How do you Purchase a Minor League Baseball Franchise? 13 Secrets About Ownership
When I was a kid one of my biggest dreams was to someday own and operate my own professional baseball team. Combining my love of sports and my analytical interest in business, I had grandiose visions of buying and transforming a team, building them a new stadium, and living the life at the ballpark.
In reality only a few individuals get to live this dream in totality. And even fewer now that Rob Manfred has axed baseball from the hearts of 26 more communities for the good of the corporate MLB engine. While the Lerners and Ricketts get carte blanche over their major league teams they own by virtue of investing a billionaire fortune into ownership and operations, for the everyman the options are much more limited. Still, owning a share of a minor league is a fun and less expensive alternative. Before you get involved, though, here are a few tips and rules of thumb I’ve picked up from those in the know.
1. Groups of people invest in minor league teams: Most minor league teams are owned by large consortiums of individuals just like yourself. While a few are owned by professional ownership groups, most are owned by committee. And while each committee has a few owners with the largest shares, very few teams have a majority owner with unilateral decision-making authority. Virtually everyone involved, though, owns at least a share of around 5 percent.
2. Only sports fans invest in minor league sports teams: Those I’ve talked to reiterated to me that investing in a sports team is rarely a “good” investment, at least of the sort that a financial professional would recommend. The people who invest in sports teams are, to a one, people who love sports and people who have long harbored the same dream I did. It’s a cool thing to say at a cocktail party, but not really the kind of thing you’ll do to build your nest egg.
3. They won't earn you any money: Per #2, minor league team ownership isn’t the path to great wealth. Most teams don’t earn much (maybe 1% a year) and many struggle even to break even. Within that margin, the difference between a modest loss and a modest gain might be the product of random chance: a busted concession stand could break the finances of the team for the year, just as a string of rainouts in early May could eliminate revenue enough to put the team in the red. And a season lost to COVID-19 could cost you a lot. Remember: minor league teams rarely make up rainouts.
4. They are hopelessly overvalued: Without much profit, teams are generally over-valued even with respect to their revenue. Broad-based interest in sports has inflated the value of sports teams, and generally speaking teams are valued at 29 times revenue. Anybody who’s watched “Shark Tank” knows that’s not a metric grounded in financial reality.
5. It will cost you around $500k: Because teams are expensive, even owning a small share in a fairly obscure team is going to cost you an arm and a leg. While finding a role for significant ownership is likely to run you in the millions, even the smallest share most teams are willing to sell – around 2 to 5 percent – will generally run you at least $500,000. There are a few teams that struggle to find investors that might look at investments of $250,000 or so, but at that point for such a small share of a struggling franchise, is it really even worth it?
6. There are some perks: While your money is tied up in a costly franchise that won’t earn much money, the day-to-day perks can provide you some sentimental value. Generally even small-share team owners have open access to the ballpark, including to the players, as well as to the luxury suites on game day.
7. You probably won't do much as a team owner: If your dream is to buy into a team and immediately turn it around with a new name and new mascot, think again. Because of the rapid turnover in ownership and the fact that most who buy into teams are people like you and me, most teams have entrusted day-to-day operations to skilled and experienced ownership professionals that operate autonomously under limited supervision from the ownership group. You won’t do much as a minority owner, but you will have the chance once a year to review a snapshot of the team’s financials. That’s really about it.
8. Turnaround stories are rare: Stories of transformational turnarounds of minor league teams, such as the ascendance of the Durham Bulls from single-A to triple-A after being featured in “Bull Durham”, are inspiring but rare. Most teams are highly constrained geographically in terms of their ability to move, and baseball isn’t a sport that is likely to suddenly captivate the imagination of a community that’s already had a team for years. Most teams are pretty much set where they are, and the result is that the steady returns you’re seeing on the bottom line are about what you’re likely to see into the future.
9. It's a recession-proof investment: The flip side to an investment that won’t make you much money is that owning a team is a stable, steady investment in something that for most who attend the games is a form of cheap family entertainment they can afford even when the economy is tanking. In 2008 minor league baseball fared just fine through the recession, as did team owners. The exception, of course, is the once-in-a-lifetime global pandemic. In that case, it might not be recession proof, but it will come back.
10. Some teams are exploring alternative add-ons for revenue generation: In rare instances, the creativity of major league operations in pioneering alternative investments in things like real estate surrounding the stadium is trickling into the minors. In some instances, you might find a team that’s exploring alternative revenue approaches, but yet little evidence this will radically alter the way teams perform financially overall.
11. You probably won't get to choose your team: If you’re interested in investing in a particular team, you might have to wait a while. While there are team shares available at any given time, what’s available is pretty random. Brokers in the industry can help match buyers and sellers of shares, but they’ll generally ask you to filter your interests by level and geography, rather than interest in a specific team or two.
12. It's a good fixed-income investment: Owning a team isn’t a get-rich-quick scheme, but if you have $500k locked up in a CD or savings account, a money market fund or other fixed income, owning a team is pretty equivalent in long-term stability - again, with the exception to lost revenue from exceptional events. If you don’t need access to the liquid cash and are willing to shell out $500k for the equivalent of nice season tickets, owning a team can be a fun recreational investment.
13. Earning a return is based on a steady stream of fans willing to overpay like you: The love of baseball has endured across the generations, and this means that for now at least there is a steady stream of buyers willing to snatch up your shares should you choose to sell your stake in a team. Since you won’t earn a yearly return on your investment, you’ll at least want to recoup it when you sell it, and for now at least there’s a pretty good guarantee that you’ll be able to do that.