Welcome back to NET WORTH WEEK! If you missed Part One, on the net worth of owners, check it out here. And let me ask once again, if you like this newsletter, please consider sharing it with someone!
In Monday’s piece on the net worth of owners, I briefly mention one complication in coming up with those values: How do you estimate the worth of the team itself? Put another way, what are these owners actually paying for?
It’s a particularly hard question to answer. The numbers always seem to go up. Last year, Steve Cohen paid over $2.4 billion for the New York Mets—a record, and over six times what the team was supposedly “worth” when the Wilpon family bought out Doubleday in 2002. But the rate of increase can be hard to keep track of, and often makes people look ridiculous. In 2013, Forbes magazine, whose whole thing is trying to value stuff, ranked the New York Knicks as the “most valuable” NBA franchise, worth $1.1 billion. Then, just a year later, the Los Angeles Clippers—18th on the Forbes list and supposedly worth only $430 million—were sold for over $2 billion.
At the same time, owners are constantly complaining that their teams do not make much money. Obviously, we should treat those claims very skeptically. They are typically made during labor negotiations, and the owners never actually open their books to let anyone verify those claims. And to the extent that they are true, it is often due to goofy accounting practices.
But, as the economic fallout to last year’s pandemic showed, there is SOMETHING to what the owners say: Pro sports a very cash-intensive business. Teams require huge staffs, stadiums need frequent maintenance and renovations, and players get large contracts that are often guaranteed, all of which makes it hard to defray costs.
Of course, the revenues are typically pretty locked in as well (save for a global pandemic, of course). But there are complications, even in years less turbulent than 2020. For example, even before Covid-19, leagues were struggling with how to adapt to new fan viewing habits, and how to adjust their revenue models for the streaming era. It wasn’t an existential threat or anything, but it was a disruption to the business operations.
In other words, sports are a good business, but it’s not SO GOOD that it obviously justifies the astronomical prices owners pay. Not to mention that the “they always go up” attitude surrounding team valuations is typically indicative of a bubble on the brink of bursting. So what gives? What are the owners really buying? Again, I think the answer comes down to two things, both of which reveal a lot about the capitalist conception of “net worth.”
1) Monopoly
The most obvious reason owners are willing to pay so much for sports teams is that there just aren’t that many of them. If you’re a rich guy looking to buy a football/baseball/basketball/hockey/etc. team, you have 30-32 options. But even that overstates it, because there are rarely more than one or two up for sale at any given time. The result is that you have to overpay.
The severely limited supply creates all sorts of weird dynamics. When Steve Ballmer bought the Clippers in 2014, paying almost five times what Forbes had said the team was worth, he was buying a theoretically distressed asset: Famously racist Donald Sterling was being forced to sell for doing one too many racisms. Normally, this ought to lower the price, since it diminishes the seller’s bargaining power. But because of the high-profile nature of the story, the abbreviated nature of the sale process, and the clear sense that this was a real once-in-a-blue-moon opportunity to buy an LA-based basketball team, the sale attracted all kinds of high-profile bidders (including Oprah!), driving the price up and redounding to Sterling’s benefit.
This constrained supply not only protects the resale value of the asset, but it insulates the business from any competition. Owners never have to worry about some upstart team stealing their fans because the leagues, which are exempted from antitrust regulations, control which teams exist. So even a poorly managed team will have a near monopoly on the fans in that market. Sterling famously did not care if the Clippers were good, content to sell tickets to Los Angeles basketball fans who couldn’t afford Lakers tickets for 30 years. What other choice did they have?
Monopoly value is often overlooked because the notion of competition is so embedded into the mythology of capitalism. But so much of what markets deem valuable is based on being protected from competitors. Not just the famous tech monopolies like Facebook, Google, and Amazon, but old-school corporate behemoths like Coca-Cola and Walmart are valued because they have a captured customer base. In some cases, the word “monopoly” might overstate the case, or at least get you bogged down in tedious arguments over what counts as a “competitor” for Facebook, but the point is that capitalists generate value by limiting options for customers, not creating new and better ones.
And in sports that protection is literally codified, both within the bylaws of the sports themselves, and the laws governing interstate commerce. It’s no wonder that owners are willing to pay a premium for such a guaranteed return.
2) Ego
The other reason rich people are willing to pay so much for sports teams is that they are a cool thing to own. You get to sit courtside at games, you get quoted in the press, you get to impress friends by bringing them into the clubhouse and introducing them to famous athletes. If the team ever wins a championship, the commissioner hands the trophy to you for some reason. It’s a status symbol that is hard to replicate, even for people with nearly unlimited wealth. (Donald Trump’s endless, failed quest to buy an NFL team bruised his ego so much that the only salve was becoming President.)
It’s downright feudal the way the status conferred by team ownership is not really about money. Donald Sterling used to walk through the Clippers’ locker room, ogling the bodies of Black athletes and calling them “bucks” like they were his trophies. (For any Clippers fans reading: Sorry to pick on your team, but holy shit is Sterling a bad guy.) For less extreme examples, look at the minor celebrity status of guys like Jerry Jones and Robert Kraft, or the media attention bestowed on someone like Mark Cuban, or the way Steve Cohen can use his Mets ownership to launder his reputation after an insider trading scandal. These people aren’t getting a return on investment that can be measured in dollars and cents.
So if you are asked what a team is worth, the only real answer is “whatever some rich asshole is willing to pay,” for reasons that cannot be quantified or even precisely articulated. This is an uncomfortable fact about what is considered valuable throughout society. “It flatters the egos of rich people” explains the rise of everything from private space exploration to education reform to Robin DiAngelo. Once again, the quest to put a precise value on teams obscures what actually creates value under capitalism (hint: the exploitation of workers).
If you were to actually try to figure out what a team is “worth”—without paying heed to the vicissitudes of the wealthy or the vagaries of antitrust law—it would not get any easier. Not to get all “how can you own a sunset?” but honestly how would you go about valuing the things that really constitute a team: its relationship with a city and a fanbase, its history, the talents of its former, current, and future players?
And the thing is, this tension is not unique sports teams. Whenever you’re talking about private property, you’re talking about making some crude divisions between what is public and what is private. And I don’t want to be precious about it—I’m not saying such lines can never be drawn. Sometimes they are useful. But we ought to question who they are useful for.