Wall Street Journal - Now at Bat: Financiers
By
Sam Walker
Wall
Street Journal
Bill Shea will never be mistaken for George Steinbrenner. His
new ball club, the Lexington Legends,
is a lowly Single-A franchise in
dogs can be had for as little as a nickel and a crowd of 6,000
is a banner night.
But
there's one aspect of the Legends even the Boss could appreciate: the price.
Mr. Shea bought team and its ballpark this year for
$24 million, by far the highest price ever paid for a team at that of the minor
leagues.
"I
paid a lot," says Mr. Shea, the chief executive
of a
kind of entertainment and fun you don't get by buying a
stock."
Have you
ever attended a minor-league baseball game? Participate in the Question of the
Day.
As
minor-league parks go upscale, we find luxury skyboxes, wine gardens, hot
tubs... and even some
baseball.
Minor-league
baseball, once known for hokey promotions and paltry profits, is starting to
look a little
like the real-estate boom. Some investors are now happily
paying double the average market price get a team, but some analysts say the
last of the smart money got into the game a few years ago.
Behind the
money there's a disparate group of buyers -- ranging from
moguls with Wall Street backing to investment syndicates of
ordinary professionals who just want own a piece of the sports business. What
they have in common is the relatively new notion that minorleague
baseball is a nice little business, one that can be more
consistent (and cash-flow positive)
than owning a Major League team. "This is a legitimate
place to park money, and a safe place," says
investment banker John Moag
of Moag & Co. "We're seeing a more
sophisticated investor."
Making
Headlines
Prices for
minor-league teams first started to multiply at the end of the 1990s, making
headlines 2000 when Comcast-Spectacor, owners of the
$34.5 million for three minor-league teams in
perfect confluence of factors: mom-and-pop team owners willing to
sell low, dozens of municipalities
eager to build ballparks, the increasingly prohibitive cost to
families of attending Major League games
and a nearly bottomless demand for cheap, local family
entertainment.
By
building ballparks with $25,000 luxury boxes, negotiating cheap leases and
borrowing sales and
sponsorship practices from the majors, savvy
operators turned some of these teams into virtual spigots. The Triple-A Memphis
Redbirds, for example, had sales of $18 million last season,
according to public filings, and buyers who have
seen the books say some elite teams are turning
seven-figure profits.
Frank Boulton, a former Wall Street bond trader who owns the
independent Long Island Ducks, says
he has operated at full capacity for five years. "Am I
getting filthy rich? No," he says. "Am I getting bondtrader
money? Probably."
minor-league team in 1996. They now own five,
including two of the most admired: the
Dragons (
At first,
looking at the books. In affiliated minor-league baseball (where
teams have a relationship with a
Major
League parent club), they found a more reliable business model. The biggest
single expense player salaries -- is covered by the Major League club. And
while the fortunes of a big-league team
turn largely on wins and losses, minor-league owners live in a
competitive vacuum. "I always kid people that 50% of the fans probably
don't know the name of the home team and 90% don't know won the game or
care," Mr. Schaeffer says.
Success in
the minors depends far less on baseball than weather, ballpark amenities, customer
service, the mascot and how often you shoot off fireworks.
"You're basically running a theme
restaurant with a cover charge," says
Randy Vataha of Game Plan LLC, a
Some new
owners take a hands-on approach. Lou DiBella, a
boxing promoter and former HBO
executive, recently paid $10 million for the
average cost of a Double-A team. Though the Navigators are losing
money and rank low in league
attendance, Mr. DiBella
is confident that he'll see a return on his investment, largely because the
affiliated minor-league teams are like waterfront real estate: "There's
only so many of them." To help
promote the team, Mr. DiBella has spent
recent weeks meeting with businesses and civic groups. know
how to sell tickets," he says.
The Tipping Point?
To buy the
Navigators, Mr. DiBella formed a limited partnership
with 30 investors, many of whom in for relatively small stakes. He bought now,
he says, because the market is "about to tip beyond point where it's
affordable to businessmen." Soon the minor leagues will be "a folly
and a toy for guys."
I
ndeed, bigger fish are circling. The new
owner of the Triple-A Salt Lake Stingers is Larry Miller, the
longtime owner of the NBA's Utah Jazz, who plunked down $20
million for the team -- ballpark not
included. (One of Mr. Miller's first acts was to raise ticket
prices.) In
business-school students. With no ties to Major
League Baseball, the independent Golden League
isn't subject to territorial restrictions and has placed teams
in seven cities in
a month.
Not that
minor-league baseball is a license to print money. Informed buyers estimate
that 70% of
teams are either losing money or breaking even. And even
sophisticated operators can have
problems. Marshall Glickman, a former
NBA team president, resigned as managing partner of the
Triple-A
Portland Beavers in 2001 after debt service, city taxes and lease payments
drove the team
into the red. The Beavers had a loss of $10 million in their
first season. "You have to pause and keep
your eye on the bottom line at all times," he says.
Nevertheless,
revenue for affiliated minor-league teams has risen 9% a year for the past
decade, about $500 million this season, according to Minor League Baseball.
Moreover, the average minorleague
ticket went up 12% this season, nearly double the increase in
the majors. And if recent buyers
like Mr. Shea are worried about
their money, they have a peculiar way of showing it. In April, wearing green
Lexington Legends hat and windbreaker, he took the mound at his new stadium,
Applebee's
Park, and
threw out the first pitch. Then he took a prime seat behind home plate.
"It's
not Treasury bills," he says.
Write to
Sam Walker at sam.walker@wsj.com