Quick Hits: Minority Stakes, Pirates, Angels

On Wednesday, Bloomberg reported that MLB will now allow investment funds to take minority stakes in teams–a development which Ben Clemens dissects in a thoughtful piece for Fangraphs (link). The new policy is intended to address the fact that rising valuations of MLB franchises have made it increasingly difficult for limited partners (or minority owners, as they are often referred to) to find qualified buyers for their stakes when they feel the urge to sell. Essentially, as Clemens points out, it’s a rather tough proposition for a minority owner to find someone willing to pay upwards of $1BB just to own 49% or less of a team; the ability to have chief decision-making power over signings and team direction, in general, is likely a motivating factor in many franchise acquisitions. Allowing broader financial interests–which, though details on MLB’s new policy are sparse, could include pension funds, college endowments, or hedge funds–to purchase minority stakes should allow for current LPs to cash in on their franchise stakes more easily.

Clemens, however, foresees some problems in this road to greater liquidity. Primarily, investment funds are engineered to prioritize profit over all other considerations, with fiduciary duties to stakeholders and clients to secure maximum return on investments. Though professional sports franchises, too, care about maximizing profits, they are still, in the words of Clemens, “civic enterprises, competing for titles, and they care about winning for its own sake”. Potential conflicts of interest are obvious, but it is worth noting that there are already explicitly profit-motivated entities controlling major league teams, as seen with Liberty Media’s control over the Braves.

More notes from around the bigs with the sixth game of the ALCS underway…

• The Pirates are one of just three MLB teams to generate a cumulatively negative WAR rating from the pitchers they have drafted and developed over the past eight seasons–a fact that Rob Biertempfel turns a sour eye to in his piece for The Athletic (link). While poor trades, signing, and development have all played a role in the recently thin state of Pittsburgh pitching, the amateur draft, in Biertempfel’s estimation, is the fountainhead of GM Neal Huntington’s trouble. As the writer points out, the Rule IV draft is of critical importance to “small market” clubs like the Pirates, but the team has struggled to locate impact talent there in the last several years. Biertempfel, in a ten-year overview of Pirate drafts from 2008 to 2017, illustrates that Huntington has made some regrettable missteps in his time in the Pittsburgh war room. Notably, the club selected pitcher Brooks Pounders of the second round of the 2009 draft while Dallas Keuchel and Patrick Corbin were still available, and in 2012 the club failed to draft a single pitcher who would ultimately appear in a Pirates uniform.
• Like many other scribes in the baseball world, the San Francisco Chronicle’s Bruce Jenkins believes the Angels made the “perfect” managerial hire in bringing on Joe Maddon. As far as hot stove implications go, Jenkins speculates that the Maddon-led Angels will make an appealing destination for free agent Gerrit Cole and potential free agent Stephen Strasburg. Of course, the Angels may face some So Cal competition in the form of the Padres, who, if they decide to once again spend big on a free agent, could also offer comfortable confines for Cole (an Orange native) or Strasburg (a San Diego native).