Is owning a Major League Baseball team a good investment?
The answer depends on whom you ask — and especially when you ask.
Last week, MLB commissioner Rob Manfred’s answer to that question raised a few eyebrows.
Manfred said, “Historically, the return on those investments is below what you get in the stock market,” and he said they are riskier, too. His comments came at the end of three days of meetings with team owners in Florida as they planned their next steps in the ongoing labor dispute with baseball players.
MLB declined to offer details on the methodology used by the “really good” investment banker it hired to look into this matter. The purchase price, the cash put in during ownership, and the selling price were cited by Manfred as the three factors examined.
Selling prices of franchises usually become public knowledge, but since teams keep their financials private, there’s no precise way to get at what “the cash put in during the period of ownership” really means, especially without a better sense of all expenses and all revenues in that time.
The best gauge available for how teams are doing is the annual Forbes valuations, which have been coming out since 1995.
The performance of the S&P 500 is a good gauge for historical stock market performance. However, it comes with the caveat that calculators can apply filters that take into account, or not, inflation-adjusted and dividends-reinvested figures. For the purposes of this story, the figures are not adjusted for inflation and dividends are reinvested, a choice that produces higher annualized rates of returns.
Over the last five years, a span that coincided with baseball’s last collective bargaining agreement, the teams’ Forbes valuations rose, on average, 8 percent year over year.
The S&P 500 rose by more than 15 percent in that time, so let’s give the edge to the stock market there.
Zoom out, however, and the view of the owners’ investment as some kind of folly gets real fuzzy real fast.
A look at the previous five years, 2012-16, points to an average rise of 20 percent in the value of teams, the best five-year period dating back sequentially to 1995, when Forbes first began calculating club valuations.
The S&P 500 rose 14 percent in that particular five-year span.
Let’s go all the way back to 1995, when Forbes began its valuations.
Teams rose from an average $111 million valuation in 1995 to $1.9 billion in 2021, at an annualized compounded rate of 11.5 percent.
In that same 27-year span, the S&P 500′s annualized rate of return was 10.3 percent.
Edge to the owners.
Let’s look at the recent sales of one large-market team, the New York Mets, which sold in the fall of 2020, and one small-market team, the Kansas City Royals, which sold in late 2019.
When the previous Mets owners gained control in 2002, the team was valued at $391 million. When Steve Cohen purchased the team for $2.42 billion, the annualized rate of return for the team worked out to 10.6 percent.
The S&P 500 came in at 9.7 percent.
New Royals owner John Sherman bought the team for $1 billion, quite the markup from the $96 million paid by the previous owner in 2000. That’s an annualized rate of return of 12.7 percent, more than twice as much as the 5.9 percent provided by the S&P 500 in that time.
There are always ways to spin numbers, rates, percentages, and time frames. It’s part of the numbers and analytics game played on Wall Street as much as it is played in the game and business of baseball.
In a labor battle, throwing around figures amounts to a weapon, one that’s just waiting to be dropped at the right place and right time.
Manfred’s claim about team investment values paling next to stock-market returns suits the owners right now while they negotiate with their workforce. But historically, the numbers suggest owners have done all right for themselves by buying and selling or holding their teams.
Michael Silverman can be reached at email@example.com.