In 1973, George Steinbrenner headed a group that bought the then-slumping New York Yankees for $8.9 million. On Tuesday morning, Steinbrenner died at the age of 80 following a heart attack. During the years in between, his team made 10 trips to the World Series, winning seven times. In April, Forbes Magazine named the Yankees the most valuable baseball team, estimating its worth at $1.6 billion -- more than 197 times Steinbrenner's original price.
That's obviously a giant increase, but let's take a closer look at what kind of return it is after factoring in time. The numbers can sometimes deceive, after all. Manhattan was famously purchased by the Dutch from American Indians in 1626 for goods worth just over $1,000 in today's money. (Forget the $24 figure that's often cited. It comes from a 19th century estimate, and so must be indexed for inflation.) Manhattan has 14,528 acres, and the choicest acres are probably worth $90 million as unimproved land, according to a 2008 study by the Federal Reserve Bank of New York. Even if we assume that all of Manhattan's acres are as valuable as its best ones (I assure you they're not), that yields a total value for the island's land of $1.3 trillion. That's a 5.6% annual return, compounded -- and the real figure is surely lower. In other words, the Dutch might have overpaid.
Steinbrenner did better. Over 37 years, the Yankees appreciated at a compounded average rate of about 15% a year. That's five percentage points more than the S&P 500 index of large American companies returned during the same period. Just about any money manager would be proud of that record.
There are a couple of valuation issues to keep in mind, however. Stocks have excellent "price discovery" -- the mechanism that tells us what they're worth -- because they're bought and sold each business day. Baseball teams aren't. That makes the $1.6 billion Yankees price a highly theoretical one. It works out to about 3.6 times the organization's yearly revenues, which is higher than the S&P 500's median price/revenue ratio of 1.4. Index members like Coca-Cola (KO) and Microsoft (MSFT) sell for price/revenue ratios similar to that of the Yankees, but they have much wider profit margins.
In 2007, Liberty Media (LCAPA) bought the Atlanta Braves from Time Warner (TWX) in a complex stock-for-franchise deal that valued the team at $450 million.
Assuming $1.6 billion is the right price for the Yankees, there aren't many stocks that have done better since 1973. Here are a few:
Wal-Mart (WMT) multiplied more than 1,000 times in value, adjusted for splits and dividends, and in the process humbled once-dominant retailers like Sears and Montgomery Ward. Sears, once America's largest retailer, was bought by Kmart for $11 billion in 2005. Today, the combined company called Sears Holdings (SHLD) is worth $7.4 billion, versus $187 billion for Wal-Mart. Montgomery Ward, a catalog merchant that expanded to become the nation's third-largest store chain by World War II, went bust in 2000. Its name was bought by a catalog merchant and today is used for an online store.
Major League Baseball players aren't allowed to smoke cigarettes while in uniform and in view of spectators, but Altria (MO) has prospered nonetheless. Its cigarette brands include Marlboro, Parliament and Virginia Slims and its smokeless tobacco brands (which are allowed in the big leagues) include Copenhagen and Skoal. The company has multiplied investor money 355 times since 1973, mostly through dividends. Altria spun off Philip Morris International (PM), which sells its brands overseas, in 2008, and today the U.S. company has a battered share price but strong cash flow, resulting in a 6.6% dividend yield.
Berkshire Hathaway (BRK.A) was a struggling Massachusetts textile company in 1962 when Warren Buffett began buying its shares. A few years later, Buffett had acquired control of the company and by 1967 he began using it as a vehicle for investments in insurance and other industries. Buffett likes to report Berkshire's progress to shareholders using the book value of the company's assets rather than the stock market value (even though the latter is more flattering). The company's latest annual report shows that its book value since 1965 has increased at a compounded annual rate of 20.3%, versus 9.3% for the S&P 500 index. Berkshire investors who've held since 1973 have multiplied their initial investment by more than 2,000.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."Try our powerful Select Stock Screener to discover investment opportunities that meet your criteria.
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