Before buying a majority stake in the Houston Astros, John McMullen was a limited owner of the New York Yankees. When asked to describe his role with the team, McMullen once famously said, “There’s nothing so limited as a limited partner of George Steinbrenner.” In truth, the same could be said for just about any sports franchise.
Over the last two seasons, Jeff Moorad has been a minority owner of two different major league baseball teams, both of which happen to compete in the same division. After resigning his post as CEO of the Arizona Diamondbacks in 2009, Moorad led a group that purchased 35% of the San Diego Padres from majority owner John Moores. In 2010, Moorad’s group increased its stake in the Padres to 49%, but Moorad himself retained a not insignificant 8% share of the Diamondbacks.
Fortunately, that’s another issue I don’t have to worry about.” – Commissioner Bud Selig, speaking about the sale of Jeff Moorad’s minority stake in the Diamondbacks
In a recent interview, Bud Selig confirmed that this odd conflict of interest was finally resolved when the Diamondback’s current ownership group purchased Moorad’s 8% stake. According to a MLB.com report, the Ken Kendrick-led partnership paid $21 million to absorb Moorad’s stake in the Diamondbacks. Considering Forbes recently valued the team at $379 million, the price received by Moorad amounts to an over 30% discount (a price that basically amounts to value net of debt). Although it’s possible that the Forbes’ valuation was inflated, the low-ball price paid by Kendrick’s group makes you wonder if Selig exerted pressure on Moorad to divest before another season began.
Another reason Moorad was forced to sell at a steep discount could simply be the result of only having a minority share. Sports franchises are not publicly traded companies with liquid secondary markets, so selling an interest requires finding a buyer. It’s just a guess, but I’d imagine there weren’t too many people lining up to pay full value for a minority stake in the Arizona Diamondbacks.
Moorad’s predicament might also explain why the potential sale of a minority stake in the New York Mets has not proceeded as quickly as Fred Wilpon might have hoped. If a majority stake was in play, investors would probably jump at the chance to purchase a baseball team in the New York market. However, with only a 20-25% share for sale, interest has been tepid at best.
Albert Pujols would also be wise to make a note of Moorad’s situation. According to St. Louis-Dispatch report, one of the contracts that the Cardinals offered their slugger included a future ownership-stake in the team. When Pujols hits the free agent market after the season, the Cardinals may try to include a similar enticement in their offer. Although an equity stake might seem appealing, its real value isn’t based on paper assets, but what someone else would be willing to pay for it. Every team and market is different, but if Pujols wanted to sell his limited stake, chances are he’d also have to do it at a discount.
Over the last decade, owning a baseball team has been like playing a game of musical chairs: there have been many shifts in ownership, but not too many have exited the game. Being a limited partner, however, isn’t as much fun. Just ask former Rangers CEO and managing partner Chuck Greenberg, who, if history is any judge, could eventually resurface at the helm of another team. Perhaps the long-time Pittsburgh resident will wind up buying the Pirates? If so, you can bet he’ll choose his partners a little more wisely.
Musical Chairs: Baseball Owners Have Shuffled the Deck Over the Last Decade