Mains: Baseball team ownership and rent-seeking

From SABR member Rob Mains at Baseball Prospectus on April 12, 2018:

Forbes has published its annual estimates of baseball franchise values and profitability. As usual, the buzz about the Forbes list has focused on two features.

  1. Baseball teams are worth a lot of money. Forbes estimates the aggregate value of the 30 teams is over $49.3 billion, ranging from $900 million for the Rays to $4.0 billion for the Yankees. Every single team rose in value last year, with increases ranging from one percent for the Pirates to 16 percent for the A’s.
  2. Baseball teams make a lot of money. Forbes estimates overall revenues of $9.46 billion and operating profits (defined as earnings before interest, taxes, depreciation, and amortization—EBITDA in finance parlance) of $889 million. That’s a healthy operating margin of 9.4 percent. All but five teams turned a profit last year, and two of the unprofitable teams—the Blue Jays (loss of $1.3 million) and Mariners (loss of $2.4 million)—had a loss of less than one percent of revenues. The Orioles ($26 million, 10 percent of revenues), Tigers ($46 million, 17 percent of revenues), and Marlins ($53 million, 24 percent of revenues) were the only clubs to suffer significant losses.

Those are valid observations, and some very talented writers have and will dissect them. I would like to look at the Forbes numbers from a different angle, though. As I have often written, admittedly repeatedly, arguably ad nauseum, I think the way to view a baseball team is as an investment, not as a going-concern business.

Read the full article here:

Originally published: April 12, 2018. Last Updated: April 12, 2018.