The Oxen Group's  Instablog

In the past twenty years, the average household income has increased just under 80% from just under $29,000 in 1989 to $52,000 in 2009. The large increases in income has come from an amazing run for and American economy that has strengthened from globalization, the invention of the internet, and the modernization of industry and our economy. At the same time, one industry has had one of the most amazing runs of all: the sports world.

Marked by its physical prowess, large contracts, glamor, fame, the sports industry has become one of the most profitable industries in the American economy. In the past twenty years, the average salary of an MLB player has increased 650%, while an NFL player's salary has increased 500% - a significant increase over the average salary of an American. The average salary of an MLB player in 2009 is $3.25 million while an NFL player is $1.8 million. Top top salaries in the MLB topped $35 million for a single year. 

The stories of the sports world is one full of success and competition, but in reality, the sports world is the top dog for investing. The Houston Texans of the NFL, for example, were bought in 1999 for $700 million. The team, today, is now worth nearly $1.5 billion. The company makes revenues over $250 million a year. In ten years, the investment for Robert McNair has turned 100%. The Tampa Bay Devil Rays were bought in 2005 for $200 million by Stuart Sternberg. The baseball team at the end of the 2009 season was worth $315 million. In four years, the team has returned 60% for Sternberg. Even the NBA has had tremendous results, as well. One of the newer teams is the Toronto Raptors were bought in 1998 for $125 million, and they were worth $386 million at the end of 2009 - an increase of 200% (all numbers from Forbes).

Obviously the average investor cannot get involved in this high capital, high return industry that requires millions to finance, but sports money is amazing. It extends to every single sport, as well. Soccer has seen amazing results overseas. The NHL has become less of the gritty sport all about play to a money making giant. Golf payments have become outstanding. 

The success of all these sports is something we all watch at with gawking eyes. The salaries are ridiculous at times itappears, but these players are paid because of human demand. That demand is something that has waned some in the latest economic crisis but will soon return. In 2009, the MLB saw its attendance decline 6% from 2008. The MLB sees 2010 declining around 2% from 2009. Even with this decline, it is slowing, and 2011 should see increases. 

So, we can't buy teams, and sports teams are privately owned. Is there any way we can make $34 million contract...unfortunately no. Unless you can command a 100 mph fastball against 250 pound swatting experts on a consistent basis. I don't think any of us can. Therefore, we have to stick to investments. The sports market is making great strides, and it is growing at alarming rates. Therefore, we have to think outside of the box to take advantage of its success.

One company that is seeing its value growing with the NFL and MLB and its success is Under Armour (UA). Since its IPO in 2005, the stock has grown from $25 to $37, a nice increase of 50%...a pretty similar return to Sternberg's Tampa Bay Devil Rays investment. Then there are companies like Electronic Arts (ERTS) and Take Two Interactive (TTWO) that has been able to make the sports world come alive in our own homes, so we actually can live like Alex Rodriguez or Jerry Jones ... if it is just for a few hours. ERTS in the past five years has not been a great investment after it lost 2/3 of its value during the recession and failed talks to buy out TTWO. Yet, it has increased some 1600% in the past twenty years. TTWO has increased 100% since its inception in 1997. 

The final comment is a question. Do you think we overpay players? They wouldn't be paid without demand. Is it all just business? Does high pay negatively impact the games?

Let me know what you think.

Good Investing,

David Ristau