by Tommy George, the Sports Advisory Group
It’s always baseball season. As 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 a summer collegiate baseball team?”
The first step for prospective owners is to understand summer collegiate baseball, including how it differs from Minor League Baseball and independent professional baseball.
Summer Collegiate Baseball
Summer collegiate baseball is one of the most intriguing ownership opportunities for prospective investors. Summer collegiate baseball offers investors the chance for ownership at a fraction of the entry price as that of a professional (MiLB or independent) franchise.
Summer collegiate baseball teams provide current NCAA baseball players with the opportunity to play at a high-level during the summer months. These players retain their amateur status, as they are not paid. Teams and leagues are required to follow the guidelines from the NCAA to ensure players to not jeopardize eligibility. The players benefit greatly, as it gives professional scouts the opportunity to continue to watch players outside of the NCAA season with other high-level talent. The players also adjust to using a wood-bat, as many leagues require wood bats be used.
From an owner’s perspective, summer collegiate baseball is an excellent entry-level sports ownership opportunity. And the quality of baseball played can be terrific. An owner can begin to understand the “ins and outs” of sports ownership, while being very “hands-on” in the day-to-day operations.
The Leagues tend to play in a geographic footprint that limits the operational expenses of ownership (overnight lodging, bus / travel), with most teams playing no more than a few hours from their furthest opponent. The players are usually housed by billet / host families, eliminating the need to pay for lodging for the players during the season. Because the players are not being paid, worker’s compensation insurance is not required – thus eliminating another expense. The Leagues operate from June to August. This limits the number of home games for an owner to 20-30 games at most.
The stadiums in summer collegiate baseball can differ greatly, even within a particular League. Some teams play at vacated MiLB facilities that are still well maintained. Some teams play in current NCAA facilities, which can make for an exceptional for everyone. Some teams play in municipally owned and maintained properties, which can range from local high school stadiums to public sports facilities. Generally speaking, the more modern amenities a stadium can offer, the higher the revenue generation opportunities.
However, in some cases summer collegiate baseball owners are capitalizing on the opportunity to influence a city or municipality in building a new stadium. In this case, the ownership can then manage and operate non-baseball events, and increase revenue streams. For example, Gastonia Grizzlies owner, Jesse Cole, recently worked with officials from Gastonia, North Carolina to approve public funding for a brand new $15 million sports facility, anchored by his summer collegiate team. Cole is an excellent owner / operator who is extremely “hands-on” with the Grizzlies and his other club, the Savannah Bananas. Cole said of the new stadium, “Our model has nothing to do with baseball. If [the city is] building a ballpark, we aren’t interested. It’s all about the entertainment experience.”
The top summer collegiate leagues in the country in terms of ownership are the Coastal Plain League (Southeast US), Northwoods League (upper Midwest), West Coast League (Pacific Northwest), Prospect League (Midwest / Ohio Valley), New England Collegiate Baseball League (New England) and the Texas Collegiate League (Texas). These Leagues tend to have the best operating structure, facilities and players.
Successful summer collegiate franchises can range in valuation from League to League, ranging anywhere from $250,000, to well over $1 million in some cases. Minority shareholders / partners are less common in summer collegiate baseball, as the lower franchise values aid owners in controlling 100% of the assets.
Once an owner / ownership group gains an understanding of summer collegiate 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? Does geography not necessarily matter? Is a franchise near an airport the key ingredient, for accessible travel?
Owning a summer collegiate 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 a heck of a lot more fun and more exciting than traditional investing in bonds and equities. 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 the successfully cultivate a change in the business of the team, and improve the team’s finances – both on an annual basis and long-term appreciation in valuation of the franchise.
The final step is assuring that your ownership group has its funding in place. Sports ownership requires that buyers / investors come to the table with their monies in-hand. Financing contingencies are typically not tolerated. Bank financing is also rare. Partial seller financing (typically not more than 30%) does occur in some situations. Obviously, 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 world or who are used to the swings seen in the stock markets, 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 have a natural annual appreciation of 1-5%, regardless of cash flow or annual financial performance. 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 Larry Grimes, President, (301) 253- 5016, firstname.lastname@example.org or visit www.TheSportsAdvisoryGroup.com