An IPO (initial public offering) is the first stock sale to the public by a private company. Companies tend to start an IPO to create capital so as to fund their growth and operations. Professional sports teams are no different. Various sports teams have used initial public offerings in the past, but currently, there are no publicly traded American sports teams. Some of these teams include the Florida Panthers, Major League Baseball’s Cleveland Indians, and the Boston Celtics. When transitioning to a public company from a private company, it’s crucial to determine its benefits to the investors and team owners. It is important to check stock market news.
Advantages of Initial Public Offerings to the Owners
- Stadium construction
It is common practice for sports teams to build the latest, state of the art amenities as possible. Stadiums are extremely pricey and could cost more than a billion dollars. For instance, the latest Yankee stadium cost 1.3 billion dollars, and the Madison Square Garden cost 1.1 billion dollars. This money is too much to be solely funded by private owners. A great way of cutting costs and making the renovation possible is offering the public stock. In the past, a municipality or city used to pay all or some of the costs to keep the team on the town. This is becoming increasingly rare because taxpayers are not willing to increase their taxes to help the rich build stadiums.
Selling to the public stock to fund the acquisitions of players and agents is also a tactic. Top players are extremely expensive due to their rare talents, and selling stock is one way of making the purchases possible, particularly for small market teams. According to Forbes in 2010, Boston Red Sox, New York Mets, and New York Yankees averaged 325 million dollars in revenue while Florida Marlins, Pittsburgh Pirates, and Oakland Athletics 148 million dollars in revenue. The small market and big market teams have a difference if more than 100 million dollars in revenues. This same trend is seen in the NFL as well.
Professional sports teams are hard to change hands as they can be worth an excess of 100 million dollars. When a private owner is looking to sell but is having a difficult time finding a buyer, they can sell an IPO so as to not give up control of their team as well as liquidate some investments. This money received from stock sales is called “early money.” The owners receive a huge sum of money by selling stocks to the public but do not earn as much during the complete sale because compensation of the shareholders is accounted for as well. This approach has great advantages and little downside.
- Increase brand loyalty
The loyal fan base of a sports franchise increases when the general public gets access to stock sales. This loyal fan base is beneficial in that merchandise purchases to increase as well as season ticket sales, website visits, and basically revenue. Grandparents and parents could buy tickets for their children as gifts, which in turn could turn them into loyal fans.
Disadvantages of Initial Public Offerings to the Owners
- League opposition
Different professional leagues have different policies on the sale of public stock. In Major League Baseball and the National Hockey League, league officials state that majority control of the team must be maintained at all times by the owner who initiated the IPO. This means that 49% is the limit of the sales they can make.
The cost of carrying out an IPO as well as maintaining the team as a public franchise is one of the criticisms against the selling of public stock by professional sports franchises. A study claims that the cost of carrying out an IPO is more or less 15% more than the capital generated. This is a huge sum of money to take into consideration. Investments bankers attribute to a lot of expenses of starting an IPO. They are responsible for selling, marketing, and pricing the securities to the public. The expenses do not end there. Attorneys and accountants are required to get the financial statements ready for the SEC (Securities and Exchange Commission).