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What the Vegas Golden Knights could mean for MLB expansion

Vegas’ success helps set a price tag for new baseball teams

NHL: Stanley Cup Final-Washington Capitals at Vegas Golden Knights Gary A. Vasquez-USA TODAY Sports

Every once in a while, a sports story transcends genres. Not many people follow swimming regularly, but everyone paid attention to Michael Phelps in the Olympics. American Pharoah captivated the nation with the horse racing triple crown in 2015. Every February, millions of people around the world watch the Super Bowl, even if it’s the only football game they view all year.

Even if you’re not a hockey fan, the Vegas Golden Knights are impossible to ignore. An expansion team reaching the championship is an unprecedented accomplishment in any sport. No expansion team in baseball has even come close to the playoffs, much less the World Series.

Clearly, Vegas has set a new bar for modern expansion teams. Zach Crizer of Baseball Prospectus recently looked at how a hypothetical baseball expansion team could build a championship roster. (It’s awesome and you should read it.) But for an expansion team to make a postseason run, it first has to exist.

Ready to Grow

Baseball is way overdue for expansion. The Rays and Diamondbacks are turning 21-years-old (older than Juan Soto!). Previously, MLB had never gone more than 15 years between expansions since the first admission of new franchises in 1961. Increasing the number of teams to 32 would also make scheduling easier with several feasible alignments. For example, there wouldn’t have to be an interleague series at all times.

However, baseball is first and foremost a business. One of the reasons for the expansion dry spell has been the success of MLB Advanced Media (MLBAM). Teams share revenue evenly from their extremely profitable advanced media enterprise, and expansion means two more mouths to feed. Baseball won’t add teams unless the 30 existing franchises profit from the addition.

This is why the Vegas Golden Knights matter to MLB. How much money a new hockey team is worth could hint at the value of a new baseball team, which could sway Rob Manfred’s decision on whether to add two new franchises.

(Note: There’s a lot of data in the next few sections. Click here to view my spreadsheet and check my work!)

Franchise Values-Hockey

This hockey season, the Vegas Golden Knights became the 31st NHL team. Owner Bill Foley paid a $500 million expansion fee to the league for the right to start a new franchise. This immediately made them a middle-of-the-pack value in the NHL. Hockey teams are less valuable overall than baseball teams and more bunched together. The most valuable team, the New York Rangers, was assessed at $1.5 billion, while the least valuable, the Arizona Coyotes, are worth $300 million.

There are lots of factors that determine a team’s value, such as their stadium/arena situation, average attendance, and local media deal. But the biggest factor is almost always market size. Conveniently, this is also the easiest to measure!

Value Per Person

The Television Bureau of Canada compiles data on market size for all major US and Canadian media markets. Dividing each team’s value by it’s market size creates a value per person metric. The average hockey team is worth $94.65 for every person in their media market.

This is an important number because it can predict an expected value of each team, which then shows how much more or less valuable the expansion Vegas Golden Knights are worth than their expected value. However, this data has two important problems that need to be cleaned up first.

The first one is the secondary market effect. There are three NHL teams whose value is way lower than it ought to be based on their markets: the Anaheim Mighty Ducks, the New York Islanders, and the New Jersey Devils. They’re only worth between $395-$460 million despite playing in the Los Angeles and New York markets. The reason is that they are the secondary (or tertiary) teams in those markets. The Rangers ($1.5 billion) and Los Angeles Kings ($750 million) fit much more closely with their market size. As such, we have to throw secondary market teams out of our data.

The second complicating factor is the value of Canadian teams. As it turns out, Canadians love hockey (duh). As a result, all Canadian teams are worth way more per person than their American counterparts. For example, the Edmonton Oilers are the 12th most valuable NHL franchise ($520 million) despite playing in the 51st largest media market in North America. The average Canada-based NHL team is worth $188.91 per person, completely skewing the data.

Removing the secondary market teams and Canadian teams, the average value of the remaining NHL franchises is $104.02 per person. Now we have a figure we can use to calculate expected franchise values.

Hockey xValue

As it turns out, the Las Vegas media market is pretty small- only 1.9 million people. The only US city with an NHL team smaller than Sin City is Buffalo. (Edmonton, Calgary, Ottawa, and Winnipeg are also smaller, but Canadian teams play by a different set of value rules as we’ve already established.) Because of the small market size, the expected value is only $193 million.

Of course, the team was actually purchased from the league for $500 million. That’s an insane 259% of the expected value (xValue)! In theory, this means any expansion team (baseball included) could be worth about 2.5 times it’s xValue!

That’s almost too crazy to believe. In fact, you probably shouldn't believe it. Las Vegas is a unique metropolitan area because it’s surrounded by mostly uninhabited desert. There are no sprawling suburbs, which is where a lot of modern baseball and hockey consumers come from. Fortunately, there could be an even better bellwether forthcoming.

Selling Seattle

31 is a weird number for a sports league; 32 is much cleaner. The NHL is on the verge of adding yet another expansion team shortly, most likely in Seattle. Emily Kaplan of ESPN reported that the league is looking for a $650 million dollar expansion fee this time around.

Seattle is a metropolitan area with about 4.7 million people. The xValue for an NHL team in the Emerald City would be $484 million. $650 million is a 34% markup. This is probably a more accurate measurement for valuing a baseball expansion team.

Franchise Values-Baseball

Baseball teams are far more valuable than hockey teams. The average MLB club is worth $1.64 billion, which is more than even the highest valued NHL team. They range from $4 billion at the high end (New York Yankees, naturally) to $900 million at the bottom (the Tampa Bay Rays).

Using the same value/market size formula, the average baseball team is worth $249.15 per person. Yes, every single one of your friends, neighbors, and colleagues is worth about $250 to your local baseball team, simply by existing in their media market.

However, if we use this figure to determine xValue for MLB, we have a familiar problem. The lowest performing xValue teams are the New York Mets, Los Angeles Angels, Oakland A’s, and Chicago White Sox. The secondary market teams skew the data yet again! For more accurate xValue data, we have to discard these four teams. (The Canadian markets aren’t a measurable factor in baseball because there’s only one Canadian baseball team, RIP Expos!)

With the four secondary market teams removed, the remaining baseball teams are worth a staggering $286.57 per person. Now, we’re ready to look at baseball xValue for potential expansion sites.

Baseball Expansion xValue

Last summer, Jesse Spector of The Sporting News hypothesized there are 8 potential landing sites for MLB expansion:

  • Charlotte, NC
  • Las Vegas, NV
  • Mexico City
  • Montreal
  • Nashville, TN
  • Portland, OR
  • San Antonio, TX
  • San Juan, PR

For the purposes of calculating franchise value, we have to throw away two of these cities: Mexico City and San Juan. The latter is on an island with only about 3.4 million total residents, many of whom aren’t able to buy cable TV packages. The former is actually the largest metropolis in North America and the 5th biggest city in the world. But at an elevation more than 2,000 feet higher than Denver with a major air pollution problem, there are just too many quality of play concerns.

The remaining six cities are all viable for an expansion team. Here are their xValues, as well as their xValue multiplied by the Vegas Golden Knights markup rate, and the future NHL Seattle team’s markup rate.

Baseball Expansion xValues

City Market size (thousands) xValue Vegas Multiplier: xValue*2.59 Seattle Multiplier: xValue*1.34
City Market size (thousands) xValue Vegas Multiplier: xValue*2.59 Seattle Multiplier: xValue*1.34
Charlotte 2977 $853M $2,212M $1,146M
Las Vegas 1854 $531M $1,378M $714M
Montreal 4830 $1,384M $3,589M $1,860M
Nashville 2587 $741M $1,922M $996M
Portland 2977 $853M $2,212M $1,146M
San Antonio 2352 $674M $1,748M $906M

You can use whichever xValue you want for each city. Personally, I’m inclined to use the Vegas multiplier for Las Vegas and the Seattle multiplier for all other cities.

Should Baseball Expand? YES!!

This puts the value of an expansion team somewhere between $900 million-$1.8 billion. Divided by the 30 existing franchises, each team pockets $60-120 million from two expansion teams.

Last September, MLB sold half of MLBAM to Disney for $1.58 billion. Obviously, this cuts future Advanced Media revenue in half, but each team cashed out $50 million.

The MLBAM sale is pretty relevant to the expansion conversation. Yes, adding a pair of new teams means any shared revenue streams are divided by 32 instead of 30. But that’s probably no worse a future revenue hit than selling half of MLBAM. Furthermore, the expected payout of $60-120 million is even better than that of the MLBAM sale!

Naturally, there are other factors. The commissioner's office likely wants to resolve stadium issues in Tampa Bay and Oakland before expanding. Adding a pair of new teams means two fewer cities the Rays or A’s could threaten to move to. Regardless, there would still be four other hungry cities that could be used for relocation leverage.

Expansion makes sense for MLB right now. It’s probably a better deal for the existing clubs than the MLBAM sale in present and future value. It’s also a great time to be an expansion team in American sports. Just ask Bill Foley how things worked out in Vegas.

*Correction- An earlier version of this article misstated the altitude of Mexico City. Thanks to @octaviolider for the correction.

Daniel R. Epstein is an elementary special education teacher and president of the Somerset County Education Association. In addition to BtBS, he writes at Tweets @depstein1983