For years, ownership of professional sports teams has been concentrated among rich guys with such names as Steinbrenner, Reinsdorf and Huizenga.
That may be changing. In recent months, fans have been able to buy common stock in a handful of pro teams that completed initial public offerings (IPOs). The success of IPOs by the Cleveland Indians baseball club and Florida Panthers hockey team has more teams considering raising capital through the sale of stock. Two major league baseball teams, the Pittsburgh Pirates and the Minnesota Twins, are said to be mulling IPOs to raise capital for new stadiums. And Calgary Flames owner Ron Bremmer has said his National Hockey League team is considering a stock sale.
As strong as the buzz over professional sports stocks is becoming, buying them can be a bit like buying your favorite player’s autograph at a neighborhood swap meet: It’s tough to know exactly what you’re buying and its actual monetary worth is hard to measure. In fact, you’ll probably be much happier just framing the stock certificate in your den than thinking too hard about either question.
While the idea of being a part owner in your favorite team may be a tailgater’s dream, the financial reality of sports stocks is often closer to, as the great Vince Lombardi put it, “kissing your sister.”
In fact, Lombardi’s former team, the Green Bay Packers, exemplifies that reality. Though Packers stock is owned by public shareholders, it cannot be traded or sold except to a family member by gift or transferred at death.
An investment with slightly more tangible returns can be found in the form of the Boston Celtics Limited Partnership, which trades on the New York Stock Exchange under the ticker BOS. The Gaston family of Boston serves as general partner and owns a controlling interest in the team. About 90,000 other investors (50,000 of whom have one share each) own 40 percent of the partnership.
A recent restructuring resulted in a nearly halving of the stock price, which has most recently been hovering around $8 after a 52-week high of $16. The stock price at the time of the IPO in 1986 was $18.50.
The one fiscal hope for investors determined to get in on publicly held teams seems to come from more diversified operations like Wayne Huizenga’s Florida Panthers Holdings.
The former Waste Management Inc. and Blockbuster Video czar took Panthers Holdings public in 1996 under the ticker symbol PAW with just the National Hockey League’s Panthers. While the team had some success on the ice, it did so skating in the red, and a post-IPO pop into the $20-plus range quickly faded.
While the stock has been around the $11 mark, the company has added numerous high-end resort properties to the fold, adding vital cash flow and a net profit of four cents per share for fiscal 1998. Not great, but above analysts’ expectations and far better than the 74-cent per share loss the previous year.
“If you look at what we were when we went public with just hockey and what we are now, it’s a totally different organization,” said Stan Smith of Panthers Holdings.
While Panthers fans still make up a significant number of the company’s shareholders, Smith adds that they are in as much for an investment return as for team pride. The resorts have brought life to the bottom line, and though the hockey operation has yet to turn a profit, that will likely change with the completion of the team’s new arena, the National Car Rental Center.
The future of publicly owned sports teams will look very much like the Panthers, according to Bill Miller, managing editor of the Team Marketing Report, a Chicago-based sports business publication.
“For a while, teams thought they could just put an offering out there and let fans prop it up, but they have learned that you have to put more assets into it like the Panthers did,” Miller said. “Any way you look at it, it’s just too tough to grow revenues with just a sports team.”
Miller adds that the future is brightest for teams who can tap additional sources of dollars from their arenas, either through management fees or by sharing in revenue from luxury boxes, advertising and concessions.
“Of course, the best scenario is to own your own building, as is the case with the United Center. But if you’re big enough to do that, chances are you don’t need to think about doing a stock offering to raise capital,” he said.
That’s why the Bulls and Blackhawks won’t likely go public in the near future, Miller says.
In fact, it’s unlikely any of Chicago’s sports teams will offer publicly traded common shares anytime soon. The Cubs are a subsidiary of Tribune Co., which is publicly owned. The Sox and Bulls are controlled by Jerry Reinsdorf, who is seen as having neither the need nor desire to go public. The Bears are prohibited from a public offering because of NFL bylaws. (The Packers have a “grandfather clause” that exempts them from this rule because they were public before the rule.)
“About a year ago, Reinsdorf talked about the possibility of the Sox going public, but there are a lot of logistical issues that make it seem unlikely,” says Miller.
Reinsdorf may want to reconsider, given the success of the Cleveland Indians IPO, which raised $55.8 million this past June. Some analysts have criticized the transaction because the stadium was not part of the offering and the funds went not to obtain players nor to improve operations but to companies owned by Indians CEO Richard Jacobs.
“Cleveland’s IPO was a horrible deal for investors,” says William Haese, vice president of First Midwest Securities, a Milwaukee brokerage that has been involved with other sports offerings. “They took the stadium out of it, they didn’t give up any voting rights, and they effectively limited investors’ upside by controlling the (rights to sell the team).”
Despite the big payday for Jacobs, he hasn’t loosened his grip on the team. Following the IPO, Jacobs still controls 99 percent of the total voting control of the Indians. That allows him to make all decisions related to the club, including the election of the board of directors. Retaining voting control of the ballclub effectively prevents outsiders from taking over the Indians and, for example, moving them out of town.
For a team without sufficient takeover defenses, such as majority voting rights or so-called “poison pill” defenses, the specter of ownership by an unwanted outsider is very real. Consider the case of Manchester United, the publicly traded soccer team that is the pride of England. The team recently became the object of a bid by a company owned by media baron Rupert Murdoch, whose British Sky Broadcasting Group PLC televises Manchester United games. Some Manchester United shareholders are crying foul that Murdoch, a somewhat reviled figure in the U.K., may buy the team.
While fans may protest, shareholders are no doubt cheering. Since the talk of the takeover surfaced, shares of Manchester United have soared nearly 40 percent.
Still, the shareholder-fan should realize that the thrill of victory and agony of defeat sometimes go hand-in-hand. Consider the Orlando Predators of the Arena Football League. The Predators won the AFL Championship on Aug. 25 with a 63-31 win over the Tampa Bay Storm in Arena Bowl XII. But on-field success hasn’t yet translated to increased shareholder wealth. Taken public last December at a price of $5 per share, Predators stock (Nasdaq: PRED) has slipped 30 percent to its current price of $3.50.
Still, buying Predators stock isn’t about the short-term, says First Midwest Securities Haese.
“An investment in the Predators is, first and foremost, a bet on the growing popularity of the AFL,” he says. “There is also potential in the company using its skills in managing and marketing with other minor league teams. But it won’t happen overnight.”
To paraphrase the denizens of Wrigleyville: “Wait ’til next fiscal year.”
