Invest Like Steinbrenner

I've been a Yankees fan ever since I was a kid growing up in New York. And before you say, "Ha! That's easy! The Yankees always win!" consider that I begged my dad to go to Yankee Stadium on my 21st birthday -- the year the Yankees were the worst team in the league.

Back then, I was cursing owner George Steinbrenner for getting in the way of his management team. I thought his incessant meddling was driving away great players and failing to attract the winners the team really needed. Adding to that was his annoying tendency to trade away future superstars before they could develop.

Fast-forward 15 years, and here my team is again on the path to a potential championship, and once again the road goes through Boston. How fitting. That the Yankees have arrived at this point once again is no accident, and Steinbrenner, love him or hate him, deserves a good deal of the credit. Why? Because he's a superior investor.

Rebuilding the franchise
Red Sox fans might conveniently forget that their team dominated the Yankees at the outset of the 1970s and again much of the following decade. Those were great Sox teams featuring stars such as Carl Yastrzemski, Carlton Fisk, Wade Boggs, and Roger Clemens. But good as they were, they just couldn't find the stuff to deliver a world title.

Yet when Steinbrenner and his partners in January 1973 bought the Yankees for $10 million from Viacom's CBS network, the team was barely mediocre. The so-called Bronx Bombers had finished only slightly above .500 for two straight seasons. Within three years, however, the team was once again a contender, going to the World Series against the Cincinnati Reds. Unfortunately, the Big Red Machine stomped the Yankees much worse in 1976 than they had the Red Sox the year before. But the Yankees would continue to improve and, so far, the Steinbrenner era has produced a total of nine American League championships and six World Series titles.

Spend money where you have to
It was a combination of things that restored the Yankees to greatness, not the least of which was Steinbrenner's acquisition of rising star Reggie Jackson in 1977 for $3 million and a Rolls Royce. How did Jackson repay that investment? By hitting three home runs on three consecutive pitches to help win the World Series that year.

Twenty-seven years later, the Yankees of 2004 don't have anyone nearly as flamboyant as Jackson to help fend off what is admittedly a very strong Red Sox team. Nonetheless, Steinbrenner has once again spent big, compiling a roster priced at $180 million. That includes a megadeal for superstar Alex Rodriguez.

For most Yankees fans, myself included, A-Rod had an underwhelming first year in pinstripes. But doesn't every investment have its tough moments? Like how about Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU  ) , which has seen its shares drop by about 10% in recent months because of concerns over a string of hurricanes through Florida? It's not as though JetBlue is no longer a worthwhile investment. Hardly. Any company with potential will experience turbulence. Some, however, go on to great heights afterwards.

For A-Rod, the payoff came in the American League Division Series (ALDS), in which he batted .421 with a home run, three doubles, and three RBIs against the Minnesota Twins. He even accounted for the series-clinching run after reaching on a double, stealing third, and then scoring on a wild pitch.

In the surreal world of baseball economics I don't think there's much question that A-Rod is worth the $25 million he's paid annually. Steinbrenner knows it, too. But he also knows that he can't afford to alienate his other players the way he did when Jackson rolled into town in '77, instantly tarnishing relations with All-Star catcher Thurman Munson.

That's why he has opened the coffers to ensure key players Derek Jeter, Bernie Williams, and Mariano Rivera will stay as long as they can help the team win. It used to be that players couldn't wait to get out of the Bronx Zoo. No longer. Jeter still has seven years left in a contract worth $189 million. Rivera was re-signed in March to a $21 million, two-year deal. Williams has $12 million and one year left on his contract.

Call it building a diversified portfolio. Steinbrenner is maximizing his team's chances of winning by stocking up on proven players. That's not unlike you reaching for big returns by loading up your portfolio with leaders such as eBay (Nasdaq: EBAY  ) , Starbucks (Nasdaq: SBUX  ) , and Johnson & Johnson (NYSE: JNJ  ) , which announced yet another strong if unspectacular quarter yesterday.

Save money where you can
Steinbrenner and Yankees General Manager Brian Cashman have built perennial winners because they saw, and paid for, talent others ignored. Witness again the A-Rod deal. Sure, only another big market club such as the Sox could afford him. But when Boston couldn't close the deal it was assumed that A-Rod would remain in Texas. Assumed by everyone but Cashman, that is.

The Yankees' front office also has a history of seeking bargains to offset Steinbrenner's big spending for superstars. For example, longtime fans might remember that when former Yankees star Paul O'Neill arrived in New York, the team traded away one of its better young players, Roberto Kelly, to acquire him. At the time, O'Neill hadn't hit over .300 since his rookie year in 1985. Upon arriving in the Bronx in 1993, however, he achieved that feat in each of the next six seasons to become the cornerstone of the teams that dominated the late '90s.

And how about this year? Well, just look to journeyman Ruben Sierra and sporadic but effective starter Orlando "El Duque" Hernandez for a glimpse of the value investing smarts the Yankees' front office possesses. Sierra was signed for $1 million while El Duque accepted a $500,000 contract. Sure, that's a load of cash for you and me, but those deals are cheap by baseball standards. The returns, however, have been huge. Sierra hit .286 with the tying three-run blast against the Twins in the decisive game 4 of the ALDS. And El Duque went 8-2 down the stretch when ace Kevin Brown was hurting, ensuring the Yankees kept a lock on the division and home field advantage in the playoffs.

That's like Tom Gardner seeing early the potential for a huge turnaround at Middleby Corporation (Nasdaq: MIDD  ) . To date, the stock has delivered a better than 170% return for subscribers to Motley Fool Hidden Gems.

Get great help when you need it
Can there be any doubt that Yankees manager Joe Torre is the best investment Steinbrenner has ever made? Torre has become the heart and soul of the team. And with the way Steinbrenner has gone through managers during his reign, such a feat is, in itself, remarkable. Indeed, Torre has come to define the Yankees in the way that Sparky Anderson defined the Big Red Machine, or Whitey Herzog defined the great St. Louis Cardinals teams of the '80s, or how Tommy Lasorda became the fun-loving face of the Los Angeles Dodgers.

Torre is so dominating on the bench, he's even become good for a win or two each year by making the right call in the right situation, with almost perfect, emotionless clarity. And, really, where else could the intestinal fortitude needed to scrape together 64 come-from-behind wins during the regular and postseason have come from?

Torre is baseball's answer to Jack Welch, legendary former CEO of General Electric (NYSE: GE  ) . Had you bought General Electric stock when Jack Welch took over the boardroom in 1981 and sold your shares when he retired 20 years later, you would have earned more than 26 times your initial investment. Similarly, Torre has returned to Steinbrenner four World Series wins in eight years managing the club.

Invest to win by breaking the rules
No matter how you slice the numbers on paper, the Sox have the advantage over the Yankees in the 2004 American League Championship Series. And last night's dramatic comeback proves Boston's mettle. But does that mean I concede? Heck, no.

It's often the case that the numbers just won't add up for a stock or a team. Yet they continue to defy the odds. Witness Apple Computer (Nasdaq: AAPL  ) . Grossly overvalued by every traditional measure, its stock is still up 80% since I first profiled its prospects in February. David Gardner has practically made his living betting on outlandish long shots, but his returns have slapped the market silly. (You can get in on the action by taking a free trial to his latest newsletter, Motley Fool Rule Breakers.)

So let's just face facts: There's simply no stat book anywhere that could have predicted the shelling the Bombers delivered to typically unhittable Curt Schilling last night. But it happened anyway.

Some might call that the curse of the Bambino, but I prefer to think of it as a rulebreaking attitude. That's right; the Yankees' continuous and profitable ability to unseat conventional wisdom when it counts makes the team the ultimate sports Rule Breaker. And that's exactly why they may bend the odds again this year.

Who do you think will win the ALCS? Votein our pollon the main page. Yep, Fool contributorTim Beyersreally is a lifelong Yankees fan, like former colleagues Christian and Tony, who helped compile this defense of our favorite ballclub. Tim owns no shares in any of the companies mentioned. You can view his Fool profile and stock holdingshere. The Motley Fool has adisclosure policy.

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