Buying the Cubs: Is it a Good Investment?

The year was 1981. Ronald Reagan had just taken office. Unemployment was over 8%. The country was in a “malaise.” Interest rates were at 18%. And the Chicago Tribune Company bought itself a baseball team for $20.5 million.

At the time, Wrigley Field was hallow ground, but it was crumbling. Only day games were allowed. The team rarely sold out games. Many times there would be only 5,000 fans in the stands. The neighborhood near the ballpark wasn’t that safe. The team kept on losing. They hired a guy with thick plastic glasses named Harry Carey to do play by play. What was there to like?

Then, the Cubs actually won their division in 1984. Harry became a national phenomenon as WGN Superstation branched out across the country due to cable tv. The Cubs got lights and night games. Bars and restaurants started opening up in the neighborhood, transforming it into a yuppie mecca. In the 1990s there was the Sammy home run chase. In 2003 Cubs fans got their wish when the Cubs actually won a playoff series, before losing the pennant.

The return for buying cheap and holding all those years? Anywhere from $500 million to $1 billion. That’s what you call in stock talk- a “twenty five bagger.”

But what about today’s buyer? What will be the return on his investment?

The Cubs are no longer a value play. No one laughs about their attendance or revenue anymore. To me, they are now selling for a premium on the market. Let’s look at some of their competition.

The Milwaukee Brewers were sold two years ago. From the Business Journal of Milwaukee:

Mark Attanasio is no stranger to high-risk investments. For that matter, the likely new owner of the Milwaukee Brewers also has extensive experience with distressed businesses.

That would appear to be perfect training for Attanasio, 47, as he takes the risk of investing in Milwaukee’s long-suffering Major League Baseball team. Attanasio, of Los Angeles, has spent almost 20 years making junk bond and other high-yield investments, most recently with Trust Co. of the West.

The Brewers carried $133.2 million in debt into the 2004 season, although that is now reportedly around $100 million as Attanasio prepares to close on the sale. The Brewers’ board of directors has accepted Attanasio’s reported $220 million offer to buy the team. Major League Baseball still must approve the transaction.

“Given their financial track record, somebody who is not afraid to invest in a financially challenged company would be a good potential buyer,” said Rich Silverthorn, co-chair of the corporate practice group for Whyte Hirschboeck Dudek S.C., a Milwaukee law firm. Attanasio “is not afraid to play in that arena.”

Like any investment, you really have to be buying it when no one else wants it. So, perhaps, Mr. Attanasio got a bargain when he bought the Brewers. The new owner of the Cubs won’t be as lucky. Interest is apparently high, even with the price tag, for the privilege of owning the franchise with the longest losing streak in baseball.

Buying a sports franchise is no different than buying any other asset class. As legendary investor Sir John Templeton has said of his investment philosophy- from Motely Fool UK:

To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.

Are the Cubs a good investment?

I think not.