Oxstones Investment Club™By Dan Weil, Bankrate.com,
Sports fans are an enthusiastic bunch. And many are likely tempted to turn their passion into dollars by partaking in sports investments.
It’s an idea that makes some sense. Peter Lynch, the legendary manager of the Fidelity Magellan (FMAGX) mutual fund, famously observed that it pays to invest in an area you know through personal experience.
Of course, he and other financial experts also say it’s extremely important to thoroughly research any investment. After all, your passion for sports may not parlay into great returns.
That said, you can invest in sports in many ways, from owning a minor league team to collecting memorabilia.
You don’t have to be as wealthy as you might think to own a piece of a minor league team. You can buy a summer-only, wood-bat minor league baseball team made up of college players for as little as $100,000 to $250,000. So if you went in for a $250,000 team with four other equal partners, you’d have to commit only $50,000.
At the top of the minor-leagues scale, a Triple-A baseball team can go for $20 million to $25 million, says Matt Perry, the president of National Sports Services, a sports team ownership consulting firm in Topeka, Kan.
Many other sports also have minor leagues, including hockey, basketball, soccer, lacrosse and rugby. Teams in more popular sports, such as baseball, are generally more expensive.
In determining whether you can at least break even on your ownership, you’ll have to look at your costs, such as stadium fees and player salaries, and compare them with your potential revenue sources, primarily ticket sales and corporate sponsorships.
Owning shares in a publicly traded team has rarely been a profitable investment. “Historically, they haven’t performed very well,” says Kenneth Perkins, an associate equity analyst at Morningstar.
Most of the U.S. teams that have traded publicly in the past — such as the Boston Celtics, Cleveland Indians and Florida Panthers — are now private. They failed to earn investors much money when they were public.
Currently, the Green Bay Packers of the National Football League, the National Basketball Association’s New York Knicks and the National Hockey League’s New York Rangers are publicly owned. The Packers’ shares aren’t listed on an exchange and don’t pay any dividends. Their value is in the stock certificates that fans can stick on their walls (or sell to someone else). Owners of Packers’ stock also get the opportunity to attend annual shareholder meetings and the knowledge that they have contributed money to their team.
The Knicks and Rangers are part of Madison Square Garden (MSG), an entertainment and media conglomerate, so The teams’ performance may have little impact on the share price. To be sure, though, Jeremy Lin’s success on the court last year helped lift the Knicks’ revenue.
Here is where you can put legendary investor Peter Lynch’s dictum to work. If you visit a publicly held sporting goods store frequently and are struck by the number of people shopping there and the high level of service, you may want to begin researching the company that owns the store.
The same is true of any apparel company if you see its products flying off the shelves at stores or worn by throngs of people at your gym.
But remember that this is only the beginning of your research. You need a lot more than anecdotal evidence to have a solid reason to buy a stock.
“Sometime these stocks have a period of growth and then go lower and lower, so be careful about buying on the up-ramp,” says Paul Swinand, an equity analyst for Morningstar.
In general, he prefers apparel companies over sporting goods stores. That’s because apparel companies can offer better returns, dividends and solid returns on capital.
Stores also have to worry about liquidating inventories, while apparel companies generally don’t. Plus, apparel companies generally have better brand recognition, Swinand says.
Fitness fiends might like the idea of owning a health club franchise. The industry is certainly thriving. Health club revenue is expected rise 15%, to $29 billion, in 2017 from $25.3 billion in 2012, estimates IBISWorld, an industry research company in Los Angeles.
Health clubs currently sell for $30,000 to $2.3 million on BizQuest.com, which brokers sales of businesses.
Some health clubs are profitable, but plenty aren’t, so do your due diligence before jumping into this market.
“You have to ask yourself whether you want to wear that (franchise’s) jersey every day,” says John Rotche, the president of Title Boxing Club, a chain of fitness clubs based in Ann Arbor, Mich.
“Do you value the leadership of the organization? Does the business model work? Can you talk to franchisees? Are they able to make a sustainable living? Will you have the ability to exit?”
Another key issue is differentiating your club from the competition. “A lot of gyms turn out to be equipment rentals,” Rotche says. “You spend $20 a month to use the equipment.” But that opens you up to losing business to someone charging less.
The collectibles category of sports investments can include baseball, basketball and football cards; autographed balls; team uniforms; and even such things as seats from old stadiums.
While it’s impossible to know the exact size of the sports memorabilia market, as many sale prices aren’t public, it’s almost certainly in the billions. Mark McGwire’s record home run ball alone sold for $3 million in 1999.
If you are going to dive into this market, “the most important part is you have to deal with a reputable source when you buy or sell — someone who can authenticate the item,” says Irwin Kishner, a partner who does sports business work at the law firm Herrick, Feinstein in New York and New Jersey.
You may well have had a baseball card collection as a child. Those cards could be worth something, but then again, they might not. “Baseball cards aren’t as valuable as you might think,” Kishner says. Most importantly, they must be in excellent condition. In addition, “how cards are printed and cut has a great effect on value,” he says.
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