Lots of people collect baseball cards. Billionaires collect baseball teams.
The Twins cost how much? Why sports team valuations have exploded
The value of the Twins has grown exponentially in 40 years. The price of the Wolves nearly doubled in three years. The increases have put club ownership out of reach for even ‘minor billionaires.’
The Minnesota Star Tribune
October 21, 2024 at 10:03AM
Professional sports teams can be trophy assets for those rich enough to compete for ownership, and that’s an exclusive league thanks to the extraordinary prices franchises now fetch.
Team valuations have soared in recent decades due largely to national media deals, private equity and simple supply and demand — there are only so many teams to be owned by a growing billionaire class.
If the Pohlad family succeeds in finding a buyer for the Minnesota Twins, the new majority owner will likely need to be far richer than Carl Pohlad was when he paid $44 million for the team 40 years ago, or around $133 million in today’s dollars when adjusted for inflation.
The Twins are valued today around $1.5 billion.
“There’s only so many Jeff Bezoses in the world,” said David Sunkin, an attorney who leads a sports industry practice at Sheppard Mullin in Los Angeles. “So it could be a consortium of ‘minor’ billionaires, because someone worth $1 billion, $1.5 billion won’t be able to buy the Twins alone.”
That was the case for the Timberwolves, which saw Alex Rodriguez and Marc Lore team up for a majority stake before the deal fell apart earlier this year. Since Glen Taylor announced the sale in 2021 and that the team was “no longer for sale” in March, the Wolves nearly doubled in valuation to at least $2.5 billion.
Historic price tags for teams have changed the math on who gets the owner suite or courtside seats. It’s not always the billionaire next door anymore, as evidenced by the New Jersey-based Wilf family, owner of the Minnesota Vikings.
“The leagues do historically like local ownership, and historically the owners of teams have been families in the neighborhood,” Sunkin said. “But when assets are trading at $1 billion, $3 billion, $8 billion ... it’s a great result for the family selling. For the fans, we’ll see.”
Major league teams are good investments
The popularity of team ownership is not surprising when you look at the returns.
The value of sports teams has steadily increased since the early 1980s, outperforming most asset classes, including stocks, according to the Ross-Arctos Sports Franchise Index published by the University of Michigan’s Ross Business School and Arctos Partners, a private-equity outfit specializing in sports.
In the past 20 years, the return on sports assets has tallied 12%, compared with 10.3% for U.S. stocks and 8.5% for global equities. Only private-equity investments outperformed sports assets over the past 20 years with a 14.6% return.
Investments in sports teams also have proved resilient during times of economic duress, according to a May Ross-Arctos report.
“They are actually good investments, in the sense that the current business model for all major sports is a license to print money,” said Victor Matheson, a professor and sports economist at College of the Holy Cross in Massachusetts. “It’s hard to lose money in sports, the NFL in particular.”
The NFL is a special case compared to the other leagues, and not just because team valuations are far higher. “I’d rather be a middle-market NFL owner than MLB owner because of the way media revenue is shared,” Sunkin said.
Public subsidies for new stadiums and renovations have buttressed the pro sports business over the past 35 years, sports economists say. Subsidies reduce team owners’ costs and boost revenue.
“Cities’ willingness to spend hundreds of millions of dollars on pleasure palaces for sports franchises helps prop up the value of sports franchises,” said Michael Leeds, a professor and sports economist at Temple University in Philadelphia. “I would say this goes back as far as the 1950s, when baseball started moving West.”
Media deals sweeten teams’ value
Ever-escalating national television deals are another big driver behind surging sports team values — particularly in football and basketball.
“Media, advertising, sponsorships, those dollars are very strong. It’s one of the few entertainment concepts people watch live,” Sunkin said. “Advertisers know who’s watching, and that translates to major rights deals.”
The NFL’s current TV deal stands at $111 billion over 11 years. The NBA this summer inked a $76 billion media-rights agreement over 11 years, triple the league’s last deal.
The economics of television are different in baseball. Major League Baseball has a $12 billion, seven-year national TV contract, but teams rely heavily on local television revenue, too. And the regional TV business model has disintegrated for some smaller-market teams like the Twins.
Starting next season, the Twins will no longer receive roughly $54 million in annual revenue from local game telecasts as it switches to MLB-produced telecasts for next year. Experts said that is likely a short-term wrinkle, and that a long-term solution should restore a key revenue generator.
“There’s no reason to think that won’t right itself eventually,” Matheson said.
Scarcity boosts economics of sports
Baseball isn’t any different from other sports in its fundamental market characteristic: limited supply and growing demand. The number of teams is relatively fixed, while the ranks of wealthy buyers are multiplying courtesy of a growing billionaire class, sports economists say.
“We have had economic growth, but we have also had a concentration of wealth, and that creates a pool of people who would buy these assets,” Matheson said.
Plus, the four major U.S. sports leagues all have reduced restrictions on private-equity investments in teams, deepening the pool of money for sports deals.
“Even people who are monumentally rich can’t always get these deals done on their own,” Matheson said.
Perhaps the most prominent private equity firm in sports, Dallas-based Arctos Partners, has a minority stake in the Minnesota Wild, along with investments in several other National Hockey League, MLB and National Basketball Association franchises.
Sunkin said the entry of private equity and other funds may have opened a feedback loop — these investors are needed to keep up with skyrocketing sales prices, but having that extra money available also will drive up the prices, so more investors may be needed.
“There’s only so many people who can afford to write checks for many billions,” he said, which also has drawn more individual minority owners to the table despite only one owner getting all the say over an organization.
Private-equity funds have purely financial goals: maximizing returns for their investors. But for individual investors, many sports deals are colored by ego gratification, too.
“Owning a sports team is an admission ticket into a highly exclusive club,” Leeds said. “There is no doubt an ‘ego premium’ is built into the price of many of the major franchises.”
With all the big money flowing into sports teams, could an investment bubble be building? In a way, a bubble already exists, Matheson said.
Sports teams buyers will pay a premium because they assume that when they eventually sell, they will profit handsomely because someone else will pay the same sort of premium.
“It is a bubble that can be explained as a rational bubble because there is often a ‘greater fool,’” Matheson said, referring to the notion that overvalued assets can be bought and sold until someone is left holding the bag when a crash comes.
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