Ramblings from a Boston Boy stuck in New York
Sox Beat Yanks: Billion-Dollar Underdogs Were a Smart Investment
27-July-2010Posted by on
The Boston Red Sox may have beaten the New York Yankees to the punch to become the first billion-dollar baseball club in history.
The remarkable valuation was apparently placed on the Sox — and their cable arm, New England Sports Network — in a transaction earlier this year. We learned financial terms last week.
The New York Times Co., a minority owner in the Sox, reported Thursday that it had booked a $9.1 million gain selling shares to Boston-based venture capitalist Henry McCance earlier this year.
It released no other financial terms, and declined to comment for this column.
However we know that the Times made the profit selling 50 of its 750 units in New England Sports Ventures, parent company of the Sox and their cable TV channel.
We also know that the Times paid $5 million for those 50 units eight years ago, when it paid $75 million for 750 units.
A $9.1 million profit on a $5 million purchase implies a $14.1 million sale. The shares sold amounted to 1.2% of the Sox. By that math, the total value of the club would be $1.2 billion.
The numbers haven’t been confirmed. Times spokeswoman Abbe Serphos refused to comment. So did McCance, through his venture capital firm Greylock Partners.
The Times bought into the Sox alongside hedge fund manager and principal owner John Henry back in 2002. The consortium paid about $700 million in total. Joining it is probably the smartest business move that Times chairman and publisher Arthur Sulzberger has made — although, to be fair, that doesn’t set the bar very high. Sure beats hiring Jayson Blair.
The terms of the McCance deal imply a $136 million profit on the Times’ original $75 million investment. That’s a 14% annualized return.
Over the same period the Times Co.’s own market value has plummeted from $8 billion to about $1.3 billion. Even with dividends investors have lost about 75% of their money. (At some point will New York Times Co. become a baseball company with a small, non-profit newspaper attached?).
It’s true that this valuation is derived from a small transaction. But Rob Tillis, managing partner of Inner Circle Sports, a firm specializing in sports finance, says the deal may actually understate the value of the Sox. An investor taking a controlling interest would typically pay a premium, he says. The $1.2 billion figure, he says, “is a low number.”
The Sox was already one of the most famous franchises in the country when Henry and the Times bought it from the Yawkey Trust back in 2002. But since then its value has been enhanced enormously by success on the field. The legendary 2004 season, in which the Sox finally broke their 86-year World Series “curse,” was followed by another championship in 2007.
The Yankees will surely be worth even more than this if George Steinbrenner’s heirs decide to sell. Forbes magazine puts the value of the Yankees at $1.6 billion. Rob Tillis suggests it may be higher. But there has been no transaction as yet.
News of the Sox’s sky-high valuation will come as little surprise to those in New England who have long been priced out of Fenway Park.
All games there have been sold out since 2003, and tickets now change hands for a small fortune on eBay. Team Marketing Report says it costs a typical family of four about $330 to go to a game. (And I am assuming TMR is using “official” ticket prices rather than the real ones you pay on eBay. You’d be lucky to get four tickets on the black market for $330. For some games you can’t get one ticket at that price. The Red Sox will probably boast the first billionaire scalper in history soon too.)
A $1.2 billion price tag is a lofty price to pay for a rich man’s trophy. That’s nearly 50 times last year’s operating income.
The Sox, says, Forbes, had $25 million in operating income last year on $440 million in revenues. This year they’re trailing in their division in third place.
Nonetheless there’s something odd about the way the team with the surliest fans has the highest valuation. “Hey, Rich, the Sox are worth $1.2 billion,” I told my Boston Irish colleague last week.
“Yeah,” he said, without turning his head, “and they suck.”
Brett Arends is the author of “Storm Proof Your Money,” on managing your finances in this era of turmoil.