LIFE LESSONS: BUSINESS BLUNDERS
The 7 Worst Deals Ever Made
At some point in school, every American kid heard the story of the Lenape Natives selling Manhattan Island to Peter Minuit of the Dutch West Indies Company for what equaled about $24 worth of trinkets and beads. But was that the worse trade deal ever?
What is not widely known is that the Natives also got a jar of mayonnaise, a loaf of bread, two pairs of wooden clogs, and a box of Quaker oats. That sweetened the deal a bit, and if you look more closely, the 60 Guilders were worth more like $950 than the widely circulated $24. [1]
These horrendous one-sided deals are not in order by first to worst, just general information. Let’s take a look at what history records as perhaps the worst deals ever made, depending on which side of the deal you fall.
The Louisiana & Alaska Purchases
One could argue all day, which was the worst deal for the French or the Russians, but no one would dispute the importance of either agreement for the USA.
For this article’s purposes, we will call the two purchases a win for the US and a tie as far as the worst deals ever for France and Russia.
The young US nation paid France about $15 million for the 828,000 square miles of Louisiana Territory, or about three cents an acre. The territory that would eventually become 15 states stretches from the Gulf of Mexico to the Canadian border, and from the Mississippi River west to the Rocky Mountains.
Then-President Thomas Jefferson feared Napoleon would seek to control travel and commerce on the Mississippi River by dominating access through New Orleans. He said, “The day that France takes possession of New Orleans…we must marry ourselves to the British fleet and nation.” [2]
Strictly measuring the deals on a price per acre basis, the Alaska purchase for $7,200,000 in 1867 from Russia was a better deal for the US at about two cents per acre than the Louisiana purchase for three.
Plus, Alaska’s 586,412 square miles of territory, famously known as “Seward’s Folly,” turned out quite well for the US when oil was discovered there, and of course, gold. [3]
Wayne’s Sale of Apple Computer
When Apple Computer first started, there were three partners, though not equal participants. Steve Jobs owned 45%, Steve Wozniak 45%, and Ronald Wayne 10% formed the partnership on April Fool’s Day in 1976. It took only 12 days to find out who the biggest fool was when Wayne sold his 10% stake in the company to Wozniak for $800.
He was so worried about failure, he sued a year later to get his name taken off the $15,000 SBA loan they took out to get started. He got another $1,500 for that. Talk about fear of failure. He would eventually sell his copy of the original contract at auction for $1.6 million, but it is rumored he lost most of that gambling. Wayne now lives in a trailer park outside Vegas.
Apple computer is worth approximately $1 trillion now, his 10% stake would be $100 billion, easily one of the worst deals in history. [4]
Babe Ruth’s Sale to the NY Yankees
Most baseball fans are aware of the sale of George Herman “Babe” Ruth to the NY Yankees by the Boston Red Sox for the sum of $125,000 in 1920. The ridiculousness of this trade cannot be overstated.
Nearing the end of his contract, Ruth wanted the Red Sox to double his salary from $10,000 to $20,000, an unheard-of amount at the time. And a lot of the banter in the news was that the Babe was done with baseball.
The outfielder and pitcher had played for the Sox for six years and carried them to three World Series championships. H. Harrison Frazee, the Red Sox owner, was in debt up to his eyeteeth, and he wanted to buy a theatre to produce a play.
Ed Barrow, Boston’s manager, told the owner when he was informed of the trade, “I thought as much. I felt it in my bones. But you ought to know you’re making a mistake.”
One reporter called it “the greatest financial swindle since the purchase of Manhattan Island.” Both deals were tremendous commercial successes for New York City.
In the year after the trade, Ruth would hit 59 HRs. There was perhaps never a more significant mistake in baseball or business. The Sox would not win another World Series for 84 years, while the Yankees would win 27, an MLB record. [5]
Excite Wasn’t Excited about Buying Google
The Excite search engine had the opportunity to buy Google in 1999 for just $750,000. Excite refused and would later be sold to Ask Jeeves for $343 million. Excite ran a distant second to Yahoo when you look at search traffic at the time of the no deal. Google is now a trillion-dollar company.
Many believe the deal fell through because Larry Page told Excite, “If we come to work for Excite, you need to rip out all the Excite technology and replace it with Google’s search.” There was a reluctance at Excite to do that because most metrics pointed to Excite’s search engine being equal or better than Google’s. [6]
Blockbuster Refuses to Partner with Netflix
In September of 2000, Blockbuster could have bought Netflix for $50 million. Randolph and Hastings, co-founders of Netflix, had previously turned down an offer from Amazon, but now their business was on the ropes.
Blockbuster had everything going its way. The new CEO John Antioco had turned things around financially for the company. Plus, they had just gone through an initial public offering (IPO) that raised $465 million for the company.
What’s more, Netflix, then a mail-order DVD provider, was looking at an annual loss of around $50 million.
Needless to say, Blockbuster did not take the $50 million, nor even counter with an offer of their own. Within 15 years, Blockbuster would be entirely gone, and Netflix is now worth about $125 billion. [7]
Electronic Data Systems (EDS) Refuses to Buy Microsoft (MS)
In 1979, EDS was worth around $1 billion. They were looking to buy a computer company to produce software, but Ross Perot, a billionaire, didn’t want to pay Bill Gates what he called “really way too high” a price of around $50 million for MS, which is now worth more than a trillion dollars.
What did Perot say about the deal? “I consider it one of the biggest business mistakes I’ve ever made.” [8]
What Prompted Me to Write This Article?
I read an article by Tom Handy (Top Writer in both Investing & Finance) about the anticipated 4-for-1 split of Apple (AAPL) stocks. He mentioned the Wayne sale, and that started me wondering was it the worst deal ever made.
My interest was further piqued by Bill Abbate’s article about Steve Jobs, The Genius Who Revolutionized Modern Technology.
Although you can never be sure of the future value of objects involved in a business deal or trade, be sure to ask a financial expert or lawyer before finalizing the deal.
References:
[1] https://mwmblog.com/2019/09/15/the-true-story-of-the-sale-of-the-island-of-manhattan/ [2] https://www.history.com/topics/westward-expansion/louisiana-purchase [3] https://www.history.com/this-day-in-history/u-s-takes-possession-of-alaska [4] https://www.macworld.co.uk/feature/apple/history-of-apple-steve-jobs-mac-3606104/ [5] https://www.nytimes.com/2019/12/30/opinion/babe-ruth-yankees-baseball.html [6] http://www.internethistorypodcast.com/2014/11/the-real-reason-excite-turned-down-buying-google-for-750000-in-1999/#:~:text=Why%20Excite%20Said%20No%20To,opposed%20to%20Yahoo's%20vaunted%20directory.&text=And%20Vinod%20said%20they%20would,lot%20of%20money%20on%20Excite. [7] https://www.inc.com/minda-zetlin/netflix-blockbuster-meeting-marc-randolph-reed-hastings-john-antioco.html [8] https://archive.seattletimes.com/archive/?date=19920614&slug=1497096
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Stephen Dalton is a retired US Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. Currently living in the Philippines, Stephen is a Top Writer in Virtual Reality.
You can see his portfolio here. Email [email protected]