Businessweek Archives

Commentary: Pity The Poor Baseball Owners? That's Rich


Sports Business

Commentary: Pity the Poor Baseball Owners? That's Rich

The Captains of Baseball just can't catch a break. Every time they have fans softened up to the point of believing that the national pastime is a money pit, the sorriest investment since the Edsel, something happens to prove their threadbare lament wrong.

The latest rain to fall on the owners' poverty parade was the sale of the Cleveland Indians on Nov. 4. The price--$320 million--is a record for a baseball franchise, eclipsing the $311 million paid by News Corp. for the Los Angeles Dodgers last year.

For all involved, it is a sweet deal. The buyer, Ohio lawyer Lawrence J. Dolan, whose big brother Charles is chairman of Cablevision Systems Corp., nabbed the team he adored growing up in Cleveland Heights for what may be a bargain price. "We thought they were worth as much as $361 million," says John Mansell of Paul Kagan Associates Inc., which values sports franchises.

The seller, Cleveland real estate developer Richard E. Jacobs, turned an eightfold profit over the $40 million he and his late brother paid for the Indians 13 years ago. Even stockholders in the publicly traded franchise should walk off with a windfall. Shares that traded around $6 this year are expected to bring more than $22 when Dolan buys them.SWEET DEAL. Such numbers make it hard to feel the owners' pain. For years, they've cried that baseball's economics are as nightmarish as a Roger Clemens fastball hurtling past a batter's ear. As the long-suffering bosses struggle to balance the books, goes the boo-hoo, mediocre players are set for life, living high off multiyear, multimillion-dollar contracts.

No doubt, baseball has problems. Competitive balance is way out of whack, the result of the growing chasm between small-market franchises and big-market clubs like the Dodgers, which on Nov. 8 gave right fielder Shawn Green a six-year, $84 million contract. Most every team could use about three more starting pitchers. And, not coincidentally, games are an hour too long.

But is baseball bad business? You can't tell by the line of eager investors that queues up when one of the 30 franchises goes on the block. And you wouldn't think so by watching valuations soar along a trajectory roughly equivalent to a Mark McGwire upper-deck home run.

True, not everyone hits the jackpot the way the Indians ownership did. Jacobs sold at the top of the market, while his team was a champ on the field (five straight division titles) and at the box office (373 consecutive sold-out home games).

But Major League Baseball has been a sweet deal for the vast majority of investors. Consider the Texas Rangers, a workmanlike club that has changed hands three times in 19 years. In 1980, H.E. "Eddie" Chiles bought the team for $8 million. Nine years later, a group led by Presidential hopeful George W. Bush paid $85 million. And last year, the team became the property of media tycoon Thomas O. Hicks, who laid down $250 million for the right to be king of the Ballpark in Arlington.

Even forlorn franchises have zoomed in value. The Oakland Athletics are at the center of a hot rumor about possibly downsizing the major leagues to 28 teams. Yet the A's recently attracted a bid of $122 million, a 50% markup over the $85 million paid for the franchise four years ago.BIG TICKETS. Why do baseball teams have such sizzle? For some investors, a team is a useful tax write-off. In the first few years of ownership, investors often enjoy major tax breaks from depreciation of player contracts and other assets.

And, says Kagan Associates' Mansell, "Hope springs eternal. The assumption is always that revenues will be higher." It's a fair bet. If MLB's next network TV contract follows the trend of recent deals by the National Football League and the National Basketball Assn., there could be more money for owners.

More dollars are flowing into box offices, too. In 1998, fans filled 59% of seats at big-league games, vs. 50% a decade earlier. And they're paying higher prices for tickets--up from an average $8.64 in 1991 to $14.91 last season, according to Team Marketing Report Inc.

So next time you hear owners belly aching about the harsh economics of owning a baseball team, don't get too choked up. Just offer a hanky--and ask to buy in.By Mark Hyman


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus