Sign in / Join

Baseball and charity

Ewing Kauffman insisted on an unusual clause in the contract when he sold the Kansas City Royals five years ago: any profit made on a subsequent sale of the team must be donated to a Kansas City charity.

The obvious intent of the clause is to keep the club in KC - it makes it more difficult for other suitors to motivate the current owner to sell. But there are two unintended consequences that I can think of. Most obvious, the financial incentive for the new owner to create value in the franchise is muted. While the owner clearly remains interested in operating profit, investment for the long term is penalized by the charity clause.

Second, the value of the franchise should continue growing as the economy grows - more wealth and a limited number of MLB franchises equates to rising franchise values. But this growth cannot be captured by the current owner. Hence the clause, while keeping the club in KC for the short term, also creates an incentive for a premature sale. Presumably, a Kansas City bidder would emerge and be able to purchase the franchise at a bargain price relative to what it would go for if all bidders were on equal terms. But then that makes the next owner the beneficiary of the charity clause.

Still, it is an interesting concept - a costly but creative way to contribute to locational stability of sports teams. Since the current owners can't profit from the sale of the club, they do not incur the cost of inserting the clause in a future sales contract. Hence the clause may be self-perpetuating. If MLB had a rule requiring that all contracts transferring ownership have such a clause, some of the stadium shenanigans would be avoided. Which is one reason it is unlikely to happen, of course. For more on this, see The Daily Lancer, a Royals Blog.