If Someone Would Actually Pay $3 Billion for the Yankees, the Steinbrenners Should Take it and Run

by Ryan Glasspiegel Follow Sports Rapport on Twitter

In today’s NY Daily News, Michael O’Keefe and Bill Madden report that the Yankees might be for sale:

[A]ccording to the sources, who requested anonymity because of the sensitive nature of the situation, the recent sale of the Dodgers to a group that includes NBA legend Magic Johnson is just one reason why the Steinbrenner family may be looking to sell the team, which experts estimate could be worth up to a stunning $3 billion.

“It would definitely be the right time for the family to sell,” said another baseball source familiar with matters involving the league’s owners. “The value of the team couldn’t be higher, but at the same time, it’s an older team in a division with younger teams getting better at the same time a lot of the Yankees’ core veterans are starting to go into decline.”

Photo Credit: New York Daily News

For what it’s worth, Hal Steinbrenner says that the Yankees are not for sale. (Shocking, I know.)

If some wealthy individual or conglomerate would actually pay $3 billion for the team, the Steinbrenners should take that money and RUN.

Allow me to explain.

Recently, the Dodgers sold for $2.175 billion (price quoted from the NYDN report)–at $3 billion, this would mean that the Yankees are worth 38% more than the Dodgers, which would seem to make sense considering that the Yankees have a brand new stadium, already have their own TV network, and a stronghold in domestic and international merchandising. It might be easier if they were just granted a license by the federal government to print money.

HOWEVER, the Dodgers aren’t worth $2.175 billion. If you recall, Dealbook told us that the Dodgers are a high-priced toy financed with other people’s money on questionable fundamentals:

Mr. Walter, along with his colleague Todd Boehly, Guggenheim’s president, appear to be living out a childhood fantasy using other people’s money, some of whom may not even realize it.

In addition to their own cash, Mr. Walter plans to use money from Guggenheim subsidiaries that are insurance companies — some state-regulated — to pay for a big chunk of his purchase of the Dodgers. Guggenheim controls Guggenheim Life, a life insurer, and Security Benefit, which manages some $30 billion, among others.

Using insurance money — which is typically supposed to be invested in simple, safe assets — to buy a baseball team, the ultimate toy for the ultrarich, seems like a lawsuit waiting to happen. Mr. Walters has been somewhat open in acknowledging that Guggenheim’s companies will be tapped, but the investor group has not disclosed how much of the purchase price is coming from individuals.

Dealbook continues:

“Paying $1.5 billion or $1.6 billion — I can get there. But anything after that is pure ego,” said a longtime sports banker who worked for a rival bidder for the Dodgers. “We’ve done the math. At that price, it just doesn’t make any sense unless you want to be the king of Los Angeles.”

So, yeah, if the Yankees’ value is derived from a formula using the Dodgers sale price as a benchmark, it would be dumb of the Steinbrenners–who, according to the Daily News report are not particularly interested in the baseball side of the operation–not to sell the team. They should find some affluent hedge fund director who wants what is perhaps the ultimate toy–the shiniest trophy–in New York City.

On Deadspin, Barry Petchesky makes the case for the Steinbrenners to keep the team:

And here’s the thing: the Yankees aren’t getting less valuable. The Daily News story wants to paint a picture of an aging team with an uncertain future, but the on-field product is the least of the Yankees’ assets. The brand is impenetrable, the stadium new, the merchandising strong, and most importantly, the TV deal is still laughably lucrative. The Steinbrenner kids are more into the business side than the baseball side? All the more reason to keep riding this horse as far as it’ll go. It’s very rare for the obscenely rich to decide, “You know what? This golden goose has laid enough eggs.”

Petchesky, though, is incorrectly assuming that the Yankees’ sale price would be determined by the franchise’s true economic value; at $3 billion it is not. Let’s say that the Yankees are worth 40% more than the Dodgers and, liberally, that the Dodgers are truly worth $1.6 billion. This would mean that the Yankees’ real intrinsic value is $2.24 billion, a figure that is significantly greater than their $1.85 billion Forbes valuation.

Petchesky’s “The Yankees aren’t getting less valuable” logic is what made real estate prices boom in the 2000s, internet stocks skyrocket in the 1990s, and tulips dominate the market in the 1630s. The Yankees might not get less valuable anytime soon but to expect their value to irrationally increase for perpetuity ignores economic fundamentals and the fact that baseball can reasonably be expected to lose market share to more exciting sports over the next few decades.

If the Yankees are sold for $3 billion when, as an operating entity, they are really worth $2.24 billion, the Steinbrenners reap a $776 million premium over what they would get if the team was sold to a rational investors. It’s like winning $776 million in the lottery because it’s pure luck that the family inherited an asset for which people would be willing to buy at significantly more than it’s actually worth.

As the great philosopher Kenny Rogers once sang, “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.” If they could actually get anything more than $2.5 billion for the Yankees, the Steinbrenners should take that money and GALLOP off into the sunset.

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