Major League Baseball’s owners and the league’s players union are entrenched in a labor dispute surrounding the economic structure of the MLB, among other things, that has halted spring training and could delay the start of the regular season.
Last week, MLB 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
a better investment than owning a Major League Baseball team?
According to an analysis by market data company PitchBook, MLB franchises appreciated 548% between 2002 and 2020, outpacing a 381.4% gain from 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. Here’s a look at one recent MLB franchise sale.
Jeffrey Loria bought the Marlins for $158.5 million in 2002, and in 2017 sold it 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 simply 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 long-term capital-gains tax.
The dramatic increase in most MLB franchise valuations over the years is not the only way owners profit off their teams, of course. Teams bring in revenue through ticket sales, sponsorship opportunities and television broadcast contracts, providing even more profit for owners. To continue the example, the Marlins’ average annual revenue from 2001 to 2020 was $150.6 million, according to Statista.
In some ways, owning an MLB team is somewhat 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 article reads.
Simply making calculations from purchase and sale dates don’t tell the full story, as an owner’s costs year-to-year 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 on this story. The MLB also didn’t reveal the identity of the investment banker it said was hired to look into this issue.
And it isn’t just MLB franchise valuations that are beating the markets. PitchBook’s data suggest that franchise valuations in the NFL, NBA and MLB all outpaced gains from the S&P 500.