February 16, 2017
The Profitability Canard
Jeffrey Loria, as you may have heard, is selling the Miami Marlins. Nothing’s finalized, but it appears that one of baseball’s most, um, notable owners is going to receive $1.6 billion for a team that cost him $158 million in 2002. (I know, it didn’t really cost him that. Hang on, I’m getting there.)
This has been reported as a tenfold return on investment, but that’s not really the way to look at it. If I buy something—a portfolio of stocks, a suitcase full of rare baseball cards, a really pretty rock—for $158 million, hold it for 15 years, and sell it for $1.6 billion, my annual return is 16.7 percent. Put another way, if you take $158 million and grow it 16.7 percent every year for 15 years, you’ll wind up with $1.6 billion.
So Loria earned an annual average return of 16.7 percent during his Marlins ownership. Now, about the $158 million purchase price. That’s kind of bogus. Loria, you’ll recall, was the majority owner of the Montreal Expos. The National League bought the Expos from him in 2002 for $120 million at the same time he bought the Marlins. So he really paid $38 million to buy the Marlins. And while the club bore a bit of the $600 million cost to develop Marlins Park, the team received annual revenue-sharing checks as an offset.