There are good reasons to invest in sports. Making money may not be one of them
Is J.W. Stealey living your fantasy? Five years ago the chief executive of Interactive Magic, a producer of on-line computer games in Morrisville, N.C., found himself in a position many entrepreneurs only dream about. "Having brought one company public, I had more money than sense, and I was ready for some fun. So I became the sole owner of the Baltimore Spirit, a professional indoor soccer team," recounts "Wild Bill," as Stealey likes to call himself.
Thus began Stealey's sometimes painful fulfillment of a dream many businesspeople share: getting involved in the business of sports. "Sports has always been my life," he says. "Owning a team is, to be honest, an ego kind of a deal, with all the attention from the media and involvement with the players." There's just one problem.
"Although I keep expecting us to turn a profit, we never have," Stealey explains. "Still, I love the game, and it's really great being part of a sport that's growing like this." He's far from alone. According to Stealey, about 75% of the team owners in his league are "entrepreneurs who made their money on other ventures before getting involved with indoor soccer."
Whether the vehicle is indoor soccer, racehorses, or baseball cards, there are nearly as many different types of sports investments as there are fans to back them. "There are many more than you would ever imagine," remarks Dennis Kroner, a personal financial specialist with Chicago accounting firm Pitt, Ryan, Linnear Ltd. One of Kroner's clients, for example, joined a group of businesspeople who put up about $3 million to start a rotisserie baseball league. Although the plan sounded promising in theory, in practice, Kroner recalls, "it didn't turn out to be too profitable."
Welcome to the highs and lows of sports investing. For business owners who can afford it, there may be no greater thrill than finding a way to get involved with--and, with any luck, turn a profit from--a sport they love. But it pays to take the words afford it seriously. Every sport has its winners and losers, and all too often, sports investors fall into the latter category.
Many sports-related financial deals score high on fun and glamour--and low on profits. Just ask Stealey. "I got my team for nothing but put in half a million dollars the first year," he concedes. "So far, I've lost a couple hundred thousand more each year."
Ouch. If you want to minimize the risk of such losses, begin with extensive research. "Without any established financial markets, you've got to take your basic knowledge and build upon it until you can distinguish a good investment from a bad one and have a real plan for how you're going to try to make money," advises Bill Carter, a financial planner in Dallas. There are a number of ways to acquire that kind of expertise: read publications that cover a sport's business, as well as its entertainment, side; attend conventions or sports-fan gatherings; and contact investors, lawyers, and accountants with expertise in sports finance.
Fortunately, most sports offer business-minded enthusiasts a range of ways to invest--for widely varying prices. If you're a fan of horse racing, for example, you can purchase trotters or Thoroughbreds for sums that can sometimes be as low as a few thousand dollars. Minor-league baseball teams are still relatively affordable, especially at the lower end: a short-season rookie team can be had for as little as $15,000. Or you can buy a "piece" of a golfer, something that happens informally at golf clubs all the time, notes Kroner. "Groups will get together to pick up the expenses of someone who's going on tour in return for a share of his or her earnings," he explains.
You can also go a safer route entirely by investing in the stocks of public companies with a sports focus. They might range from the manufacturer of your favorite athletic shoes to a publicly traded sports team. Investing in stock, as opposed to a formal or an informal investment partnership, has some definite advantages, such as the ease of buying, selling, and pricing shares. But it's important to remember, warns Carter, "that if you invest in several similar sports-related stocks, you haven't really diversified your risks, because they'll probably all be affected by the same market conditions." Plus, the public markets don't always offer a better return than, say, an indoor soccer team.
The bottom line: "You can't give away your business principles just because you're investing in something you like," warns Andrew Blackman, a certified public accountant at Shapiro & Lobel, in New York City. "If you're making a sports-related investment, the one thing you shouldn't do is let the little kid in yourself blind the businessperson to which deals measure up and which ones don't. Do your homework."
So You Want to Be a Player?
"Investing in sports is a fun thing," says J.W. Stealey. "But you've got to know what you're getting into." Some advice to keep in mind:
- Invest only "mad" money that you can afford to lose. After all, you probably will lose it.
- Make sure your company's and your family's financial bases are already strong. That means you've got an emergency nest egg, adequate insurance, and a range of safer, diversified investments.
- Check out your partners as carefully as the investment itself. Since many sports investments are carried out through informal partnerships, you've got to be certain you and your fellow investors all share the same goals, attitudes, and, if necessary, escape plan.
- Talk to plenty of other investors first. They're often surprisingly accessible if you're a serious potential investor. Find out what makes sports deals pay off and what kind of mistakes people keep making.
- Set your own parameters. Know what you can afford to lose, and identify at the outset your limits should your investment wind up requiring additional funds. Above all else, structure your deal so that your company's finances will never get slam-dunked--even if your sports investment does.
Pay to Play
|Here's the approximate cost of...|
|Buying a Single A minor-league baseball team||$1 million$2 million|
|Buying a Double A team||$3 million$6 million|
|Buying a Triple A team||$7 million$12 million|
|Purchasing one share in the publicly traded Florida Panthers hockey team at the close of trading on May 15, 1997||$26|
|Sponsoring, as a partnership, a golfer on the Professional Golfers' Association Tour||At least $75,000 a year|
|Buying a mint 19841985 Star Michael Jordan basketball card||$2,200$2,900|
|Acquiring a 1935 Bronko Nagurski football card, in excellent/mint condition||$5,000|
Jill Andresky Fraser (email@example.com) is Inc. 's finance editor.
If you decide to indulge your yen for sports investing through sports cards, then there's an important source of information you need to know about: Beckett Publications (972-991-6657). The Dallas-based company publishes monthly magazines that track every aspect of sports-card investing, covering hockey, baseball, basketball, football, and vintage cards.
Before you make any serious sports investment, you'd be wise to read a few cautionary tales first. You'll find one in the April 1997 issue of Inc., in which Phaedra Hise describes the demise of a minor-league baseball team. "We knew we spent more than it was worth," one former partner told Inc. "But it was the only way we could get into baseball." Don't go there.
BILL CARTER, Carter Advisory Services, 8117 Preston Rd., Suite 420, Dallas, TX 75225; 214-363-4200 111
INTERACTIVE MAGIC, J. W. Stealey, 215 S. Port Dr., Suite 1000, Morrisville, NC 27560; 919-461-0722 111
PITT, RYAN, LINNEAR, Dennis Kroner, 20 N. Wacker Dr., Suite 1334, Chicago, IL 60606; 800-731-0888 111
SHAPIRO & LOBEL, Andrew Blackman, 111 W. 40th St., 8th Floor, New York, NY 10018; 212-768-0300 111