Minor League Baseball Team Economics

Amazing the people who read McHenry County Blog.

Every once in a while, someone gets in contact with some really interesting information.

That’s how I scooped everyone on the planned minor league baseball stadium in Harvard.

Recently I received an email from another person with an insider’s knowledge:

Love your blog! I am a frequent reader of it. I found your post on the stadium proposal in Crystal Lake very interesting. I was curious to your thoughts on the whole thing.

I think one thing MCC doesn’t realize, or maybe they do, is that whatever baseball team decides to move into the facility is not going to be paying them a million dollars a year.

Has anyone up there even said how much they are expecting? Usually stadium levies are very minimal.

I replied, askeing for financing details and pointing out:

The college absolutely refuses to release the Mark Houser (or any other) cash flow estimates.

The college board is about to put us into debt for $36 million and all they will say is that 2/3 will be paid back by the minor league team/stadium operation. I’ve read the contract and there is $250,000 a year guaranteed, plus 10% of various concessions. 1/3 will be financed through fitness center revenues.

Here is my source’s reply:

Two-thirds of the cost you said would be paid by the minor league team, which would amount to around $23 million and change. If the team was suppose to pay $250k per year in rent, over thirty years you are looking at $7.5 million and my guess is they are looking at average attendance around the 125,000 – 150,000 for the season. Rockford, which is in the Frontier League, pulled in around 115,000 fans. To my knowledge, Schaumburg did around 200,000 last year. My basis for the 125,000 – 150,000 comes from a prediction of 3,500 attendees per game.

In terms of concessions, there are major question marks that come into my mind. Is the stadium concessions going to be run internally, such as the Kane County Cougars Baseball Team, or run by a management company, such as the Schaumburg Flyers and the Sears Centre arena here in Hoffman Estates?

If the concessions are going to be run by a management company, which is going to take a huge cut of the concession profits and then MCC takes their 10% cut, the team will make almost nothing on concessions.

Another question that comes up is picnics and such. The Kane County Cougars make a boatload of money off of picnics for companies and groups of people. Would that be considered a “concession?” A

lso, if the team is looking to make extra money to make up for the 10% cut from MCC, would that mean higher concession prices which end up resulting in less sales? Kane County does a great job with concession prices while the Schaumburg Flyers charge literally an arm and a leg, just like the Sears Centre. If it was me as an investor of the team, I would choose to do the concessions in-house.

Another question that arises, who is going to control major sponsorships such as the naming rights for the stadium? That right there alone could potential raise $200,000 per year.

The Alexian Field deal at the Schaumburg Flyers was a ten-year deal at $200,000 per year. Depending on the companies that are approached for the sponsorship for the naming rights, you could command $250,000 per year. If memory serves me correctly, I believe it took the Flyers at least four or five years before they finally sold their stadium rights, which they were not able to keep.

All things aside, $250k a year for rent ($7.5 million), lets say $1,000,000 in concessions which is $6.66 per person, which I think is high ($3 million), and let’s just say that MCC keeps the naming rights deal and somehow they get $200k per year ($6 million over the 30 years if they can get $200k per year).

All of those together is only $16.5 million over thirty years.

Who is going to cover the $6.5 million difference?

Honestly, even if concessions were to double, you are still looking at a $3.5 million dollar short fall. Again, I think a million a year in concessions is do-able, if you have picnic areas and such.

Sorry to throw this in there now. But with such a crazy deal as this, what type of investor are you going to have come in?

I bring up the Chicago Hounds, which is a hockey team that played at the Sears Centre last year and went under this month (June). They had a bad owner when the team started last fall and then another bad owner buy them again this spring. They went under because the owners had no idea what they were doing.

Also look at the football team, the Chicago Slaughter, that play at the Sears Centre. They are only pulling in around 1,000-1,500 people a game. What is going to happen if you have a bad owner or a bad staff.

What happens if the team goes under in the first five years?

The stadium will then see itself not being used by a baseball club besides the MCC college team.

Also, Chicago is the most saturated city in the entire country. On the baseball front you have the Chicago Cubs, Chicago White Sox, Kane County Cougars, Schaumburg Flyers, Joliet Jackhammers and the Windy City Thunderbolts.

With Crystal Lake being so close to Rockford, you also have the ball club out of Rockford to compete against. Also, Harvard was talking about building a field for summer ball teams, which would draw a decent amount of people. On top of that you have the Beloit Snappers somewhat close as well, which play the Kane County Cougars.

Honestly Cal, I think this whole thing could blow up in their face.

They need to look at some other options.

Those other options could include part ownership in the stadium, forcing the owners of the baseball team to come up with some of the money up front.

Lets say 10% ownership in the baseball aspect of the stadium with $3 million due up front???

Just an idea.

Another option again would be to have Crystal Lake float some bonds to help pay for part of the stadium and share ownership in the stadium.

Like I pointed out in an earlier email, Crystal Lake would benefit extremely in this deal with those 150,000 people eating in Crystal Lake most likely, getting gas and possibly shopping before/after games.

You might want to do some research with the Sears Centre arena. Hoffman Estates floated the bonds for the stadium.

You also might want to do some research with the Flyers stadium, which is a joint partnership with the Schaumburg Park District and the City of Schaumburg. I know Metra is part of it as well because the Flyers use their parking lots there at the train station.

That’s more forthcoming that McHenry County College officials have been.

And, what kind of money is Peter Heitman trying to raise from investors? I asked, “So, how much money do the owners put up in a minor league team? Total and how much do individuals invest?”

The answer:

What I have been hearing from various sources is that a franchise in those leagues is going for around $3,000,000. That is just for the rights to the franchise. So (they) are (also) going to need working capital.

Usually owners don’t make any money in the first few years, which is like most businesses. I am not quite sure though on what the requirements are in the league….sometimes leagues will put income requirements (X dollars in liquid capital and X dollars in net worth).

I am assuming that on top of the $3 million for the franchise fee, they will probably need at least a million in working capital, it not a little more than that.

To answer your question, somewhere between $4 million and $5 million.

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