc Chairman Lawrence Bossidy for the club.

Several current owners are moving to broaden their investment. Mandalay Sports Entertainment, which owns three minor-league teams, is trying to raise US$25 million to buy five more franchises.

One of the keys to making money in the minors is negotiating a favorable stadium lease, several owners said.

Ken Young owns Triple-A teams in Norfolk, Virginia, and Calgary, a franchise that will move to a new US$28 million ballpark in Albuquerque, New Mexico, next season. Young, who owns a stadium concessions company called Ovations Food Services, convinced Albuquerque officials to fund most of the stadium, which will seat 11,000 and have 30 suites.

"If you manage it right, you can make a nice return," he said.
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