MLB Franchise Buys Beat Market Returns in Long Run: Data Viz
With a total worth of $7.01 billion, the New York Yankees are MLB’s most valuable franchise, and the most valuable sports franchise in the world, according to Sportico’s team valuations, released last Thursday. That valuation is even more impressive considering the team was bought for just $8.8 million in 1973.
The purchase by George Steinbrenner’s group turned out to be quite the investment, yielding an annualized return of 14.6%. It’s no wonder why some were skeptical when MLB commissioner Rob Manfred stated in February that a league-hired investment banker found buying an MLB team to be a questionable financial decision.
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“If you look at the purchase price of franchises, the cash that’s put in during the period of ownership, and then what they’ve sold for, historically the return on those investments is below what you’d get in the stock market… with a lot more risk,” Manfred said.
Across all 30 teams, the Yankees have had the second largest annualized return on purchase of any team, trailing only the Los Angeles Angels, which were bought in 2003 for $183 million and are now worth $2.5 billion. That annual appreciation of 14.8% is far more than the average across the league, which is almost exactly 10%.
A 10% return on any investment is solid, but none of the MLB owners would have been able to afford professional sports franchises if that was their annual return during their pre-ownership careers. Furthermore, the annual return on the S&P 500 since 1973 is 8%, or 10% including reinvested dividends, which is comparable to MLB franchise ownership.
And conditions are not improving. The handful of teams purchased within the past decade all have seen decidedly lower returns than the stock market, which has gone up 12% annually, or 14% including reinvested dividends, since 2012. Of the six most recent MLB teams to change ownership, none has an annualized return on purchase of at least 10%, and each ranks among the bottom eight teams in the league in that measure.
The extreme case is the Miami Marlins, a franchise that has actually depreciated in value. Bruce Sherman’s ownership group paid $1.2 billion for the team in 2017 and, after an 11th straight losing season, Sportico values the team last in the league at just $1.06 billion.
The average MLB team value is $2.31 billion, up just 5% over last year. The gain would have been higher if not for sagging regional sports network valuations, as teams face a cord-cutting epidemic in addition to the pandemic.
There is even some public sympathy for the billionaires running the teams. According to a survey conducted by Sportico in collaboration with Harris Poll in December, 38% of respondents who knew enough about the MLB lockout to choose a side said they sided with the owners.
Looking more closely at Manfred’s statement, however, there is no evidence supporting his claim that owning a baseball team is a riskier investment than the stock market, which has had two crashes in the past quarter century. It is rare to see a major U.S. sports franchise depreciate at all, whereas the S&P 500 declined by nearly 50% between 2007 and 2009.
There are also a lot of caveats when analyzing Manfred’s comparison of franchise value appreciation with stock market growth, including team revenues and tax advantages, to name a few that benefit the owners. On the other hand, as the commissioner noted, owners continuously put their own cash into their teams.
When viewed in a vacuum, though, a 5%-10% increase on billions is still a heck of a lot of money.
With assistance from Kurt Badenhausen.
