Manfred Claims Investing In Stock Market Better Than Return On MLB Club Sales

On Thursday, MLB commissioner Rob Manfred gave an update to the media on where things stand with the lockout that will push Spring Training out and potentially delay the start of the 2022 regular season. But within questions taken by the media, Manfred said that someone that buys and sells one of the 30 franchises would see a better return on investment if they took their purchase money and invested in the stock market. An analysis of recent club sales shows otherwise.

At the press conference in Jupiter, Florida as part of the owners’ meetings, Manfred was asked if purchasing MLB clubs was still a wise investment.

“We actually hired an investment banker – a really good one, actually – to look at that very issue,” Manfred said. “If you look at a purchase price of franchises, the cash that’s put in during the period of ownership, and then what they sold for, historically, the return on those investments is below what you get in the stock market, which looks like the end of the stock market was a lot more risky.”

Manfred did not divulge who the investment banker was, nor any details to support the claim. Major League Baseball provided no comment when seeking details.

The comments would make the likes of Steven Cohen – one of the biggest hedge fund moguls in the world – look like a poor investor. If Manfred is saying he could have invested his money more wisely, and with less risk, why would he do so?

There are other investment factors beyond just the purchase and sale.

In 2019, just before the pandemic struck, the annual Forbes valuations of the 30 clubs noted how incredibly lucrative owning an MLB franchise is.

“As for baseball’s P&L statement, by our count, the 30 MLB teams generated record average operating income (in the sense of earnings before interest, taxes, depreciation, and amortization) of $40 million during the 2018 season, 38% more than the previous year,” current colleague Michael Ozanian and former colleague Kurt Badenhausen wrote. “[In 2018] revenue increased 4.8%, to an average of $330 million per team, while player costs (including signing bonuses and benefits) remained flat at $157 million.”

The graph in the story showed average operating income – a form of profits – rising from $21 million in 2014 to $39.7 million in 2018 – a span of just four years.

But what of the claim about the straight sale? Could taking the money and investing in, say, the S&P 500 yield a better return? A look at several recent sales shows very much otherwise.

Calculating the profits of the $2.48 billion sale of the New York Mets from Sterling Equities to Steven Cohen is hard to calculate. Sterling’s majority purchase was done over years. But taking a look at the three others around that sale should leave little doubt that Sterling Equities made more than investing in the stock market.

The 2020 $1 Billion Sale Of The Kansas City Royals

David Glass, the former president and CEO of Walmart, purchased the Royals in 2000 for $96 million. In 2019 the club was sold for $1 billion to local investor, John Sherman. When adjusting for inflation, Glass made a profit of $834.26 million, or an increase on investment of 538%. Using an S&P 500 investment calculator, Glass’ $96 million investment in 2000 would have netted him $321.64 million in 2019. The investment in the Royals was a $512.62 million return over the same investment in the S&P 500.

The 2017 $1.2 Billion Sale Of the Miami Marlins

Art collector Jeffrey Loria purchased the then Florida Marlins for $158.5 million in 2002. In 2017 he sold the now Miami Marlins to a group of investors that includes Hall of Famer Derek Jeter for $1.2 billion. When adjusting for inflation, Loria made a profit of $952.3 million, or an increase on investment of 456%. Using that same S&P 500 calculator, Loria’s $158.5 million investment in 2002 would have netted him $530.56 million in 2017. Loria’s investment in the Marlins was a $421.74 million return over the same investment in the S&P 500. To add, Loria was able to cajole politicians in Miami-Dade County to pick up a sizeable tab for the construction of what is now LoanDepot Stadium. The initial public investment was $634 million which will calculate to $2.6 billion by the time the bonds are paid off. How much did the Marlins chip in for the state-of-the-art ballpark? $5.5 million.

The 2018 $2.3 Billion Sale Of The Los Angeles Dodgers, And Other Assets

It seems almost impossible now, but in 2004, Major League Baseball couldn’t find what they thought was a suitable owner for the Los Angeles Dodgers. They settle on a Boston real estate investor who made his mark purchasing parking lots. Frank McCourt purchased the club with just $9 million in cash and the rest through debt. He acquires not just the Dodgers, but Dodger Stadium, and 260 acres that includes Dodger Stadium parking. In 2018 he sells the Dodgers, Dodger Stadium, and just 130 acres of the land surrounding the ballpark to Guggenheim Baseball Management for $2.3 billion. When adjusting for inflation, McCourt walked away with a profit of $1.73 billion, or an increase on investment of 302%, not accounting for the 130 acres of property he still retains that has increased in value. Using the S&P 500 calculator, McCourt’s $430 million investment in 2004 would have netted him $1.334 billion in 2018. His investment in the Dodgers, Dodger Stadium, and other property was a $396 million return over the same investment in the S&P 500.

The Tale Of The Tape

It is possible that Manfred’s investment banker and the data he used to inform the commissioner on the stock market returning a better investment at lower risk may become public. But until then, it’s important to look at what data is available to show that the claim is dubious. When asked about Manfred’s claim, St. Louis Cardinals pitcher Andrew Miller said to The Athletic, “I’ll let other people pick it apart.” Besides this analysis, others have looked into the data. CNBC reported that Pitchbook shows not just MLB, but all the major North American sports leagues, with returns higher than investment in the S&P 500 since 2002.