Philadelphia Phillies Managing Partner and Principal Owner John Middleton signs autographs before the 2024 London Series game between the New York Mets and the Philadelphia Phillies at London Stadium on June 9, 2024 in London.
Daniel Shirey | Major League Baseball | Getty Images
The Philadelphia Phillies recently raised nearly $500 million in capital from three new investors. This comes from a transaction that values the Major League Baseball team and its 25 percent stake in regional sports broadcaster NBC Sports Philadelphia at about $3 billion, according to two people familiar with the deal.
As part of the deal, two existing owners, managing partners John Middleton and Stanley Middleman, also invested more money in the Phillies, bringing the total capital infusion to nearly $600 million, according to the people.
On November 1, Middleton announced that new investors, including Mitchell Morgan and Guntram Weissenberger Jr., would be joining the Phillies. The amount of the investment and the third investor were not disclosed.
Given that limited partner shares are typically about 20% cheaper than control shares because LPs have no say in running the team, the $3 billion valuation equates to a control valuation of about $3.7 billion.
That's an impressive number considering that the Baltimore Orioles were sold for $1.73 billion earlier this year and the highest amount ever paid for a baseball team was $2.42 billion, which Steve Cohen paid for the New York Mets in 2020.
Just over a year ago, Middleman acquired a 16.25% stake in the Phillies at a gross value of $2.8 billion.
Based on revenue multiples, a control valuation of the Phillies of $3.7 billion would equate to eight times 2023 revenue, compared to multiples of 5.3 for the Orioles and 6.7 for the Mets, according to historical revenue calculations .
The Philadelphia Phillies celebrate after defeating the New York Mets 12-2 in a game at Citi Field in New York City on September 20, 2024.
Dustin Satloff | Getty Images
The Phillies have one of the best local television offerings in baseball. In 2014, the team entered into a deal with NBC Sports Philadelphia that guaranteed the team an average of $100 million in rights fees per year for 25 years, as well as a 25 percent stake in the regional sports network.
But cord cuts have created tougher economic conditions for regional sports broadcasters. The most glaring example is Diamond Sports Group, which filed for Chapter 11 bankruptcy protection in March 2023. As pay-TV revenue declines, some baseball teams could see a decline in their television revenue.
The Phillies are less exposed to that risk because Comcast owns 75% of the regional sports network.
It is unknown what the Phillies will use the capital raise proceeds for, but there has been some speculation that the team could be targeting free agent Juan Soto.
Acquiring Soto, who could make between $50 million and $70 million per year, would likely give the team a huge luxury tax bill. Last season, the Phillies, led by superstar Bryce Harper, had a payroll of $262 million, the fourth-highest in baseball, according to Cot's Baseball Contracts. According to Spotrac, the team is looking for a $10 million luxury tax, formerly known as the competitive balance tax.
According to Cot's, the Phillies have a $240 million payroll through the 2025 season. The MLB luxury tax limit is $241 million.
Before that capital raise, the Middleton family owned 48.75% of the Phillies, the Buck family owned 32.5% and the Middleman family owned 16.25%, according to a person familiar with the team's ownership. Pat Gillick owned 1.5% and David Montgomery owned 1%, the person said.
It is not clear what the exact ownership shares will be after the capital increase.
An MLB spokesperson did not respond to CNBC's request for comment. A Phillies spokesman declined to comment, as did a spokesman for Galatioto Sports Partners, the consulting firm that represented the Phillies in the capital raising.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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