by Tommy George, The Sports Advisory Group
Whether in or out of season, interest from buyers and investors in acquiring a baseball franchise never seems to wane. In fact, our partners get calls every day asking, “What do I need to do to buy an independent professional baseball team?”
The first step for prospective owners is to understand independent professional baseball, including the various leagues, revenues, valuations, and more.
Independent Professional Baseball
Independent professional baseball leagues exist across the country, and have proven to be exceptionally successful in some major U.S. markets. Independent professional baseball differs from MiLB, in that the teams and Leagues have no direct relationship with MLB clubs. Thus, players are not routinely called-up to other levels, or to a MLB club.
Because these franchises are not a part of the territorial restrictions of MLB and MiLB, many independent professional franchises operate in the “backyard” of MLB and MiLB teams: the Long Island Ducks (Atlantic League) play approximately 40 miles from two MLB clubs (Yankees and Mets) and two MiLB clubs (Brooklyn Cyclones and Staten Island Yankees); the Sugar Land Skeeters (Atlantic League) play less than 25 miles from the Houston Astros; the Saint Paul Saints (American Association) play approximately 10 miles from the Minnesota Twins; the Florence Freedom (Frontier League) play less than 14 miles from the Cincinnati Reds. These teams aren’t necessarily “competing” with MLB clubs, but rather providing an alternative to MLB prices (tickets, concessions, etc.) to fans in the area.
From a player’s perspective, independent baseball is an excellent place for professional baseball players to start or continue their careers. Mostly, independent professional baseball players are former MiLB or MLB players who were released from their MLB / MiLB contracts. Sometimes, independent professional players are also players who went unsigned out of NCAA baseball. These players hone their skills, while being paid, in an attempt to re-sign with a MLB / MiLB club.
For some, independent professional baseball has been an excellent career move. Rich Hill, pitcher for the Los Angeles Dodgers, is one of the more recent success stories from independent professional baseball. In 2015, Rich Hill played for the Long Island Ducks of the Atlantic League before being re-signed by the Boston Red Sox. Hill went on to have a stellar postseason for the Los Angeles Dodgers in 2016, and pitch in the National League Championship Series.
From an owner’s perspective, independent professional baseball allows an owner / operator the ability to move into the ownership ranks of professional sports without the “price tag” of MiLB. The average independent professional baseball team valuation can range from $1 million to over $20 million in some instances. Independent professional teams such as the Sugar Land Skeeters, Long Island Ducks, Kansas City T-Bones, and Saint Paul Saints all have great fan bases, terrific ballparks with modern amenities, and extensive history.
Independent baseball requires that ownership groups pay the salaries of their players, and the related expenses for worker’s compensation. At the same time, ownership has much more say in the day-to-day baseball operations in the Club, and can get creative with player signings, promotions, and ways to attract fans to the ballpark. Even though most teams carry full marketing and operations staffs, it is not unusual (but not essential) for Independent owners to wear several hats and be very much involved in the day to day operations of their teams. For example, the Sugar Land Skeeters signed Roger Clemens in 2012 to pitch one game for the team against the Bridgeport Bluefish. Those same Bridgeport Bluefish signed Olympic softball gold medalist Jenny Finch to be “guest manager” in 2016.
Revenue streams for independent professional teams are similar to MiLB clubs: ticket sales, sponsorships, concessions, souvenirs and web / media. Many independent teams are making a switch to synthetic field turf instead of traditional grass. A multi-purpose field allows for teams to generate more revenue from “non-baseball” events, including concerts, running events, beer / food festivals, and other sporting events (soccer, kickball, etc.).
Once an owner / ownership group gains an understanding of independent professional baseball, the key is to focus in on geography. What makes sense for ownership? Is it a franchise that is within close proximity to the managing partner? Is it a franchise that is in the Southeast, or New England, or Pacific Northwest? Does geography not necessarily matter? Is a franchise near an airport the key ingredient, for accessible travel?
Owning a professional baseball team is a major acquisition. Ownership requires hard work and effort, financial resources, professionalism and creativity. At the same time, owning a baseball team can be much more glamorous and exciting than investing in bonds and equities. The annual financial returns can be modest, the risk typically quite conservative/ Ownership will most likely want to be able to attend games with relative ease. Being able to take friends, family, clients and co-workers, etc., to games will probably be a top priority for ownership.
Turn-Around or Turn-Key
For some buyers / investors, a turn-key operation is extremely attractive when pursuing the acquisition of a franchise. Strong operations and a successful financial performance on an annual basis means that new ownership will have to do very little to continue the success of the team. These ownership opportunities are typically higher priced from a valuation perspective than other franchises. However, for first-time owners, or ownership groups with other business ventures that require their attention and time, these teams are extremely attractive.
For successful operators and many entrepreneurs, a turn-around opportunity is extremely attractive. Turn-around opportunities provide ownership the ability to implement new business strategies and practices in an effort to improve the financial performance. Ultimately, the goal is to successfully cultivate a change in the business of the team, and improve the team’s finances – both on an annual basis and to affect long-term appreciation in the valuation of the franchise.
The final step is assuring that your ownership group has its funding in place. Professional sports ownership requires that buyers / investors come to the table with their monies in-hand. Financing from financial institutions in regards to sports ownership is rare. At the same time, a Seller is going to want to see that a buyer / investor has their monies in place, and is serious, before they will provide details of their franchise.
What to Expect
Many investors who come from the private equity and stock investment world expect immediate, annual returns from ownership of a sports franchise. However, most ownership groups understand that the return on investment will come in the long-run, not on an annual basis. Many successful ownership groups take annual profits or returns and immediately re-invest those funds into their franchise. These monies are typically spent on revenue generating investments, such as marketing, facility improvements/upgrades (electronic displays, kid’s play areas, concessions areas, etc.), or staffing.
Most franchises see annual appreciation rates between of 1-5%, regardless of cash flow or annual financial performance. Supply and demand certainly comes into play here as there are limited opportunities to acquire franchises in the top leagues. Those franchises with a strong financial performance on an annual basis can have much higher appreciation rates. The long-term payout of ownership is truly where investors will make their money – especially with successful operations. Most team owners are “baseball fans at heart”. Financial performance, although very important, can be a secondary motivation behind owning a team.
The partners at The Sports Advisory Group can assist you in finding and fully analyzing an ownership opportunity that meets the criteria of your ownership group. The Sports Advisory Group is the nation’s leader in the sale, acquisition and investment in professional sports franchises, with experience across all levels of baseball, minor professional and junior hockey, professional soccer, the NBA D-League, NASCAR, and more. The team at The Sports Advisory Group can assist with all types of ownership transfers, big or small, and has the experience needed to ensure the deal meets the needs and expectations of both the Buyer and the Seller. For more information, contact Tommy George, President, (240) 409-6297; firstname.lastname@example.org.