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A LOOK AT CORPORATE OWNERSHIP OF SPORTS TEAMS
Published February 9, 1995
This week, THE SPORTS BUSINESS DAILY interviewed PAUL MUCH, a Senior Managing Director with the Chicago investment banking firm of Houlihan Lokey Howard & Zukin. His firm recently co- published, with TEAM MARKETING REPORT, the 1995 edition of "Inside The Ownership of Professional Sports Teams." Much specializes in the valuation of business and their securities. In the area of sports, he has advised clients on financial issues involving more than three dozen teams. Excerpts from our conversation follow: THE DAILY: Tell us about the findings in your book. MUCH: What you will find is that the business of sports is the business of entertainment. When you look at the corporate ownership of professional sports teams, there are over 40 public companies that have a piece of sports teams -- either controlling interest or a minority interest. And of those, 2/3 of the companies are -- either primarily or as a secondary business -- involved in entertainment. ... When you look at the entertainment business, specifically those companies that see sports as one part of their entertainment portfolio, you will see a synergistic benefit that will be an enhancement in franchise value. THE DAILY: What is helping the growth of franchise values? MUCH: There are two factors driving the expansion in franchise values. ... Currently, what you're seeing is an enhancement in franchise value principally as a result of stadium economics. ... and that will continue for the next few years. But, the long term increase on franchise value will come from synergy with corporate America. And that's really the theme of our book. THE DAILY: If there is a strong corporate presence moving into the sports industry now, what type of effect will that have on teams and leagues? MUCH: It's a two-fold benefit. Number one, it's providing another communications link to be able to provide the consumer with the entertainment they want. Secondly, it's allowing the team to enhance it's revenue base to be able to compete more effectively for players. No matter what league you look at, the players take more than 50% of the total revenue pie -- and that's been growing over time. ... What you see is players' salaries growing faster than revenues, and the team owners have to find additional revenue sources ... where they are able to continue to compete for playing talent. THE DAILY: What other industries will get into sports? MUCH: Ultimately, I do see consumer products companies moving into team ownership. So far, what you've seen is entertainment media because you can see a direct link there. ... But you will see more and more of a movement. What better source of advertising for a consumer products company -- Coca-Cola or Dial, for example -- than to be able to see the company name on the team name. THE DAILY: What is the future of the NFL's cross-ownership rule? Can the league afford to ignore some of the high finances from corporate America? MUCH: You have two issues. One is the corporate ownership prohibition and the other one is the cross ownership prohibition. Both of those will change gradually. ... There are too many economic incentives to ignore. And they're not ignoring it, it's just a matter of how do they do it and do it the right way. ... What you're going to find is a gradual lifting of both of those bans. You may even start to see it where there is a joint venture ownership structure in NFL real estate related transactions. For example, you might see corporate sponsorship or partnership in some type of NFL stadium entertainment complex.