SBJ/April 27 - May 3, 1998/No Topic Name

Indians IPO likely to start trend

Like a critical pitch late in a tense World Series game, the Cleveland Indians’ initial public offering has the rapt attention of baseball.

Since Major League Baseball approved public ownership of teams, Cleveland is the first club to announce an IPO. It probably won’t be the last.

While most clubs are hesitant to disclose their financial strategies, observers argue that the emergence of media conglomerates in baseball, such as News Corp and Time Warner Corp, and the escalation of player salaries have clearly put the squeeze on small-and middle-market baseball teams like the Indians.

Robert Cole, who manages First Union Corp’s sports banking practice, confidently predicts: "Expect to see a lot more of this."

In Cleveland’s case, the team’s stock-offering statement said that despite making it to the World Series and selling out every home game during the season, the Indians eked out only an $8 million operating profit.

Reports suggested that Indians owner Richard Jacobs, who would pocket most of the IPO gains, could use the $54 million he expects to raise as part of a bid to buy the football team the NFL has awarded Cleveland. For that to happen, the new public Indians, which will be called the Cleveland Indians Baseball Co, would need the OK of Major League Baseball.

Any team to go public must receive MLB approval to expand beyond its core operations.

This may prove critical because for a public sports company to succeed, the team must diversify, said Jim Nash, head of NationsBank Corp’s sports finance group.

The Florida Panthers, the NHL’s only public team, diversified into real estate and other ventures, and saw its stock rise as a result.

Most teams, however, issue stock only as a way of encouraging fan loyalty and raising cash. The Green Bay Packers just issued $24 million in stock that is not listed on any exchange and cannot appreciate in value.

Baseball appears to be taking a cautious look at the Indians’ gamble. Most teams did not respond to calls seeking comment. But two that did, the Boston Red Sox and the Kansas City Royals, said that they had no plans to issue stock. However, the Red Sox are considering issuing stock in a new company that would build and manage a new Fenway Park.

A third team, the small-market Pittsburgh Pirates, is considering a stock issue.

"We’ve been exploring it as a way to raise some money," said Dick Freeman, the Pirates’ chief operating officer. "We’re still contemplating it."

For any sports IPO to work, the one constant has to be fan loyalty, said First Union’s Cole. Local fans largely buy the stock, so without fervent community support an IPO will fall flat, he said.

Given the Indians’ current record run of sell-out games at Jacobs Field, the Cleveland Indians Baseball Co does not appear to have that problem.

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