One of the most discussed topics in the spirits business has to be "Is Casamigos really worth it?" The most honest answer is "Who knows?" It's sort of like the non-political version of "What's he hiding?" Again, "Who knows?" But it makes a great cover story and a great topic of conversation.

The question, of course, refers to Casamigos' sale to Diageo for $700 million with a $300 million kicker based on future performance. That's a lot of cases of Tequila someone's eventually going to have to move. Inevitably, an important Diageo shareholder is kvetching. A Reuters report published at the end of last week in the New York Times quoted skeptical comments from, Nick Train, a principal at a fund management group that is Diageo's eighth largest shareholder.

In a letter to investors Train noted that Diageo, having bought Don Julio in 2015, now has two Tequila brands to manage. He also brought up—critically—Diageo's sale of Bushmills as part of the deal that brought Don Julio (U.S. 2016 volume 395,000 cases, according to DrinkTell™) into its fold. It was a two-pronged assault. "Should they have bought Casamigos?" "Should they have sold Bushmills?"

M&A is certainly no science but data like that found in BMC's DrinkTell™ database is one compass used by senior management to look for and evaluate paths of opportunity. Both Tequila and Irish Whiskey have seen relatively explosive growth in recent years—although on vastly different bases. In the chart below 2016-2017 growth is projected.

Irish Whiskey certainly looks like a rocket when you view it only in terms of percentage growth rates. But a look at overall volume may be closer to the lens that Diageo strategists had in mind when they plunked $700 million down. Seventeen million cases (this year's projected U.S. Tequila/Mezcal consumption) is a bigger yard to play in than four million case space we expect will be occupied by Irish Whiskey. Certainly, financial considerations beyond just brand and segment strategy have a place at the decision-making table. But the simplest explanation also has merit—when you're a giant, success on a small scale may just not be good enough.

Both spirits command attractive retail case prices. We project the 2017 9-liter retail case price for Irish Whiskey to be $335. For Tequila/Mezcal we project $310. As with consumption, Tequila/Mezcal will represent a far larger market, $5.3 billion dollars versus $1.4 billion.

We know the popular Casamigos labels are probably kicking tail on the average case sale, retailing for about $480/case. So, there is money to be made in every tier—but is there a conclusion to the original question? We've put the best "case" and it looks like a long road to an ROI. It boils down to this. Industry sources claim 120,000 cases of Casamigos sold last year and are projecting 170,000 this year. If the supplier gross margin on a case is a whopping $160, then 170,000 cases shipped and paid for equal $27.2 million. That sounds like a 25-year payback.

We don't think that's what Diageo is thinking. Shareholders like Nick Train certainly hope not. We think that the bet that the British wizards just put down is that they will be able to out-market competitors and maintain growth in a very high return U.S. market (as well as leverage their strength in markets outside the U.S.)

Right or wrong, we're pretty sure that hard total market data like that found in the DrinkTell™ database was consulted long before contracts were ever considered. If you want to see how you can follow the money in DrinkTell™ or you have other questions about this column, please give us a call. To order a BMC U.S. Wine, Beer, or Spirits Guide, 2017 edition, just click below.