Selling The Astros: Pretty Good, Akshully

If you follow the business side of baseball or wear a 10-gallon cowboy hat all day, you may well know the Houston Astros’s owner, Drayton McLane Jr., is preparing to sell the franchise. Reports have diverged on what the final selling cost might be — anywhere from a paltry $650 million to a respectable $680 million.

Now that McLane begins to close the baseball chapter of his life, my knowledge of the wealthy elite informs me he will now spend the remainder of his days getting in shape whilst swimming laps in his massive vault of gold coins. While he readies his swimming top hat and alligator-skin booties, let’s take this time to reflect on McLane’s investment.

The outgoing Astros owner originally purchased the team in 1993 for $103 million (according to Forbes). The honorable Texan made his fortunes from Wal-Mart and — like most wealthy Americans — from his parents. Let us then play Investment Pretend! — the game little, aspiring investors play with their Paddington Bears in their expansive mansion bedrooms.

What if McLane, instead of purchasing the Astros, had just left his moolah in the ol’ company? Or, what if he decided to put it in a (generally considered) safer investment, General Electric? Or what about IBM, a long-standing powerhouse, who in 1993 was facing serious financial difficulties (i.e. a risky, high-upside investment)?

The Do Nothing approach (leaving the cash in Wal-Mart shares) would have earned McLane a real return of 7% (real meaning after inflation). His gamble on the Astros purchase earned a staggering 17-18% annually (again, after inflation)! Of course, this is just in capital gains; McLane may very well have been drawing revenue (or, likewise, seeing losses) on a yearly basis. Unfortunately, we may never know exactly how his accounts looked during that period.

Had McLane put his money in GE, he would have earned a modest 5% after inflation (had he sold his Pretend GE Stock before the the 2008 financial crisis, he would have made much more of a killing). IBM, on the other hand, came back strong and made millionaires out of gamblers. Had McLane put the heft of his financial powers into a near-failed IBM, he would have (a) been incredibly stupid and (b) amassed enough wealth to eat Platinum Flakes for breakfast and resurrect the dinosaurs just to hunt them back into extinction.

Granted, this is far from a complete survey of his financial options — just a fun-sized sampling. He could have easily done a million different things with his millions — but we can still say this pretty easily: Investing the Houston Astros was a wise financial decision. An 11% real return (the return he made after considering he could’ve made 7% via Wal-Mart) on any investment is straight robbery.

Of course, there’s a variety of reasons McLane can get such an absurd return:

  • The MLB has tightly controlled barriers to entry. Joe Millionaire has a very little shot at owning an MLB franchise. This means few competitors can come and take a market share away — and certainly no millionaire can just make a new baseball team and say: “These Springfield Isotopes will be now be in the MLB.”

    It doesn’t work like that — the MLB brings with it lucrative TV, radio, and advertising contracts, as well as long and profitable relationship with communities and the cultural history of America, Canada, and many other countries.

  • The Astros had an excellent run from the late 1990s to the mid-Aughts. On top of that, they are a not-young franchise (as in, they’re an expansion team from the 1960s) and have built strong ties with Houston area (as seen by they’re their [ARE YOU HAPPY NOW?!!?!] decent-to-good attendance).
  • The MLB seems to be peaking a little. The growth and success of MLBAM (Advanced Media) and the post-steroids era high may mean McLane is selling at the optimal time. Attendance is easing downward right now, but the season is still early.
  • I imagine finance nerds will shortly come from the woodwork, tossing pitchforks and financial calculators my way, claiming I’ve done it all wrong. That may be true, but we can all agree on this fact, no matter the final sale price: McLure made bank.

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    12 years ago

    “amassed enough wealth to eat Platinum Flakes for breakfast and resurrect the dinosaurs just to hunt them back into extinction.”

    Outstanding Bravo. Great line.