Playing the Stock Market: 'Going Public' and Professional Team Sports
Brian R. Cheffins
University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)
Journal of Corporation Law, Vol. 24, No. 3, Spring 1999
At present, only three "major league" sports franchises ? baseball?s Cleveland Indians, the Boston Celtics of the NBA and Vancouver Canucks of the NHL -- qualify as "stock market" teams, in the sense that they constitute the primary source of revenue and profits for a business firm with publicly traded shares. Nevertheless, it has been suggested that "going public" is becoming a trend in North American major league sports. There has already been a move towards the stock market elsewhere in the sports world, with a noteworthy example being British soccer. With a professional sports team, its owners might want to sell stock to the public to raise cash to finance activities that could not be readily financed by other means (e.g. constructing new playing facilities or acquiring playing staff). Also, they might want to move to the stock market in order to create an "exit option" and cash in their investment. To this point, however, owners of North American major league professional sports teams have not felt compelled to rely on equity markets as a source of finance, in part because they play in stadiums or arenas paid for by taxpayers. Also, since most team owners have the luxury of not being forced by financial circumstances to sell, creating an exit option has not been a high priority.
If owners of major league professional sports franchises do begin to contemplate selling stock to the public, various drawbacks associated with the process may serve to deter them. For instance, a move to the stock market is time-consuming and costly. Also, there is likely to be "culture shock" since those running a public company must comply with wide-ranging disclosure obligations and can discover that their ability to dictate corporate policy has been compromised in important ways.
Regardless of the attitude that owners of privately controlled North American sports teams might have about going public, an initial public offering of shares (IPO) will not succeed unless there is sufficient demand for the shares. In North America, sports team IPOs have generally proved to be highly popular. Still, professional sports franchises which are at or near the bottom of the economic hierarchy will likely struggle if they try to convince investors that buying shares in an IPO is a sensible financial proposition. Also, the track record of franchises that have made the move to the stock market could discourage potential buyers of shares because the investment return has been disappointing.
The poor financial performance of publicly quoted sports franchises suggests that fans should think carefully before they buy shares in a stock market team. Also, they are unlikely to receive "fan-friendly" perks or have a meaningful say in company affairs. Generally speaking, however, fans have little to fear if going public becomes a trend in the sports business in North America. While British soccer?s move to the stock market has given rise to deep misgivings in some circles, it is unlikely that fans of North American teams with shares traded on a stock market will suffer in comparison with those who support franchises that are privately owned.
JEL Classification: G34Accepted Paper Series
Date posted: August 24, 1999
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