Sports fans like to talk about the appreciation of the team value, the fun of owning a sports team, and the ability of rich owners to absorb monetary loss for the good of the team. And while that may all be true, the bottom line is all about the cash flow. Anyone who has stretched their finances to buy a house understands that it doesn’t matter how rapidly your house appreciates if you can’t make the mortgage payment.
The really rich [at least those who plan on staying really rich] understand that the secret to being rich is having your money work for you, not you working for your money. That means that you’ve got just enough cash flow to finance your lifestyle and the rest of your assets are working to make you richer. And most importantly, it means that you don’t just sell assets to meet cash flow.
Even billionaires care about $10 million losses. That loss means that they may have to cut back on their lavish lifestyle, tap into cash reserves, borrow money, or sell assets. As a one time loss, it’s not a big deal. But as a recurring annual loss, it’s a huge red flag. The owner of a major league sports team doesn’t need to make money. But the owner does need to avoid losing it.