Earlier this year, Major League Baseball’s owners and the league’s players union were entrenched in a labor dispute surrounding the game’s economic structure, among other things, that halted spring training and delayed the regular season.
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In February, Commissioner Rob Manfred seemed to defend league owners when he claimed that purchasing an MLB franchise is a worse investment than the stock market.
“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.”
Are Manfred and the investment banker right? Is investing in an index fund that tracks the S&P 500
SPX,
say, a better investment than owning a Major League Baseball team over the same time horizon?
According to an analysis by market-data company PitchBook, MLB franchises appreciated 548% between 2002 and 2020, outpacing the 381.4% gain racked up by the S&P 500 over the same period. The analysis was conducted assuming all stock dividends were reinvested.
The average MLB franchise is currently worth $1.91 billion, according to Statista.
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Here’s a look at one recent MLB franchise sale.
Jeffrey Loria bought the then–Florida Marlins for $158.5 million in 2002, and in 2017 sold the club, then named the Miami Marlins, to an ownership group led by Derek Jeter for $1.2 billion, a 657% return on investment, not accounting for inflation.
If Loria were to have put his original $158.5 million into an S&P 500 index fund, his gains from 2002 to 2017 would have been $530.5 million, or a 234.7%, before assessing tax on his long-term capital gain.
The increase in MLB franchise valuations over the years is not the only way owners profit from their teams, of course. Teams bring in revenue through ticket sales, sponsorship opportunities and television broadcast contracts, providing more ongoing profit for owners. To continue the example, the Marlins’ average annual revenue from 2001 to 2020 was $150.6 million, according to Statista.
In many ways, owning an MLB team is similar to owning a stock that appreciates in value, but it also can provide yearly revenue to an owner, not dissimilar to a cash dividend.
In some instances, owners of sports franchise claim they are making less money than they actually are. This could benefit owners on their taxes.
According to IRS documents viewed by ProPublica in 2021, sports teams “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,” the ProPublica report states.
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Simply making calculations from purchase and sale dates doesn’t tell the full tale, as an owner’s year-to-year costs can fluctuate based on factors like player salaries or stadium renovations.
The MLB didn’t give any specific numbers to support its claim and didn’t respond to MarketWatch’s request for comment. The MLB also didn’t reveal the identity of the investment banker it said was hired to look into the issue.
It isn’t just MLB franchise valuations that are beating the equity markets. PitchBook’s data suggest that franchise valuations in the NFL, NBA and MLB all outpaced gains from the S&P 500.
