Orioles could be lucrative, but risky, investment for new owners Team is a winner in short run, still future is uncertain

July 06, 1993|By Mark Hyman | Mark Hyman,Staff Writer

The groups coveting the Orioles are plotting their moves -- studying financial reports, crunching numbers with accountants, bartering with bankers. Already, the bidding war has begun.

But with the price of the team close to $150 million and still climbing, the question arises: Does buying the Orioles make any sense?

For the short term, maybe. The next owners will be buying a proven winner, which has surpassed the money-making projections of even Orioles officials. Since the move to the Camden Yards ballpark last season, the team's revenues have soared, partly due to record sales of everything from tickets to hot dogs to souvenir programs. Operating profits are expected to exceed $20 million this season, according to sources familiar with the team's estimates.

But the Orioles' long-range prospects are considerably less certain. The most troubling flash points: coming labor talks with the players and shrinking revenues from baseball's national television deal.

"It would seem to me the risk these people are undertaking is enormous," says Larry Greenberg, a financial consultant, of the team's next owners. "They must have enormously deep pockets," said Mr. Greenberg, a Minnesota accountant who specializes in sports finances and stadiums.

"Over any reasonable period of time, it's hard to imagine the economics of that kind of deal being particularly attractive to investors," says Sam Katz of Public Financial Management, a Philadelphia-based consulting firm. "The Orioles will continue to be a solid gate performer, but they won't be getting 40,000 people at every game."

The Orioles sale comes at a time when baseball owners are making dire predictions about the economic future of their industry.

Revenues from baseball's network television deal, which increased dramatically through the 1980s, are shrinking for the first time. The new deal, which takes effect next year, will pay each team $7.1 million per season, down sharply from this year's take of $15.4 million.

Also looming ominously over next season are renewed labor talks between the owners and players. Baseball's labor contract expires after this season and, though neither side is talking tough yet, past negotiations routinely have broken down, resulting in canceled games and empty stadiums. It's the owners who want major changes in their agreement this time, which isn't surprising considering the average player salary this year is $1.08 million.

For the next Orioles owners, the biggest threat to their investment might come from within the ownership ranks. Teams with relatively modest revenues like those in Milwaukee and Seattle are pressing for a sweeping economic reordering of the sport, including some form of revenue-sharing. The more radical proposals call for an equal split among the 28 teams of all their revenues, including local television fees and gate receipts.

So far, those ideas have been blocked by the rich clubs, including the Orioles.

As revenues decrease in some areas, there are limits to how much more the team can collect at Camden Yards. The team already is selling virtually all its tickets. While new owners can raise ticket prices, they could lose fan support if they try to charge Los Angeles prices for a Baltimore stadium.

Sale prices climb

There are surer ways of making money than buying a baseball team. Still, financial consultants say an investment in the Orioles could turn out to be worthwhile if the new owners wait long enough for the team's value to rise significantly.

Over the years, many baseball owners have collected modest yearly profits but reaped tremendous returns when they sold their franchises. Capital appreciation -- the increased value -- of baseball franchises has risen consistently.

"You never know where the top is," says Mr. Greenberg, the consultant. "Fifteen years ago, the idea that a team could be worth $20 million would have been laughable. Now, we're saying a team is worth close to $150 million. Maybe it will be worth $300 million ten years from now, but a cup of coffee might cost you 15 bucks."

When William O. DeWitt Sr. bought a 56 percent stake in the St. Louis Browns in 1949, he paid $1 million -- and the deal included the Browns' stadium, Sportsman's Park. Two years later, Mr. DeWitt (father of William O. DeWitt Jr., an investor now trying to buy the Orioles) sold the team and stadium. The price was up to $1.4 million.

In 1954, the Browns changed hands again, going for $2.5 million to Baltimore investors who changed the team's name to the Orioles and moved it to Memorial Stadium.

The price has gone up steadily ever since. In 1979, brewery executive Jerold Hoffberger sold to Edward Bennett Williams, the late Washington lawyer, for about $13 million.

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