The Pecan Park Eagle

We make no claims here for financial genius. We live among the ranks of those who simply try to make sure that we keep whatever money we do have invested in accounts that either pay a good interest rate, or else, have  a good history for nice periodic dividend payments.

Owners of major league baseball, football, and basketball teams, however, seem to possess a genius for profit that resides well beyond the rest of us mortals. It seems as though major American sports club owners can lose money for years and never win anything, but in the end, sell their clubs for a something that feels and sounds like a gazillion per cent profit for whatever they paid for it – even if they sell it in the middle of one of the worst financial recessionary periods in recent American history.

Two simple examples speak to the point.

In Baseball – John McMullen bought the Houston Astros in 1979 for $ 18 million dollars. Thirteen years later, after twice coming close to a pennant in 1980 and 1986, he sold the franchise and its ancillary interests to Drayton McLane, Jr. for $ 117 million dollars. Under McLane, the Astros got a new stadium downtown in 2000 and their only pennant ever in 2005, but, after nineteen years of ownership, Drayton sold the club and all its baggage to Jim Crane for – what? – $ 680 million dollars and a forced move to the American League. – That $ 680 million may have come down a little as a result of the “AL or Else Nothing” ultimatum from the Commissioner’s office, but it still closed by a healthy dollar neck above $ 600 million – even with the television network albatross that continues to block 60% of the market from seeing the team play at home still in effect through late August 2014, the third season of baseball black out on the home screen for the majority of local Houston fans.

In Basketball – In 1981, Donald Sterling bought the San Diego Clippers for $ 12.5 million dollars and moved them to Los Angeles. In 2014, Sterling was forced to sell his NBA holdings as a result of some blatantly stupid racist remarks and, even though he fought accepting the biggest profit in the history of American professional sports, Sterling finally was forced by the courts to accept the $ 2 billion dollar bid from new owner Steve Balmer.

I sort of get it. – At what point do major sports franchises come home to roost under the normal rules of reality that apply to the rest of other businesses? Seems to me it will only be when they lose all of their big revenue sources from television dollars – and that factor seems to have less to do with actual game attendance than it does with the notion that, as long as advertisers are selling their wares in some measurable way as a result of TV commercials, the networks will want to keep the TV money flowing. – That only ends when – people stop buying those TV-advertised products and services in a measurable way that then causes advertisers to pull their money away from, let’s say, baseball game advertising – and into pouring it elsewhere – and not necessarily into another sport. Advertisers and networks would pour the money into the reincarnation of “I Love Lucy” with a new cast, if they thought they could get more bang for their buck in so doing.

If you are in business for yourself in a non-sports product or service area, imagine what it would be like to have a revenue stream like sports television advertising. Think what you could do. – You could afford to pay your key employees top dollar salaries and bonuses while continuing to charge high prices to your customers for whatever you were selling – regardless of quality – and whether you were getting many store calls or not. As long as the advertisers and the networks thought their deal with you was helping them, you might even get sucked into the entitlement cycle yourself – and start treating that TV money as though you could always count on it being there.

Watch out! As soon as the advertising begins to measure out as failure, it’s gone. And so is the possibility of a franchise increasing in value over time simply because the clock moved.