Sunday, December 13, 1998

BY GEOFF HOBSON and JOHN ERARDI
The Cincinnati Enquirer

Marge Schott

The way Marge Schott sees it, the Cincinnati Reds are worth about $215 million.

Major League Baseball has appraised the club at $130 million. Forbes magazine says it is worth $136 million, while two other experts say it is closer to $160 million.

So just how much are the Reds really worth?

Ultimately, the Reds will be worth whatever someone is willing to pay for them. But there isn't an appraiser, evaluator or economist who thinks the Reds are worth what Mrs. Schott is asking.

Mrs. Schott is the president and chief executive officer of the Reds.

The high-end value for the Reds today is $160 million, a value placed on them last week by sports consultant Marc Ganis and Andrew Zimbalist, author of Baseball and Billions, who is also a Smith College (Mass.) economics professor.

Mr. Zimbalist believes the value could climb above $200 million once a lease is signed for a new stadium and there is a clear indication the ballpark would fit nicely between Cinergy Field and the Crown - and can draw almost 3 million fans a year. The Reds have drawn just under 2 million the last five seasons.

"The value of $150 million to $160 million (for the Reds franchise) is a good value today," Mr. Zimbalist said.

"I might come in higher, but there are too many uncertainties about the stadium plan four years in the future. . . . If some of the stadium issues are cleared up, I think the team could be worth over $200 million."

The way franchises are valued is not dissimilar from how residential properties are priced. What have homes of similar size and amenities on your street recently sold for?

In baseball, amenities can be huge: the $50 million per year the Yankees TV contract generates, or the luxury suites at Jacobs Field in Cleveland that bring the Indians $10 million more annually than the Reds get at Cinergy Field.

What is a franchise's ability to generate ticket, concession and parking revenue? How much of it does the franchise get to keep? What is the size of the player payroll? How much is owed in deferred salary payments? What are the expenses of operating a front office, a farm system and a scouting network?

All these elements are factored in, Mr. Zimbalist says.

Cincinnati is in the undernourished third world of baseball economics, experts maintain, without the mega-millions of local TV and radio revenue flowing through Baseball's big markets.

That's why the Los Angeles Dodgers and New York Yankees are appraised in the $400 million to $600 million range, experts say.

It is also the reason Mrs. Schott isn't likely to get the $78 million selling price she seeks for 3.5 of her limited-partnership shares and both of her general-partnership shares, which carry with them the power to run the franchise for the next two years.

At Mrs. Schott's $78 million asking price, the entire franchise would be valued at $215 million.

At a value of $160 million, the value placed on the franchise by Mr. Ganis and Mr. Zimbalist, Mrs. Schott's 3.5 limited-partnership shares and two controlling shares would be worth only $62.45 million - well below her asking price.

Here's how that value is determined:

• A franchise value of $160 million makes each of the Reds' 15 limited partnership shares worth $10.7 million. Mrs. Schott is selling 3.5 of her limited shares. That's $37.45 million.

• Some industry analysts put a 17 percent premium on Mrs. Schott's two general-partnership shares. That would make Mrs. Schott's two general partnership shares worth $25 million.

• Total value for her limited and general-partnership shares then is $62.45 million.