IS BUYING A BALL CLUB A FOOL'S GAME?
To hear the lords of baseball tell it, this is a lousy time to own a team. With player salaries still rising and TV revenues headed for a fall, "baseball is poised for a catastrophe, and it might not be far off," Major League Baseball Commissioner Fay Vincent warned in 1991. Vincent hasn't changed his tune since then, and doomsday is presumably drawing ever closer. Ergo, you would have to be nuts to buy a major league franchise today.
Funny, Drayton McLane and Mike Ilitch don't look crazy.
McLane, a Temple (Tex.) grocery tycoon, announced on July 24 he would buy the Houston Astros of the National League from John J. McMullen for $115 million. Four days later, word leaked out that Ilitch, owner of pizza franchiser Little Caesar Enterprises Inc., would take the American League's Detroit Tigers off the hands of Domino's Pizza Inc. owner Tom Monaghan for $80 million to $85 million. Neither buyer is known for throwing scarifying amounts of cash at unprofitable enterprises.
Granted, baseball has serious long-term problems. "Major League Baseball could be on a collision course with financial hard times," says Stephen Schott, former chief operating officer of the Cincinnati Reds and now an investment banker at Dean Witter Reynolds Inc. in Cincinnati. Adds former Baseball Commissioner Bowie Kuhn, who now runs Sports Franchises Inc., an adviser to sports investors: "There's uncertainty over the labor-management situation and the national broadcast contract."
For a buyer who can afford to be patient, though, baseball is still a good investment. Teams historically have appreciated handsomely over time, and never more so than in the free-agent era. Yes, expenses in the age of the $7 million-a-year ballplayer are high, but thanks to luxury boxes, cable TV, and licensed merchandise--not to mention strong attendance--so are revenues. That should be good news to the owners of teams now up for sale, including Bob Lurie of the San Francisco Giants, Tom Werner of the San Diego Padres, and Eli Jacobs of the Baltimore Orioles.
A look at the two franchises just sold helps explain baseball's appeal to investors. The $115 million shelled out by McLane values the Astros at $90 million, according to Louis Susman, the Salomon Brothers Inc. managing director who advised McMullen on the sale. The rest of the price covers the club's extremely favorable lease with Harris County, owner of the Houston Astrodome.
That lease awards McLane all the $5 million or so in luxury-box revenues generated at the stadium. In addition, the new owner can expect some $24 million in local and national TV money. At the gate, McLane will benefit simply from not being McMullen, a New Jerseyite who gutted the team of its stars, notably native Texan Nolan Ryan. Right now, the team's average home attendance is an anemic 16,500 out of 54,816 available seats.
Like McLane, Ilitch will share in the revenues that Major League Baseball reaps each year by licensing T-shirts, hats, and such. Andrew Zimbalist, a Smith College economics professor and author of Baseball and Billions, due out in September, conservatively estimates those revenues at $102 million in 1991.
RUNDOWN PARK. But Ilitch also bought some headaches. He inherits from Monaghan a nasty fight over Tiger Stadium, whose rundown state helped lower the Tigers' price, say baseball sources. Negotiations between Monaghan, who paid $53 million for the team in 1983, and the city of Detroit over a new park broke down in 1989.
While Ilitch, a Detroit booster, will probably enjoy warmer relations with city officials, a new stadium is still years away. But even in an old park, Ilitch has a good chance to put the struggling Tigers back on the right track. He turned around the once-woeful Detroit Red Wings of the National Hockey League within four years of purchasing them in 1982. The resurgent Wings now sell out most home games.
McMullen, who led a group that paid $16 million for the Astros in 1979, says he sold because he wasn't having fun anymore. But in announcing the team's sale, he made a bullish case for baseball. "Would I have made a lot more if I stayed in here for another four or five years?" he asked. "The answer is yes."
Vincent will soon have to negotiate with the players' union and the TV networks, so he has good reasons to poor-mouth the national pastime. But how is he going to explain why teams keep changing hands at such a profit?Harris Collingwood in New York