<em>Legally</em> <strong>Speaking</strong>
 
 

 

So you want to buy a team
Jim Juliano - Fall 2009

The reasons to buy or invest in a team, be it minor league baseball or any other sport, are probably as numerous as there are team owners and investors. So are the potential pitfalls.

If you are already an owner seeking more holdings, you are probably aware of many of the possible missteps, perhaps through personal experience. If you are new to sports team ownership, you might have the street sense and financial acumen to ask the right questions, but sometimes even experienced owners might overlook some details.

After having worked on a number of team transactions, I've put together a checklist, mainly of questions prospective buyers should ask to help craft the terms of the investment and save headaches in the future:

  • ENTERTAINMENT VALUE. When you walk around the ballpark, are the fans having fun? Are there lots of kids and families? Groups having outings?

  • STAFF MORALE. Do the employees on the game day staff show a welcoming attitude toward the customers?

  • THE MARKET. What market exists in the surrounding community for affordable family entertainment? Are there possibilities for additional groups, family outings, ballpark ads and sales of suites? Has the current ownership maximized the draw to the ballpark? Do you think you can do better?

  • BALLPARK CONDITIONS. Is the ballpark clean? In good repair? Up to date? Are the video board and the sound system state of the art or close to it? How about the infrastructure, such as plumbing, electrical, drainage, parking lot, ingress and egress? Who is responsible, i.e., does a municipal or county authority or local government own and operate the facility while the team is responsible for upkeep?

  • PARKING. The parking is the fan's first experience of the ballpark. Does it give the impression you want? Remember what a wise businessman once said: "Two things you never have enough of are money and parking."

Speaking of money, many factors will affect not only the purchase price, but more importantly, ongoing net proceeds. You should examine a number of documents to be informed as best you can about the financial picture.

  • FINANCIALS. The parties will normally sign a confidentiality agreement at the outset, so don't hesitate to ask for the balance sheet, income and expenses for three years, and any other operational information.

  • BALLPARK LEASE. Get a copy and spend time with it, especially the term, options to renew, rent and—if applicable—the triple net obligations, which are taxes, insurance and maintenance.

  • OTHER AGREEMENTS, including naming rights, suite agreements and sponsor contracts. Who controls the naming rights for the ballpark? Is there an opportunity to develop additional naming rights sponsorships? Is the contract for suites well written? How many suites are left to be rented? Same for sponsor contracts. How are the sales going? Is there more inventory to be developed?

Special requirements

Buyers of baseball teams must meet specific requirements that are not required in other investment transactions and may seem unnecessarily intrusive. The requirements are not especially complicated, but need to be understood and, of course, followed:

  • FINANCING PACKAGE. Baseball rules require a minimum ratio of 55 percent equity to 45 percent debt. If the equity is not sufficient, the deal will not be approved.

  • CONTROL INTEREST TRANSFER (CIT). Baseball rules also require several levels of review and approval when the deal involves a transfer of equity. The review and approval process increases in intensity when the deal involves a transfer of a controlling interest. A CIT means the transfer of the power or authority directly or in-directly to influence substantially the management policies of a club.

  • EXTENSIVE DISCLOSURE. The CIT application process may seem intrusive to someone who has not experienced it. The review requires a disclosure of personal confidential information to the baseball authorities that never would be required in a standard business transaction.

One last item is a self-evaluation of your ownership group. Who will invest in the venture? Who will have control? Does everyone get along?

This is surely not a complete list, especially since every team, locale, league and fan base will have variations. These basic questions will make the process a little easier and hopefully lead to meaningful evaluation of the property—for both the potential buyer and the potential seller.

 

 

 
 
 
 
 

This website contains general information that should not be considered legal advice or legal opinion concerning individual situations. Legal counsel should be consulted for specific advice.

Copyright 2009 by L. James Juliano Jr.
Legally Speaking® is a registered trademark of the law practice of L. James Juliano Jr.