SBJ/November 9 - 15, 1998/No Topic Name

Revenues rise, but Indians' income falls

Cleveland Indians Baseball Co. revenue in the third quarter crept up as the team enjoyed higher attendance, larger fees from Major League Baseball's national broadcasting contract and improved merchandising sales compared to the year-ago period.

Net income, however, dropped to $3.2 million, or 50 cents per share, from $9.17 million, primarily due to two provisions related to the corporate structure the team assumed when it went public in June. Without these two provisions, which reflect corporate taxes and a payment made to limited partner Richard Jacobs, income would have been $11.53 million.

Total revenue for the July 1 to Sept. 30 period was $61.68 million, up from $57.56 million in the year-ago period. Operating expenses were $49.91 million, up from $48.97 million. The team played three fewer regular-season games at home in the third quarter, but two more playoff games.

Since going public at $15 a share, the value of the baseball team's shares has dropped precipitously. The team is viewed as having limited revenue growth potential. And without a World Series appearance this year, fourth-quarter income will likely be lower than in 1997, when the team lost in the seventh game of the Series.

"No disrespect intended to Jacobs and the Indians, but the investing public at large has really voted their proxy by virtue of where the stock is," said David Menlow, president of IPO Financial Network. "The only way for the franchise to work is to diversify and become more of a mini-holding company."

Jacobs has talked about acquiring other businesses that would mesh well with his baseball club. But the owner is quick to say that at the current price of $7.25 a share, the club is drastically undervalued relative to its sale value.

"As important as quarterly performance is to our organization, growth in franchise value will be the primary long-term value driver for our shareholders," he argued.

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