Owning a baseball team is an excellent investment. First of all, it’s cool as hell. I bet you get a hat for free, you can probably go on the field during batting practice and the value of the investment appreciates at an all-but-guaranteed rate of . Most of the owners — most of whom are billionaires — under their stewardship. That’s not income, of course, owning a baseball team is more like buying stocks than working a nine-to-five, but it’s hard to complain.
Or at least it should be.
“We actually hired an investment banker, a really good one, to look at that very issue,” Rob Manfred, the commissioner . He was answering a very simple question: Is owning a baseball team a good investment?
“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, what you’d expect to get in the stock market, with a lot more risk.”
Let’s get something out of the way: to justify demands that the players take a pay cut. And although they’ve been quieter about it during the current collective bargaining negotiations, the implicit entrenched position is the same — on the broadest scale, they don’t want to make all the economic concessions that the union is asking for and one of the reasons they’re citing is that they can scarcely afford it.
That’s why Manfred said what he did. It’s not that he’s stupid (he’s just hoping you are) or confused. It’s strategic. To concede on the record that the current economic system is working fabulously for owners — and increasingly so in recent years — would be chum to a union that’s angry, energized and determined to push the pendulum in the other direction.
But he did say it, so let’s unpack it a little.
Read enough stories about the economics of owning a baseball team and you’ll come across a notorious quote from Paul Beeston, former Toronto Blue Jays president and COO of MLB at the turn of the century. With a pithy nod to the economic structure that protects the obscenely wealthy in industries across the country — but perhaps nowhere more ludicrously than in sports — Beeston said: “Under generally accepted accounting principles, I could turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me.”
I’m sure that the “very good investment banker” that MLB hired to tell them what it would help to hear knows all of those generally accepted accounting principles.
Last year, . The main takeaway?
“Owners frequently report incomes for their teams that are millions below their real-world earnings, according to the tax records, previously leaked team financial records and interviews with experts.”
Provisions in the U.S. tax code — including some MLB specifically lobbied for — and creative use of allows owners to negate gains or claim losses, substantially reducing their tax obligations and saving them millions of dollars.
The article tracks the case of Steve Ballmer, who bought the NBA’s Los Angeles Clippers for $2 billion in 2014, , “There’s much less risk. There’s real earnings in this business.“
When he went on to report a total of $700 million in losses over the next four years, it wasn’t that he had been wrong, he was just ensuring one of the ways he was right.
And those tax breaks on the owners’ other income isn’t even what we’re talking about when we say MLB teams are a good investment. Manfred specifically claimed that owners’ returns are below what you could expect from the stock market. But just this week, data from PitchBook showed that even in a strong stock market,
PitchBook estimates MLB clubs offered a 669% price return from 2002 to 2021 compared to 458% returns on the S&P 500. (The private equity firms rushing to invest in sports aren’t doing it for their health.)
Rob Mains has written extensively about the economics of ownership at Baseball Prospectus, frequently explaining why “it’s .” Back in 2018, he looked at some of the ways in which — contrary to what Manfred claimed — that capital appreciation is incredibly low-risk. MLB’s exceptional legal monopoly means teams face little to no competition and they essentially can’t fail. Case in point, the Montreal Expos no longer exist, but their principal owner was able to sell the team back to MLB for 10 times his initial investment and get an interest-free loan from the league to help fund his purchase of the Marlins). All the whale, they receive subsidies in the form of partially taxpayer payer-funded stadium deals and labor law loopholes.
But even if you didn’t bother to click any of those links, you know that owning a baseball team is a good investment because savvy businessmen who would rather pinch pennies than field one of the best players in the game are eager to own one. To care about baseball is to confront over and over again . Now MLB suddenly expects us to believe got involved in spite of ?
This matters not just because we should hold powerful people accountable for the things they say publicly. The protracted CBA negotiations are close to compromising an on-time start to the regular season. It takes two sides to miss games and the union’s resolve to walk away from the table with material gains requires a willingness to sacrifice paychecks. But it’s worth delineating the different economic context and pressures on either side.
can and should be different by virtue of their longer term literal investment in the game. Players have to maximize earnings in the window of their peak physical ability, but owners’ own financial interests are best realized by prioritizing the future relevance and vitality of baseball. It’s hard to put a number on the waning patience among fans for a resolution to this fight or the potential disillusionment that could come from a disrupted season, but Manfred himself said he sees “missing games as a disastrous outcome for this industry.”
He can obfuscate the reality, but the owners need a thriving industry to get the kind of return on their investment they’ve gotten used to.
Do you know how else I know Manfred wasn’t telling the truth? Because if he was, he wouldn’t be a very good commissioner. If it was true, he would be failing in his de facto fiduciary duty to the owners. Say what you will about Bud Selig, but under his commissionership, team valuations skyrocket. He made being a baseball owner into a very lucrative proposition. So Manfred is saying that during his reign, that has ceased to be the case. Or he’s lying.
This news is republished from another source. You can check the original article here