The Miami Marlins (Major League Baseball franchise) is up for sale by owner Jeffrey Loria, who paid $158M for the team in 2002 and is asking for $1.3B (previous reports have the initial asking price at $1.7B). Earlier this year, a “handshake deal” for $1.6B fell through due to the potential buyers having a lack of liquidity. Since then, a group led by Derek Jeter (former Yankee) is competing against groups led by Tagg Romney (eldest son of Mitt) and Jorge Mas (Miami businessman) to buy the franchise. Each group’s offer is estimated at $1.3B.
One scenario reported in the NY Post had the structure of the Jeter $1.3 billion bid consisting of $700 million cash, the assumption of $400M in debt and $200M of expected future operating losses. Interestingly, the actual purchase under that structure equals $1.1B, not $1.3B, as the assumption of future operating losses does not constitute purchase price. Thus, the Jeter bid (if the NY Post article is correct) is actually $600M below the initial asking price; however, $1.1B still represents an ROI of approximately 14% for Mr. Loria (ROE is likely much higher).
Expected future operating losses are definitely a factor when calculating the price one is willing to pay for an asset, but the potential assumption of those losses does not constitute purchase price. So, the question is, why would someone want to buy an asset for over a billion dollars knowing that future operating losses of approximately $200M are on the horizon? This is purely conjecture, but the buyer’s valuation may be impacted by:
- scarcity and competition (only 32 MLB teams exist and only one is for sale);
- buyer perception/confidence (Jeter may believe he can turn the Marlins into the Yankees of the South);
- local television deals and the escalating value of MLB Advanced Media (www.mlbam.com),
- market multiples (professional sports franchises tend to sell at very high multiples) and historic appreciation of value (see chart); and,
- the prestige of MLB franchise ownership.
These factors are not commonplace to every asset in the market; however, analyzing all of the valuation factors involved in a deal is of critical importance. SteelGate is happy to assist if you are considering a MLB franchise transaction. However, we are most passionate about the lower middle market!
STEELGATE ADVISORS, INC.
SteelGate Advisors is a multidiscipline investment bank specializing in buy- and sell-side representation, corporate finance, business valuation and tax planning/structuring for middle market companies. Our expertise, objectivity and individualized approach have helped stakeholders develop the important – and often challenging – business strategies that help them achieve their professional and personal financial goals.
Thomas Krahe, CPA/ABV/CFF; Managing Director; 724.719.3220; Tom.Krahe@SteelGateAdvisors.com
Bill Collier, CPA/MST; Managing Director; Bill.Collier@SteelGateAdvisors.com
Christopher Miller, CPA/ABV/CFF; Director of Valuation Services; Chris.Miller@SteelGateAdvisors.com
Some associates of SteelGate Advisors are registered representatives of, and securities transactions are conducted through, Stillpoint Capital LLC, Member FINRA and SIPC, Tampa, FL. Stillpoint Capital is not affiliated with SteelGate Advisors.