The math behind the baseball team's pending sale shows that while stadium subsidies soak taxpayers, they don't seem to make MLB franchises much more valuable.
Jerry Lai-USA TODAY Sports
Tomorrow night's MLB All-Star Game in Miami will be, above all else, a celebration of shattered hopes and dreams:
- The raison d'etre for Miami being awarded the game—the hulking, endomed Marlins Park which opened in 2012 after a many-year wait—remains largely unloved, and is most-known by baseball fans for its minuscule crowds and much-maligned home-run sculpture in center field.
- The Marlins themselves have yet to post a winning record in their new home.
- Miami taxpayers invested hundreds of millions of dollars into stadium construction—total public cost will end up at roughly $1.2 billion over time, or around $900 million in present value dollars—for purposes of "revitalizing" the building's surrounding neighborhood, which according to the Miami Herald remains "pocked with small strip malls, empty lots, and vacant buildings."
Oh yeah, and on top of the above, Jeffrey Loria, the Marlins' owner, is reportedly set to sell a team that he bought for $158 million in 2002 for a whopping $1.2 billion.
The idea that Loria is about to cash in on taxpayer largesse is enough to leave Miami-Dade County Mayor Carlos Gimenez mighty steamed. "I would think [Loria will] walk away with $500 million in his pocket" after paying off various debts, Gimenez told the New York Times last week. "It sticks in my craw."
Blowing public money on an unpopular stadium while the team's owner laughs all the way to the bank is worth getting ticked about. But as dislikable as Loria has been as an owner—remember, he once responded to declining crowds by suing season ticketholders who refused to renew—is it really true that he's getting rich thanks to Marlins Park?
Probably not. In fact, new ballparks don't seem to make baseball franchises much more valuable.
To understand why, let's first figure out just how much money Loria will walk away with. It's been widely reported that Loria's Marlins are $400 million in debt; no one exactly knows why, but let's leave that aside for the moment. Subtract that from the team's reported $1.2 billion sale price—it was going to be $1.3 billion, until Derek Jeter and Jeb Bush had a falling-out—and Loria is set to clear $800 million, a cool 406 percent profit on his $158 million purchase of the Fish. Annualize the same number—break it down by yearly gain, as if it were a savings account—and the Marlins under Loria have appreciated in value by 11.41 percent a year.
So, is that a lot?
One of the problems with determining a pro sports team's value is that they're not sold very often—you can't exactly look at all the other MLB teams bought in 2002 and sold in 2017 and do an apples-to-apples comparison. The closest analogue by sale date are the Los Angeles Dodgers, which were sold by Rupert Murdoch's NewsCorp to parking lot czar Frank McCourt in 2004 for $430 million; McCourt turned around and sold the team in 2012 to an assortment of investors (most notably by name if not by dollar value, Magic Johnson) for $2 billion. That makes for an annualized return of 21.16 percent—almost double the Marlins' appreciation, and for a franchise that has been playing in the same stadium since 1962.
That's just one team, though. For more data points, we can turn to Forbes' annual team value estimates. According to the magazine, the average MLB team in 2002 was worth $286 million. This year, with ten teams having opened new stadiums in the interim and 20 still playing in the same venues, that number is $1.54 billion—an annualized return of 11.87 percent.
In other words, Loria's windfall is almost exactly the league average for all MLB teams, whether they received new stadiums or not.
Now, if those estimated team values seem too dicey, we can look at Forbes' annual team revenue figures, which we believe are even more accurate, thanks to Marlins financial documents leaked to Deadspin in 2010 that almost exactly matched the magazine's numbers. Between 2007 and 2016, the Marlins' annual revenue (after accounting for Loria's own stadium payments) rose from $128 million to $206 million, an increase of 61 percent. Over the same time, the average MLB team's revenue went from $183 million to $292 million, an increase of 60 percent; even the Marlins' famously stadium-deprived cross-state rivals, the Tampa Bay Rays, saw their annual revenue go from $138 million to $205 million, a 49 percent jump.
This all paints a very different picture than the one imagined by Gimenez: Not of Loria cashing in thanks to a new stadium, but of everybody who owns an MLB team seeing them soar in value regardless of whether you play in a shiny new facility or a boring old dump.
There are a bunch of reasons for rising team valuations. First, television broadcast revenues have gone through the roof, thanks to cable providers discovering that sports is the only thing that people will pay to watch live. "Money from things other than selling tickets is the fastest growing component of revenue," says Stanford sports economist Roger Noll, noting that local broadcast revenues in baseball have also soared in recent years.
Then there's the billionaire glut problem: The number of pro sports teams available for sale is rising very slowly, but the number of rich dudes eager to own one has soared astronomically in the 21st century. (I don't know if Thomas Piketty is a sports fan, but if so he has something new to complain about). This, says Noll, creates scenarios like Microsoft magnate Steve Ballmer spending $2 billion to buy the Los Angeles Clippers, just because he had money to burn and there was only one team up for sale.
Our new picture of Loria, then, is of a moderately wealthy guy who spent years grubbing for a new stadium, finally snookered Miami lawmakers into handing him nearly a billion dollars, blew it on a stadium that didn't help his team's bottom line at all—but still is poised to walk away with $642 million more than he spent on the franchise thanks to the sheer dumb luck of owning a baseball team at the right time. That seems suitably Marlins-esque.
But what about the rest of baseball's owners? Are all these new stadiums as big a waste of time for them as well?
Let's go back to the Forbes revenue figures. Looking at teams that opened new stadiums in the last ten years—the Washington Nationals, New York Yankees and Mets, Marlins, and Minnesota Twins—we can calculate how much more revenue these teams are bringing in relative to their fellow owners whose franchises stayed put in existing buildings. Do the math, and what you see is what past studies have found: a big jump in the first year, or maybe the first few if the franchise gets lucky and its stadium honeymoon coincides with fielding a winning team.
After that, though, results vary widely—from the Nationals, who are turning about a $38 million a year profit above what they would have gotten in their old stadium (helped by the fact that they paid almost nothing toward their new one), to the Mets, who have somehow managed to be $60 million in the red per year relative to what would be expected without a new stadium, despite spending only $44 million a year on stadium debt payments.
If you're coming to the conclusion that new stadiums are so expensive to build that even with hundreds of millions in subsidies they barely do much more than break even—well, yeah, pretty much. Even the Nats owners would have barely broken even if they'd paid for their entire stadium themselves. This isn't exactly news—I came up with similar results when I looked into plans for a new NBA arena in Seattle five years ago. But it is an important reminder that team owners don't always demand that taxpayers pony up for new stadiums because they're the best way of making money or increasing their franchise valuations; instead, they often demand new stadiums just because they want one, and would really rather not pay for it. Besides, going to the city council and asking for a half-billion check sounds a lot more reasonable when you can insist you need it to build something awesome.