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The Great Indoors
Matt Purdue
06/01/2004
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Franchise revenue comes almost
completely from ticket sales and local advertising, with a modicum of cash flow
from areas such as merchandise, concessions and parking, Wasserman explains.
While owners like Wasserman do benefit from a league-imposed salary cap, which
limits player compensation to $1.7 million per franchise per year, owners do not
have the benefit of sharing television rights fees, as in other sports.
VALUE JUDGEMENT
Arena football, the indoor version of America’s most popular ball game, is
proving to be all the rage with fans looking for an alternative to sports
scandals and $350 tickets. With a unique value proposition and relatively low
entry costs, this nascent sport is also garnering attention from investors with
a passion for football and the patience to nurture a largely untested
opportunity to profitability. |
Like
Wasserman, prospective AFL owners must be prepared to weather losses, at least
initially, says Moag & Co.’s Chisnell. As with most sports investments,
profitability is elusive. “This is unlike any other business. You can’t go in
thinking you are going to make a lot of money. Expect to fund losses the first
couple of years,” he cautions. “This takes a patient investor who understands
the landscape of sports.” Chisnell says Moag advises investors to expect
expenses to outstrip cash flow, but that over time a team’s value will most
likely increase. Over the past two or three decades, he adds, most sports
franchises have outpaced the leading stock indices.
Commissioner Baker’s
glasses are even rosier. He suggests that the minimum investment for a
prospective owner is about $2 million. “And they should expect operating losses
in year one, half those losses in year two, and to break even in year three,” he
says, adding that AFL franchises in Colorado, Philadelphia and Columbus, Ohio,
were profitable in their first year of operation. Colorado was buoyed by the
presence of part-owner John Elway, the legendary Denver Broncos quarterback,
while Philly successfully leveraged Bon Jovi’s star power.
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