18 April 2007 18 views No Comment Print This Post  Email This Post

Let’s face it: Sports are America’s official pastime. There are decade-long waiting lists for season tickets, and fans swarm to team shops to purchase jerseys and anything else they can get their hands on that bears their team’s mark. What does all this mean? Well, there is obviously large sums of money to be made in this arena, making owning a sports team a very profitable business move — assuming you take the right steps, of course.

Here are some essential guidelines to follow when looking into majority ownership of a sports team.

Pick a team
Owning a sports team should not be taken lightly, and you certainly should not try to purchase a team you feel extremely passionate about. Your judgment may be clouded if you have the team’s jersey hanging in your closet. There is significant evidence that Dan Snyder has this syndrome, and he has yet to be able to put together a winner — a key ingredient to running a successful team.

Research the market base
Review the existing markets that house teams: Is the fan base solid? How many season tickets are sold on a yearly basis? Would your team be competing against any other sports teams in the surrounding area? These are the types of questions you should be asking yourself.

Understand the limitations of ownership
Make sure you understand the rules of owning a team. Some leagues do not allow ownership based on a prospective owner’s non-sports activities. Large ownership groups or publicly traded corporations cannot own a team in the NFL. The NFL also restricts ownership if you own a sports team in another NFL city.

Review the team’s financials
Contact the CFO and inquire about the financial situation of the team. Has the previous owner been able to turn a profit? For how long and under what terms are the players contracted? You don’t want to find out after the fact that you are still paying Babe Ruth’s signing bonus. Determine if a new stadium has been built recently and what — if any — debt is associated with it. You may be able to leverage relocating the team to acquire a new stadium deal, but souring the fans or taxing them to do so may hurt your image and ultimately produce fewer full seats at your new stadium.

Find out how they acquire new talent
How often do minor league teams produce professional talent? If you are considering a football or basketball team, find out how well the current scout team evaluates talent and how that is converted into production on the field. To produce a successful product that fans will want to consume, you must be able to obtain talent and show a good reason for fans to spend $150 to see your team. A good business owner knows that success will be determined largely by employees, and surrounding yourself with people who know the sport and can spot a gem while discarding a lump of coal. Take the 1998 NFL Draft as an example. It was clear the top two players were Peyton Manning and Ryan Leaf, but the differences were barely discernable. The Colts’ Bill Polian and his crew did their homework and made the right decision by picking Manning, and the team’s success in the following years can be largely attributed to this decision.

Research the fan base
Try to understand the pulse of the fan base. How well does the team merchandise sell? Is there room to grow the awareness of your team? What type of television deals are in place, and how large is the market? What kind of advertising is currently being executed? Certainly, you can find diamonds in the rough (think Mark Cuban and the Dallas Mavericks), but not every sports franchise in the cellar can be transformed. If your team resides in a town that is not in the top 100 or so markets, you may have a hard ceiling for growth. Your team can still be successful and profitable, but you may only be able to hit a double when you really wanted a home run. Additionally, sticking with the four major professional sports leagues (NFL, NBA, MLB, and NHL) provides the most potential for revenue.

Evaluate the cost
Talk to the commissioner of the league. Normally, there are fees for an exchange of ownership within a league. You will also need to provide financial documents that show you can reasonably afford to acquire a team. To buy a professional team, your personal net worth must be in the neighborhood of of $200 million to $300 million; plan to spend a minimum of $200 million on your team. If you are not planning on going at it alone, you can include your partner’s worth as well. However, if you plan to purchase a team that is profitable or comes with a top-of-the-line stadium, expect the selling price to be quite higher. In 2006, the Yankees, two soccer teams and five NFL teams were valued at over $1 billion.

Get a lawyer
You will need to consult a lawyer several times throughout the process. It might be an even better idea to hire a brokerage house that specializes in sports teams. Among other things, they will negotiate a selling price for the team you are interested in. A lawyer can also help with negotiating the player’s contracts after you have purchased the team.

sports business

Simply thinking about owning your own team can be quite an exciting experience, but take your time and look at the historical data of the teams you are interested in. One of the great things about researching sports teams is that there is an avalanche of information that is publicly available regarding every team’s history, including its success both on the field and at the bank. Take the time to ensure you are making a sound decision so you can sustain your excitement for the extent of your ownership.

Resources:
www.forbes.com - Baseball
www.forbes.com - Football
www.forbes.com - Soccer
www.ehow.com
www.askmen.com - article