By Jason Print, CFP®
Co-CEO
Are sports franchises a great investment or just a fun way for billionaires to spend money? I would argue the latter.
The Los Angeles Lakers are one of the preeminent sports franchises, an iconic brand known the world over. Therefore, it’s not surprising that it recently sold for a record-breaking $10 billion to businessman Mark Walter, CEO of Guggenheim Partners. No professional sports franchise in the United States has ever attained as high a valuation.
Even though it is an extraordinary price tag and represents a staggering increase on the amount at which the franchise previously changed hands, how great of an investment is it? How does it compare to a passive investment in the S&P 500? The Lakers have been owned by the Buss family since 1979, when Jerry Buss bought the franchise from Jack Kent Cooke in a $67.5 million transaction that also included the Los Angeles Kings and the Forum. Since 1980, the Lakers have won 11 championships, the most of any NBA team during that timespan.
If we exclude the Kings and the Forum and look at the Lakers franchise alone, the Buss family’s average annual return on this investment was approximately 11.6%. This was calculated based on the initial purchase price of $67.5 million in 1979 and the final sale price of $10 billion in 2025. Over that 46-year period, the S&P 500 averaged an annual return of 11.99%.
What we are not including is any cash flow or profit distributions the Buss family received during that time. Since such information is not public, it’s difficult to arrive at those numbers.
Another factor to consider is the time and energy invested in the team. Winning 11 championships required putting the right people in place and making many tough decisions, which is time-consuming and challenging.
As with an investment in the S&P 500, there is no guarantee of future returns – the risk factor is the reason for the high return potential. The Lakers’ decisions may have worked out differently, and many other NBA franchises were not as fortunate. We also have the value of the Forum and the Kings to take into consideration.
So, perhaps the investment was better than a passive investment mirroring a stock index. For the Buss family, it’s also been a passion – all six kids were involved in running the organization over the last several decades.
While these owners undoubtedly want to make money and sell for much more than what they paid, it may not be the decisive factor. It may be more about owning something special. Anyone can buy an S&P 500 ETF, but only a handful can own a professional sports team and sit courtside as much as they want. That is a rare position that boosts the ego.
As our colleague Ryan Gavin has often written, private deals and ownership of something that few people can afford has a psychological edge for investors. These factors often outweigh the actual rate of return over the holding period. For example, Steven Cohen paid $2.4 billion for the Mets about five years ago and has famously spent significant amounts of money to attract talent in the hopes of winning a World Series.
“Here, it’s really about building something great, building something for the fans, winning. I just find this an amazing opportunity,” Cohen has said. “I’m not trying to make money here. I have my business at Point72, and I make money over there.”
What does the future hold for sports franchises? There are only so many people who can afford to spend $10 billion on a sports team, so we now see private equity and other groups of capital making these acquisitions. As the purchase prices continue to climb, the number of buyers decreases.
Sources: ESPN, CNBC, WSJ
