Sports Fanatic? Paths To Franchise Ownership

Owning a basketball is nice, but to some, owning a basketball team is even nicer. There are a number of ways to invest in professional or minor league sports franchises and attain franchise ownership.

Before you consider franchise ownership, there’s a caveat: sports franchises frequently lose money despite the flashy contract numbers and huge television deals. This is a path for those with a passion for sports ownership. One that should be embarked upon only when it is understood that failure is possible.

However, if you’re in it for the money – keep in mind that buying a team is often much more of a lifestyle investment than one guaranteed to offer massive financial returns. However, for the consummate sports fanatic, the benefits of ownership night far outweigh the pitfalls. If you are passionate about owning a franchise and cementing a legacy – then you might be willing to take the plunge and make your purchase.

The corporate ownership structure

Many professional sports teams in various leagues utilize a corporate ownership structure whereby a corporation holds ownership of the team. According to Investopedia, a number of franchises utilize a corporate ownership structure. If your organization would benefit from the exposure sports ownership offers, or if you have the chance to form an entity capable of purchasing a franchise, this route could give you plenty of control over the team.

For example, the New York Knicks and New York Rangers are both owned by Madison Square Garden Inc., a spin-off of Cablevision. While some Knicks fans may not appreciate Cablevision president James Dolan meddling in their favorite team’s affairs, this model of ownership is quite popular and works well for Cablevision. The company’s media division broadcasts the Knicks’, Rangers’ and other local franchises’ games, providing an extra revenue stream for Madison Square Garden Inc., the Motley Fool explained.

Corporate ownership frequently offers a clear path to ownership due to the ease of raising funds through such an entity. When numerous investors pool their resources to form a corporation, they are putting themselves in a much stronger position to complete the transaction. Not everyone is Mikhail Prokhorov – and even he doesn’t own the Brooklyn Nets outright, he shares ownership with minority stakeholders, perhaps most famously Jay-Z, though the rapper sold his share in the team. Typically, a corporation will ensure the ability to raise more funds and offer legal protection not afforded to an individual. And once the ownership group is formed, the real fun can begin – the purchase.

The process of purchasing

The market for professional sports teams is not liquid, i.e., there isn’t a whole lot of buying and selling going on. When a team is put up for purchase, the process is often thorough and lengthy. Numerous parties must be vetted and a number of aspects of the sale must be reviewed prior to completion of the transaction. Typically an investment bank, attorneys and other advisors are brought into the fold at this point to research and review. When you’re making a purchase this large for a professional team, chances are you’ll be breaking the $100 million barrier, and more often not far beyond that – you’re going to want to make sure everything about the transaction is perfect.

“Confidentiality agreements, franchise valuation, performance history of the team, stadium condition, historical operating financials, market evaluation and league information” are all things that are examined by the team of experts prior to taking any significant steps, according to Matt Perry, the president of a Kansas-based firm specializing in the buying and selling of baseball teams.

Perry, whose company is called National Sports Services, spoke with the BBC about buying and selling sports franchises. He made particular note of the fact that when teams aren’t making money, funding operations falls on the backs of investors, which is why it is crucial to make sure you’re purchasing a team that will increase in value over time. The size of the investment, and the importance of seeing some sort of return on it, are the reasons why due diligence on these sort of deals is so extensive.

The process is long, the vetting is extensive and the dollar figures are immense, but ownership can prove very rewarding. Just take a look at Steve Ballmer since he purchased the Clippers. He is the perfect picture of a dancing, shouting and enthusiastic team owner.

If a professional sports team seems like too large of an investment, but you still want a stake in a franchise, and one that offers you some say in what goes on, then you might want to look into a minor league team. Smaller markets with minor league potential often house ownership groups in the making, and these teams usually operate in leagues that aren’t nearly as regulated as their professional counterparts.

Purchasing a sports team is an endeavor that requires passion and knowledge in addition to money, but franchise ownership can be quite the thrill. Speak with an attorney if you need more advice on the various routes to sports ownership.