Even a bottom-of-the-barrel baseball team can appreciate in value three times faster than the stock market.
The Kansas City Royals are being bought by Kansas City businessman and former Cleveland Indians minority owner John Sherman for $1 billion from David Glass.
The deal, first reported by the Kansas City Star, has been confirmed by Forbes with sources familiar with the transaction. In April, we valued the MLB team at $1.03 billion.
Glass purchased the Royals for $96 million in 2000, giving the outgoing owner an annualized price appreciation of 13%. In contrast, during the same period, the S&P 500 posted an annualized price gain of 4% (6% if you include dividends).
The Royals are the first baseball team to be sold since a group led by Bruce Sherman (no relation to John) purchased the Miami Marlins for $1.2 billion a little over two years ago.
The Royals finished 26th out of MLB’s 30 teams in attendance last season, and in 2018 (the last season for which we have full data) they generated $233 million in revenue—including more than $25 million from MLB’s revenue-sharing system—the third-lowest total in baseball. During the 19 seasons Glass owned the Royals, the team had three winning seasons, including 2015, when they won the World Series. Last season, the Royals went 53-109.
Baseball teams, as in virtually every sport, have appreciated in value mainly because of the rapid rise in the value of their media rights. In 2012, MLB agreed to deals with ESPN, Fox and Turner that more than doubled the league’s rights fees. Last year, Fox extended that deal through 2028 at nearly a 50% annual average increase.
For the Royals, the immediate upside is their next cable television deal. Last season, the Royals earned $25 million from their cable deal with Fox Sports Kansas City, the second-lowest figure in baseball, behind the Marlins ($20 million). But that deal expired after last season, and the RSN, now owned by Sinclair Broadcast Group, will likely have to pay the Royals at least an average of $40 million a season.
Consider that the Tampa Bay Rays recently signed a new cable deal worth an average of $87 million a year. As Forbes contributor Maury Brown pointed out in his annual scorecard, even with their dreadful season, the Royals posted an average cable rating of 4.66, the ninth-highest in baseball.
Yes, Kansas City is a small market, so its average household number was only 42,000. But that was still better than the figure for seven other teams, including the big-market San Francisco Giants and Los Angeles Angels of Anaheim. The Rays averaged a lower cable TV rating (3.03) but had many more households (57,000) than the Royals last season.