Was The New York Yankees a Good Investment?

Watching the all star game on TV, when some sort of "fun fact" comes up on the screen about George Steinbrenner and how much he paid for the Yankees in 1973, which was to the tune on $10,000,000. The relativistic current value of the New York Yankees is $1.3 billion according to Forbes magazine.

So the question is...did old George make a good monetary investment. I say monetary because no one really buys a sports team for monetary reasons, more like for bragging, and simply because you love it, but this example is good to focus on due to the undeniable success of the Yankees ball club and the assumption that he must have made a very healthy profit from his initial $10 million.

How about some math and find out...

The first question we need to ask is, "what annual percentage rate has George been getting while owning The New York Yankees."

In order to answer this I would take out my trusty TI-86 thats been hanging out in my desk draw since I graduated from college and crank out some numbers. (you can also visit many web sites which will do these calculations for you, like right here.)

If your using a graphing calculator like me you would input ((1,300,000,000/10,000,000)^(1/38) -1) x 100 = 13.66% annual rate of return, pretax of course. The formula to go along with this equation is r=(FV/PV)^1/n -1

r=rate

FV=future value

PV=present value

n=number of years

Now if you run the same equation for the S&P500 since 1973 until today (Jan 12, 1973 - July 23, 2008) the annual compounding rate of return is just 6.44% which is nothing to be proud of compared to George's 13.66%. Turns out buying a ball club may be a good monetary decision after all.