The biggest winner at last week’s Consumer Electronics Show in Las Vegas may have been Major League Baseball Advanced Media, the technology and Internet arm of Major League Baseball.
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MLBAM, which was launched in 2001 and is equally owned by the league’s 30 teams, is already a powerhouse: its At Bat 13 application, made in-house, was introduced in February to such strong fan demand that within a matter of hours it became the highest grossing sports application for Apple’s iPhone, iPad, and Google’s Android. The app ultimately surpassed the 10 million download mark in 2013, up significantly from 6.7 million in 2012. In 2013, MLBAM powered 20,000 live events totaling 80,000 hours of live programming. MLBAM also provides services for ESPN 3, Top Rank Boxing, Minor League Baseball and in–flight broadband TV provider, Row 44, among others in sports and entertainment.
MLBAM’s rapid growth, top-shelf client portfolio and fat margins have enabled it to become bigger and more profitable than any other technology business in sports. MLBAM’s revenue for 2013 likely came in slightly below $700 million and generated operating income (earnings before interest, taxes, depreciation and amortization) in the neighborhood of $225 million.
The two MLBAM tech partnerships announced at CES–one with Sony provide back-end infrastructure for Sony’s as-yet-unnamed cloud-based TV service and another with World Wrestling Entertainment to deliver the first-ever 24/7 streaming network starting next month–represent the latest in a new breed of OTT live video programming that, when combined with extensive VOD libraries, represent a new world of hybrid OTT programming Netflix and Hulu do not have as of yet.
Sony and WWE join MLB.TV and TheBlaze TV (Glenn Beck’s subscription video channel) in the new breed of over-the-top distribution, (delivery directly to the consumer through internet-connected devices such as mobile phones, tablets, gaming consoles, set top boxes), which is growing and financially viable because of a vast market interest in so-called “narrow-casted” products. The ratings have proven themselves comparable to their cable counterparts, but because they are al a carte, and can include dual revenue streams (subscription and advertising) like traditional cable, the margins are significantly higher.
It has long been speculated that MLBAM would go public. But with stocks, particularly technology companies, selling at high valuations, debt-financing cheap and the IPO market expected to remain hot remain hot in 2014, a public offering of MLBAM seems especially ripe. Although MLBAM would be worth somewhere around $6 billion to $8 billion, I believe it is highly unlikely MLB would sell the entire company because of how much the league relies on MLBAM. Instead, baseball will probably IPO the technology services operation (keeping MLB.TV as a big customer), which would offer investors the entire broadcast distribution ecosystem.
That segment of MLBAM contributed only between $90 million to $110 million to overall revenue in 2013. But the Sony and WWE deals will boost revenues for technology services significantly, and revenue is likely to continue to grow at a fast clip as the transition to Internet-delivered TV programming continues its meteoric rise (both in terms of the business and customer interest). That, according to my back-of-the envelope calculation, could mean a $500 million valuation for a partial IPO, or $17 million per team.