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Newspaper publisher Tribune may have been forced into bankruptcy through dud media investments but at least it hit a home run with its purchase of the Chicago Cubs nearly three decades ago. Based on price talk for a proposed sale to the Ricketts family of $900m, the compound annual return for owning the popular but hapless team was 14.5 per cent. This makes the Cubs, who have not won a World Series for over a century, one of the most valuable sports franchises on the planet.
The valuation seems somewhat high on a multiple of estimated operating income and compared with recent sales. Three teams sold four years ago went for between $180m and $270m. The premium can be explained by its large local market and the Cubs’ mystique. Baseball team valuations also reflect the fun factor and exclusivity of team ownership. Even now, the deal must be approved by 75 per cent of other teams’ owners and the amount of debt financing is limited. With $239m in revenue, Forbes Magazine ranked the Cubs as the fifth most valuable out of 30 American baseball teams at $700m, about two and a half times as much as the lowly Florida Marlins. The New York Yankees are the most valuable at an estimated $1.5bn.
The sale also includes a 25 per cent stake in the Chicago Comcast Sportsnet. Captive cable television franchises can be highly profitable – most notably the Yankees’ partial-ownership in the Yes Network, which was valued at $3.5bn two years ago. In addition to the Cubs, Comcast Sportsnet broadcasts games of crosstown rival White Sox and the Chicago Bulls, Blackhawks and Bears, the city’s basketball, hockey and football teams. Even so, the network’s value is said to be less than that of the team and the stadium.
Wrigley Field, the Cubs’ home for the past 95 years, is one of the most old-fashioned yet iconic properties in baseball. Its famous ivy-covered walls, intimate seating and relative dearth of advertising all add to the fan appeal of a stadium that, in spite of being one of the smallest baseball stadiums, ranked 7th out of 30 in fan attendance last year. Physical attendance for the 81 home games is key as gate receipts provided more than half the Cubs’ total revenue last year versus just 16 per cent for the Marlins. The rest comes from sources such as broadcast revenue and merchandising.
Tribune might have fetched a bit more for the Cubs had it sold before the recession, but the still-healthy price speaks to the enduring value of a storied sports franchise. Even in a prolonged recession, it is hard to strike out by owning an icon.