How To Buy a Sports Team

 

MANY WEALTHY SPORTS FANS DREAM OF OWNING A PRO TEAM, but the reality of ownership can be a nightmare. Consider the case of Daniel Snyder, whose high ticket prices, bland new suburban stadium and losing records have alienated even the most die-hard Washington Redskins fans. Or ask Charlie Wang, who purchased a majority share in the NHL’s New York Islanders in 2000. The founder of Computer Associates, Wang knew little about hockey when he bought the team but immediately made big changes on the ice and in the front office. Despite the fact that Wang has spent some $300 million on the team, the Islanders remain one of the worst teams in hockey. “If I had the chance, I wouldn’t do it [buy the team] again,” Wang told Newsday in May.

But some buyers have a much more positive experience. Billionaire George Gillett seems almost addicted to buying sports teams: He owns, has owned or has tried to own the Denver Nuggets, the Montreal Canadiens, the Miami Dolphins, the Harlem Globetrotters, the Liverpool Football Club and NASCAR team Richard Petty Motorsports. Despite receiving death threats from English soccer fans, pouring a fortune into his teams and experiencing decades of what he considers unfair treatment by the press, Gillett loves being a team owner. “I don’t know if it’s because it brings the testosterone out or what, but there’s something about the competitiveness… it’s just always been really appealing,” he explains.

How can prospective owners enjoy Gillette’s experience and not Snyder’s or Wang’s? Worth spoke with current and past team owners, as well as team brokers, to find out what you need to know before buying a sports team.

1. KNOW THYSELF

Why do you want to own a team—for fun or profit? If the answer is fun, how much money can you afford to lose? Or are you the type of businessperson who’d find it impossible to enjoy yourself while running a money losing enterprise? Answering these questions truthfully is critical, because every decision you make about buying and running your team will be influenced by the answers.

2. KNOW HOW MUCH TIME AND MONEY YOU’RE WILLING TO INVEST

Ask yourself three more questions: How much are you willing to invest? How much does geography matter to you? And how much time are you willing to commit?

Most pro sports have several levels for investment. You can buy an independent minor league baseball team for as little as $500,000, according to Matt Perry, president of National Sport Services, an advisory firm based in Topeka, Kan. Meanwhile, the most successful MLB teams run from $500 million for the Los Angeles Angels of Anaheim to an estimated $1.5 billion for the Yankees, one of the world’s most valuable sports franchises.

Next, think location. Are you willing to fly across the country—or even across the ocean—to watch your team compete? Or do you want a team in your own community? “If you’re looking to invest in soccer, England’s Premier League has a much more developed business model, bigger media dollars, a more passionate fan base and more sponsorship opportunities [than American soccer],” says Inner Circle Sports CEO Rob Tilliss. “But it’s not a good option if you’re not willing to fly to Birmingham seven times a year.”

If you love the team but hate the location, you could try to move it, a tactic employed by Clay Bennett, who relocated the NBA’s Seattle Super Sonics to Oklahoma in 2009 and renamed them the Oklahoma City Thunder. Such power plays are not for the casual owner: Bennett fought highly publicized court battles with Washington state government and the team’s former owner, Starbucks CEO Howard Schultz, who claimed Bennett broke a promise to keep the Sonics in Seattle.

How much time an owner needs to invest in his team varies by sport and level of competition. “In the major leagues, you need to be really hands-on,” says John Moag of sports banking firm Moag & Company. “You’ll have to talk to the people buying your club suites and go to the pancake breakfasts.” Those seeking the cachet of a major league team without the commitment can buy a minority stake in a team. The downside: Since you don’t control financial and management decisions, the success of your investment is in someone else’s hands. The plus: You’re assured great seats, fun perks and a potentially lucrative investment.

Minor league baseball teams affiliated with a major league club, like the AAA Toledo Mud Hens (feeder to the Detroit Tigers) and the AA Birmingham Barons (the Chicago White Sox), make much smaller demands, since the franchise hires and pays for players and on-field staff. “We joke that an affiliated team is like a theme restaurant with a cover charge,” says Randy Vataha, president of New York-based consulting firm Game Plan. “You charge people $8 to get in, sell them as many hot dogs, beers and Cokes as you can, and try to get some advertising money. If you run things reasonably well, you should have a profitable business.” If you don’t want to commit the time or finances to owning amajor league team, but prefer more control than an affiliated team affords owners, independent league baseball teams provide another option. Perry cites the Atlantic League and the Frontier League of baseball as particularly stable.

3. DON’T SCRIMP ON DUE DILIGENCE

Although hard-to-predict events like the weather or a local factory closing can affect your bottom line, evaluating a team’s financial prospects is more science than art. If you do your homework, estimating costs and revenue is “not hard to do, since many of these things are locked in for the next three to five years,” according to Neil Irwin, an attorney at Bryan Cave who helped negotiate the sale of the NHL Phoenix Coyotes in 2001.

Teams for sale are rarely advertised—the world of pro sports runs largely on word of mouth—so if you’re not yet an insider, work with a sports broker to identify a team that matches your priorities. Once you’ve decided on a target, pore over the team’s financial statements. “Review everything—all contracts and correspondence regarding arenas or stadiums,” Irwin says. “You don’t want any surprises when, or especially after, you enter into definitive contracts.”

4. BE WARY OF HIGH-RISK LEAGUES

The United Football League, which premiered this year with games in seven cities, has attracted high-profile investors including AOL CEO Tim Armstrong and Paul Pelosi, husband of House Speaker Nancy Pelosi. It started the season with a Comcast national broadcasting contract, garnering media dollars and the potential to attract a TV fan base.

Still, John Moag isn’t biting. “Frankly,” he says, “I wouldn’t advise someone to get into it because similar leagues have a long and consistent history of failing.”

The stakes for getting caught up in a failing league can be high, as rocker and Arena Football League team owner Jon Bon Jovi could attest. His team, the Philadelphia Souls, won the AFL championship in 2008, but the AFL cancelled its season in 2009 and Bon Jovi had to lay off the Souls’ entire staff. He’s since been sued by a former sales manager for allegedly failing to pay wages.

“It takes a very long time before you know a league is here to stay,” says Rob Tilliss. “The National Football League and Major League Baseball have been around for about 100 years. To say that a league like Major League Soccer, which has competed for 18 years, has staying power … I don’t think we’re there yet.”

5. KNOW YOUR FELLOW OWNERS

Particularly in smaller leagues, your team’s financial success hinges on that of the other teams. “If someone has a problem franchise, the other owners have to prop him up or everyone in the league could be hurt,” says Perry. For potential owners in small independent leagues, the bar to entry is lower. “It’s not as high-caliber a group,” says Tilliss. “The local car-dealer could be an owner.”

“Talk to the other owners before buying,” says Frank Boulton, founder of baseball’s independent Atlantic League and owner of its Long Island Ducks. “You want to make sure there aren’t divisions or strife within your league.”

6. MAINTAIN REALISTIC EXPECTATIONS

You find a team for an amount that looks like a steal. The catch: It needs a new stadium or arena; it’s losing money; it hasn’t had a winning season since you were in Little League. Is it really a bargain? “Depends on how much money you want to lose every year,” says Irwin.

“Every buyer we’ve ever represented thinks they can turn around bad numbers, and they think they can do it overnight,” adds Moag. “Some teams are low-hanging fruit, whose problems can be easily corrected.” More often than not, however, a problem team’s troubles run too deep for a quick fix— if a fix is even possible.

7. BE PREPARED TO FACE THE PRESS (AND THE FANS)

Hate it, ignore it or revel in it, but if you buy a major league team, be prepared to be deluged with attention from the press and your team’s fans. “You could be the most successful widget manufacturer in history and no one will ever know you,” says Tilliss. “Buy a money-losing team and you’ll be all over the press front and center.” That high-profile media coverage may focus on two things rarely covered by the business press: Your personal life and, well, your business. Can you handle that?

8. YOU HAVE TO EARN RESPECT

You may be the public face of your other businesses, but sports are different, and you should be prepared to keep a low profile until you really know your stuff. “If you’ve spent a billion dollars for a team, you certainly can speak your mind,” says Moag. “But, if you want to succeed, you shouldn’t. It’s much smarter to be quiet, listen to the professionals and learn the business.”

If you do want to change things the moment you buy, take a cue from Angels owner Arturo Moreno, who, upon taking over in 2003, immediately lowered the price of a beer at Angels Stadium from $8.50 to $6.50. Or Tom Ricketts, who, upon finalizing his purchase of the Cubs, began promising improvements to Wrigley Field. Such measures create instant goodwill that can come in handy when you have to make more painful decisions later, like raising ticket prices or trading a popular player.

By Evelyn Wiese

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