Want a franchise? Empty your wallet

Just as the stock and housing markets have experienced bubbles, MLB appears to be in a bubble of its own when it comes to buying and selling franchises. Last week, Drayton McLane and Jim Crane came to a surprisingly high price of $680 million for the Astros. That follows up the auction-boosted $593 million paid by Nolan Ryan’s group for the Texas Rangers. In both cases the final sale prices were a combined $348 million more than Forbes’ valuations at the times of those sales. Prior to the two Texas teams, the Padres and Cubs pulled $100+ million premiums over Forbes.

* - Debt may not include all debt for related companies. ** - Astros sale is not yet final.

It’s not only MLB. Last year the Warriors were sold for a NBA record sale price of $450 million. Again, this was around $100 million more than expected for the team. Compare these recent sales to those of a few years ago in the table above. In those cases the disparities weren’t nearly as vast and could be easily explained. Nowadays it’s hard to say. The Astros reportedly fetched a higher price due to projected higher revenues from a new regional sports network. Yet the Rangers’ premium price didn’t even include all of the parking lots surrounding the stadium, and it’s possible that a future sale of the Dodgers will have similar limitations. I have a few hunches as to why this bubble is occurring:

  • Money has been sitting on the sidelines of the broader market for so long that interested buyers are willing to pay premiums for sports properties.
  • Local TV revenue is starting go through the roof for more than the big market teams, which is encouraging investors to buy into teams with long, locked-in TV contracts.
  • MLB’s CBA in particular looks attractive to investors because cost controls are inherent for each team and there’s little worry about labor strife.
  • Someone (who?) may be priming the pump on franchises.

That last bit is complete speculation with no basis in fact, but how else can you explain it?

The next franchise likely to be sold will be the Braves (again), who were sold in 2007 as part of tax-free, debt-free equity swap between Ted Turner and John Malone’s Liberty Media. Those tax breaks expire next year, which means the clock is ticking for the Braves. I’m curious to see what price they fetch – and whether having zero debt load makes any difference.

As long as franchises continue to be sold for premium prices, the market creates yet another obstacle for Oakland. Let’s say the Wolff gives up on the Bay Area and announces he wants to sell with Fisher. Bidding could easily grow to over $400 million with no guarantee of a hometown discount. The best hope for the pro-Oakland crowd would be if Fisher could be convinced to stay on as silent majority partner and another managing partner were brought in, much the same way Bill Neukom was brought into the Giants. But if you’re Fisher, how do you sign on without guarantees you’re getting real returns? By real returns, I mean a ballpark that more than pays for itself. If I knew the answer, perhaps I wouldn’t be so skeptical about Oakland’s chances.

3 thoughts on “Want a franchise? Empty your wallet

  1. Thankfully, I don’t think Mr. Wolff is selling the A’s anytime soon. At least not until he has tasted a few years in a spanking new ballpark. And just my opinion: when he does “sell” it will be to his son Keith. Kind of like what happened with the Yankees and Steinbrenners (did I spell it correctly?).

  2. Great post ML.

    It crazy to see how the Cubs for example were sold for 850M in 2009 but are not worth 773M while the Dodgers were sold for 430M in 2004 and now are worth 800M.

    The A’s have very little debt (29%) compared to most of the teams on the list. Therefore a sale would be pretty clean to any prospective buyer.

    Considering the A’s still turn a profit from revenue sharing they could in theory “rot” in the Coliseum and make $$.

    I just do not see how changing managing partners helps the A’s cause. Lew Wolff has been involved for years and understands the landscape pretty well. It would be a mistake to a bring a new guy in who does not have Wolff’s connections to Silicon Valley to get a ballpark privately done in this new economic environment in California where governments do not subsidize ballparks or stadiums anymore outside of infrastructure and roads.

    A new stadium needs to get done in San Jose for the long term health of the A’s franchise. Rumor has it the A’s move to San Jose their franchise value would skyrocket to 500M dollars immediately or in that range. A jump of 200M from where they are now in Oakland.

    Of course this in 2015 #s as the A’s value would continue to go up even in the Coliseum as long as they kept their overall debt down.

    This makes sense as Forbes states for the 49ers if they get a new stadium in Santa Clara their franchise value would go up 200M dollars.

    I say easily more considering how much of a dump Candlestick is right now and NFL teams have better valuations than other sports teams.

    Once again great article….Love the #s and report ML.

  3. The commentary on this Web site is really excellent.

    The Houston Astros sale seems to reek to the heavens. Jim Crane plus at least 36 partners are paying $680 million for the lowly Astros, and the deal includes a whopping $300 million in debt. (Crane and Co. are paying an additional $93 million for Drayton McLane’s share of a new RSN.)

    With debt sinking the Dodgers and debt about to sink the Mets, it’s absolutely astonishing to me that MLB would even consider approving a debt-laden deal like this, let alone grease the wheels by (reportedly) providing access to some of the financing. I’m even more astonished that none of the MLB media seem very interested or concerned. I guess they’re all too busy writing Dodgers and Mets stories.

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