Analysis: Demographics paramount in sports M&A market

DETROIT Fri Jul 16, 2010 2:31pm EDT

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DETROIT (Reuters) - When it comes to the U.S. sports franchise market, bankers say the well known real estate rule, "location location location," has it only half right -- demographics are equally important in driving sales.

A Hollywood producer and top venture capital executive on Thursday said they would pay a record $450 million for the Golden State Warriors basketball team in Oakland, California, near Silicon Valley. Sports bankers and buyers said an individual market's features take precedence, and the appetite for franchises remains on a slow boil.

"You're buying demographics," said a banker who asked not to be identified when discussing potential clients. "If you're in a major market that has high per-capita income and you have a team that's well run, you'll have plenty of bidders.

"If you put the Bulls or Knicks on the market, of course you'd get a million bidders. Try to sell the Nashville Predators -- good luck," the banker said, referring to the Chicago and New York NBA teams and a hockey team in Tennessee.

Most bankers and analysts said the market for pro sports team sales is slowly improving, but impediments include possible work stoppages in the National Football League and National Basketball Association.

"I don't know if I'd expect a great number of transactions to go on until there's more clarity, particularly in football and basketball as it relates to collective bargaining agreements, and the bank financing markets have to improve," said another sports banker, who also asked not to be identified when discussing potential clients.

Others say that there are plenty of struggling but available NBA and NHL teams in smaller markets, and the weak U.S. economy has done them no favors.

NO GENTLEMEN BUYERS

"With the economy being as weak as it is, you don't have any gentleman buyers anymore," Marc Ganis, president of consulting firm Sportscorp Ltd, said of investors who buy teams as a lifestyle choice and are willing to take annual losses. "That makes it almost impossible for those teams to sell at what is perceived as market rate."

However, Andrew Zimbalist, a professor of economics at Smith College in Northampton, Massachusetts, said buying a sports team is not like trading shares in Nike because there are few franchises available to buy at any one time.

"It's a little bit like real estate," Zimbalist said. "The results can be idiosyncratic because it depends upon who comes along at the right time when the asset is put up for sale."

Joe Lacob, a partner with venture capital firm Kleiner Perkins Caufield & Byers, believes the Warriors team is among the high-demand "jewels" not often available.

"One of the top-market NBA teams has not changed hands since the Boston Celtics nearly a decade ago," said Lacob, who owns a minority stake in the Celtics. "The Golden State Warriors are one of the top franchises in one of the best markets in sports. Did we overpay? Time will tell."

The market looks good unless someone is trying to sell a money-losing team, said Allen & Co managing director Steve Greenberg.

"This is another data point that reflects the notion that, other than troubled franchises that for one reason or another seem to be hemorrhaging money, teams by and large have held their value," he said. "There's still demand out there and there's still people capable and willing and eager to put up the capital to acquire these things."

(Reporting by Ben Klayman in Detroit. Editing by Robert MacMillan)

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