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SBJ/September 21 - 27, 1998/No Topic Name
ABL offers franchise operating rights
Published September 21, 1998
For the second time in less than a year, the American Basketball League is launching a new financial plan that it hopes will right the struggling organization.
The 3-year-old women's basketball league has dropped an effort led by Salomon Smith Barney to raise $30 million from private investors. Instead, the ABL, which manages and owns its nine teams, will sell operating rights to the franchises, as well as solicit a single national equity investor, such as a media company.
Operating rights to each of the nine teams, which would grant the buyer control over local revenue but not ownership of the club, are expected to be sold for $1.5 million per team. The league wants to attract an equity investment of up to $10 million, bringing the total capital raised from the new plan to more than $23 million. The ABL received a $5 million infusion recently from two individual investors.
"This ...will be the answer for the ABL," said Gary Cavalli, president and co-founder of the league. "It ensures the [league's] financial stability and viability going forward."
The ABL will lose several million dollars this fiscal year, which ends March 31. Under the new plan, the league expects to earn several million dollars for the following fiscal year, the fourth in the organization's history.
That would be a major turnaround for a league that recently had to eliminate its Long Beach, Calif., franchise and institute a leaguewide pay cut and that failed to win a national television deal.
By bringing in local investors, however, the ABL would have instant cash flow and reduced risk. Each local operator would pay an annual assessment to cover the league's cost of player salaries and national marketing.
But some experts wonder if getting a quick dose of capital will only mask fundamental problems, such as player defections to the Women's National Basketball Association, the lack of a major television contract and poor attendance in some cities.
"Unless the league can better compete with the WNBA, even that [large a] financial injection may not be enough," said David Carter, a sports management consultant. "But it will buy them some time to resolve a number of fundamental issues."
The advantage for the ABL is that by placing control of a franchise in local hands, the team could do a better job of marketing to specific audiences. The local operator would keep revenue like ticket sales, area sponsorships, arena concessions and local television and broadcast fees.
How local operators would co-exist with the league and its equity holders, though, could be problematic. In Major League Soccer, which also owns all of its teams, most franchise operators own league equity.
"By creating two classes of ownership, you could be creating some degree of dissension and some lack of collegiality," said Doug Logan, the MLS commissioner. "You have someone making an investment in a [team], but the policies of the league are vested in the hands of someone who is not an operator."
At least three current ABL equity holders could become team operators, however. Three of the league's original investors Phoenix Home Life Mutual Insurance Co., Joe Lacob and Rodger Rickard have options to buy team operating rights. The league could make an announcement as early as this week that those options will be exercised.
By the end of the week, the league plans to send prospectuses to possible operators, such as other sports teams, marketers and wealthy investors. The ABL is also telling potential investors that a future initial public offering of the league is not out of the question.
Game Plan is serving as financial adviser to the ABL, and the search for a national equity investor will be managed by Beacon Sports Capital Partners. Both are Boston-based sports investment banking boutiques.