Red Sox look to act even more like a business with potential merger

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The Red Sox are owned by multi-billionaire John Henry, but really, they’re owned by Fenway Sports Group: Henry is just the primary money and decision maker behind that venture. Fenway Sports group owns a number of other teams in various sports, most notably Liverpool F.C. in the Premier League, and now they’re planning on getting even bigger by, per a Wall Street Journal report, merging with RedBall Acquisition Corp and then going public. RedBall’s co-chair, by the way, is Oakland A’s executive, Billy Beane.

It’s unclear if Beane would actually need to divest from the A’s, given MLB is now allowing minority stakes in multiple clubs: it would likely depend on just how much of a stake in the Red Sox the new merged venture would hand off to Beane. It’s possible he could have a stake in both the A’s and Sox, but with his personal stake in the Sox low enough in order to keep things on the level. It would be messy, but it’s not against the rule to have a stake in two teams thanks to MLB changing said rules. It may be that Beane’s own stake in RedBall would translate into too much of an indirect stake in the Sox to make this happen, since having an interest in both would still prove lucrative for him in a way that raises eyebrows even if he were to eschew a direct ownership tie in the Sox. If RedBall makes money on the Sox, then Beane makes money on the Sox because he makes money from RedBall, basically.

I’ll leave the rest of the messy details of what happens to Beane’s job with the A’s and his minor ownership stake in the club for another writer with more of an understanding of those specifics. The main focus here, for me, is on what this means for how one of the wealthiest clubs in Major League Baseball might act, should they merge with a group including even more minority owners expecting a cut of revenue checks.

That same rule change that allowed for minority owners to have stakes in multiple teams was designed to create an even larger opening for minority investors to participate in MLB ownership. More potential investors able to buy smaller and smaller pieces of the pie for more than they were previously purchased for helps franchise valuations continue to grow, and that seems to be the main purpose of buying an MLB club these days. Ever-increasing franchise valuations means you can not only pocket revenues while you own the team, but also that you’ll bring in far more when you call it a day on sports ownership than whatever it was you invested in the first place.

This, of course, has an impact on what teams are spending, as I detailed just under one year ago in this space:

So, MLB teams will have more money coming to them as smaller stakeholders fight over the stakes of today’s limited partners, which you would think would be a positive: that’s more money to spend on players, to stop fearing the luxury tax threshold, etc. What it likely is, though, given [gestures at everything we know about the world, investing, capitalism, the wealthy, entropy], is that MLB teams are going to create a new, expanded shareholder class who will expect to make money on their investments. Which, in turn, means the money created from these investments is simply going back to the investors, so that they stay investors.

Why would MLB owners want to risk splitting up their pie even a little bit more than it already is, if the extra cash created from these investments will simply going back to the investors themselves? The answer is likely in the valuations of the franchises that Sushnick mentioned. These valuations aren’t automatically perpetuating: the market needs to be convinced that yes, a useless franchise like the Marlins really is worth a $1.2 billion sale price and subsequent post-teardown valuation of $1 billion despite jettisoning everything of worth on the field. Creating an entire new investor class to giddily and competitively throw money at these teams is one way to do that.

It is convenient that I used Henry’s Red Sox as an explanatory example of one of the problematic fallouts from that mentality, considering that’s who we’re talking about today:

Sure, principal owner John Henry, who is worth $2.7 billion himself, could just pay for all of this money spent past the luxury tax threshold, but the more the Sox spend, the less revenue there is to spread around to the limited partners, whose investment is needed to keep valuations up and the entire MLB profit machine, as it exists today, in motion. So, the Red Sox will instead try to increase revenues even at the expense of winning more often, because it’s what they need to do in order to keep those non-Henry partners happy. And to ensure that Henry continues to make an annual profit, too: he wasn’t worth anywhere near $2.7 billion when he first purchased the Sox, you know.

It’s worth pointing out that this hypothetical was written a few months before superstar outfielder Mookie Betts was actually traded to the Dodgers along with David Price in a salary dump. The Sox were already moving in this direction, where investors took precedence over winning, and now they want to make a change that will make the Sox even more just part of an overall business than they were. What will matter the most to these stakeholders, whether they be coming in from RedBall, or investors that bought stock once the new company goes public, is that they make more money than they put in. If the Red Sox need to cut back on spending, to trade Xander Bogaerts or Rafael Devers for some prospects rather than sign them to long-term deals like they did with Betts, well, that’s just the cost of doing business, isn’t it?

What concerns me isn’t just that the Red Sox could continue even further down the road of making winning a secondary perk of owning a pro sports club, but that other ownership groups could attempt to emulate what Fenway Sports Group is doing here. If Henry and Co. successfully pull this off and get even richer even faster, how long before another billionaire and his pals put together their own version of FSG and then go public? And then someone copies that? It’s just going to escalate everything that’s already horrible about how these teams make financial decisions with players and competing, and at a time when MLB is planning to make postseason expansion permanent, devaluing the regular season and making trying more optional than it already is.

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