Warren Buffett And A-Rod: Oh, The Irony Of It All
Don't you find it ironic that it was Warren Buffett who advised Alex Rodriguez to initiate contract talks with the Yankees without Scott Boras? It's ironic because Buffett is a tremendous sports fan, but acknowledged last August--in a stellar article by Murray Chass of the New York Times--that he thinks buying a sports team is essentially a very big waste of money.
So the guy who told A-Rod to go get the biggest contract in Major League Baseball history would have never paid what the Yankees intend to pay. Seeing how much press his friendships with A-Rod and LeBron James have received, it's a shame that it looks like a guy like Buffett will never own a major league team. (He owns a minority share of the Triple-A Omaha Royals).
And while we've always kind of figured that buying a sports team is not a good investment, it's interesting to hear this from the world's greatest investor: "If you buy teams at present prices, you will not do well, in my view, in terms of the actual income that will result from that ownership compared with the price you pay," Buffett told the Times.
Should I dare say that I don't think Buffett is necessarily right here? I believe that, given the salary cap, the unbelievable popularity and the immense revenue sharing in the NFL, that almost every owner who has purchased an NFL franchise over the last 15 years will make money. And I think that, in any league, if you spend wisely, you can also come out a winner.
Where I do agree with Buffett is that it's not the best business because it's not a rational business. Teams have no incentive to sell more merchandise (revenues are split equally) or sign an international star (international television revenues are split equally) and in no other business are the market leaders expected to make payments to the market followers.
But those who love sports and don't need to make more money don't care as does Buffett, who no matter how rich he is does not want to fail at any business.
Take the tenth richest American, Paul Allen, who Forbes tells us has a net worth of $16.8 billion. He has spent an estimated $600 million over the last 20 years on the Portland Trail Blazers and has yet to turn a profit. "If you buy and you don't win every year, you'll be a bum," Buffett told the Times.
Buffett actually knows that feeling. The Omaha Royals won the league championship in 1990-- the year before Buffett bought into the team. A feat that in Buffett's 17 years of ownership, the team has failed to accomplish again. Considering the cost of fielding a minor league team, I guess Buffett's still far from being a bum.Questions? Comments? SportsBiz@cnbc.com