Nate Silver of Baseball Prospectus has done a lot of work in this area and he has found that making the playoffs impacts future revenue significantly — given that a 94 win team always makes the playoffs pretty much this will be the case here.

The rationale is that a 94 win team is more likely to be a better team and hence repeats its success. Therefore fans will flock to see more games and TV rights will be more expensive because of that. Nate calculates that it is a 10 year effect.

Check out the BP site — though I suspect that it is subscription only

Do these values continue to rise independent of inflation and the increased centralized MLB profits? It is counter-intuitive that a 94-win season in 2002 would have any bearing on franchise value in 2007. While it is of course reasonable that a recent winning record drives up a franchise’s value on the market, I have doubts that it is appropriate to treat the relationship between wins and franchise value as, in essence, profit. Do teams like the Braves see a leveling out of this effect, or have they really continued to increase their value linearly independent of inflation, MLBAM, etc.?

I also can’t help but point out that surely the difference in the value of a dollar in New York and Boston from TB and Minneapolis is substantial enough to be taken into consideration. I think you probably would need to adjust for the changes in the buying power of the market before you draw any conclusions on the Forbes data.

You obviously can’t make any conclusions based on one or two teams. But from the research I’ve done (and again, I’m not done with it, so I can’t say for certain), this phenomena applies to every team. The Forbes evaluations have turned out to be pretty spot-on, and I think that on a league-wide level they do a pretty good job.

To clarify, the point is also that valuation is an inexact science. In these valuation models an increase in value of 10% is probably within the margin of error of the assumptions. I am sure that the ballpark numbers (no pun intented) are in the right order of magnitude, it is the year on year change that is suspect.

One issue I have with that argument is that I presume the value you refering to is the capital value of the club as reported by Forbes.

Do you have any idea how Forbes creates these numbers? Is through a DCF process, or comps? What expertise does Forbes have here (except doing it for a few years)? They are not a bank or a consulting firm so what to they really know about business valuation?

Now, I could well be wrong and Forbes may have a bunch of experts who are routinely engaged on sport takeovers and therefore their opinions should be well regarded. I just don’t have the information to be able to say whether this is right.

I haven’t found anything yet, anything definitive, that is, but based on the work I’ve done so far, it seems to me that people under-estimate the value of a marginal win, largely because of how much it increases team value. For example, in the Yankees’ value grew by $76 million from 2005 to 2006, the Devil Rays’ grew by $33 million. The Yankees won 28 more games in 2005 than the Rays, so that would mean a marginal win is worth about $1.5 million more than we think (which takes it from $2.5-3 million to $4- 4.5 million, which is what teams pay for free agents!).

If you take the next two most extreme teams (in terms of 2005 revenues), the Red Sox and Twins, you find that a marginal win is worth $1.3 million in terms of franchise value, so it looks like we’re in the right neighborhood. Now the issue is that a large market team’s value might grow more even if it does not win more games, so we need to adjust for that (and then there are some other things), but that’s a rough demonstration of what’s going on.