Jock stocks

Kiplinger's Personal Finance Magazine, May, 1998 by Manuel Schiffres

The language in the offering prospectus is blunt and foreboding: "It is virtually impossible for anyone to realize a profit on a purchase of [this] common stock or even to recoup the amount initially paid to acquire such common stock." With a warning like that, who needs this stock? Yet immediately after the Green Bay Packers football team announced last fall that it planned to sell 400,000 new shares to the public at $200 apiece, its telephone lines and Web site were inundated. As of mid March, the Packers had signed up roughly 100,000 new shareholders, the vast majority of whom had forked over $200 to buy a single share.

You think that owning a piece of the Pack would allow shareholders to hobnob with stars Brett Favre or Reggie White or, at worst, with some anonymous offensive lineman. No such luck. Or maybe shareholders might get preference for tickets? Out of the question: Packers home games have long been sold out. About all investors get is a stock certificate emblazoned with the Packers' logo.

Clearly, jock stocks carry cachet. It's cool to be able to tell friends that you're part owner of a major sports team. Or, as Paul Much, senior managing director in the Chicago office of Houlihan, Lokey, Howard & Zukin, an investment-banking firm, explains, you invest in sports teams for the "bragging rights," rather than for price-appreciation rights.

As the recently negotiated $17.6-billion football television deal underscores, sports is very big business. Much estimates that the four major sports leagues in the U.S. generate $20 billion to $25 billion a year in revenues from ticket sales, radio and TV rights, concessions and merchandise sales. And that doesn't include the minor leagues and other sports, such as soccer, golf and tennis. Nor does it include an estimated $16 billion spent in 1997 in the U.S. on sports equipment or the $28 billion spent on sports apparel and athletic footware.

Yet making money in a sports-team stock is as tough as defending against one of Favre's laser-beam-like passes. For one thing, there are few pure plays. Boston Celtics Limited Partnership is one. Orlando Predators Entertainment, which owns the Orlando Predators of the Arena Football League, is another. The Pittsburgh Pirates baseball team has said it is considering going public.

A number of public companies own teams, but the franchises play a relatively minor role in their overall finances. It's hardly sporting to call Disney, which owns hockey's Mighty Ducks of Anaheim and 25% of baseball's Anaheim Angels, a jock stock. The same goes for Time Warner, which, with the purchase of CNN, became proprietor of the Atlanta Braves and the Atlanta Hawks; and the Tribune Co., which owns the Chicago Cubs. (Tribune is one of the few companies that has offered investors a sports-related perk--special shareholder days at Cubs games in Wrigley Field.)

Given the paucity of profits, perhaps it's just as well that the pickings are so slim. The main rub is player salaries, which made up about 40% of revenues in the 1970s but are approaching 70% today. "You have seasonal revenue streams, regularly scheduled labor strife, and the stocks typically have small floats, so there's little interest on the part of institutions," says Much. "If you want to have fun, buy a few shares. But if you want to beat the S&P 500, you're better off not owning a sports team."

Now that you're duly forewarned, we present for your consideration seven stocks that sports lovers might appreciate and that, in turn, may offer shareholders appreciation potential--despite everything we just said.

Teams

How would you like to buy the Seattle Supersonics, one of the top teams in the National Basketball Association, for nothing? That's at least how one analyst sees an investment in the stock of Ackerley Group (symbol AK, New York Stock Exchange, recent price $20; 206-624-2888). Ackerley's main business consists of 9,500 outdoor-advertising displays in Boston, Miami, Seattle, Portland, Ore., and West Palm Beach, Fla., and more than 4,000 airport displays. It also owns six small television stations (with an agreement to buy one more) and four radio stations.

The Sonics accounted for some 23% of Ackerley's 1997 revenues of $271 million, but the team showed negative cash flow-that is, earnings before interest, taxes, depreciation and amortization. Even so, analyst Laura Salerno Linehan of Gabelli & Co. figures that the Sonics are worth about $175 million, or almost $6 per share. The overall company's private market value--what it would fetch in a buyout--should hit $29 by the end of 1998, Linehan figures. So even if the Sonics weren't in the picture, she says, the company would be worth more than the share price. She notes, too, that the new, four-year NBA television contract--which is worth $2.6 billion, up 140% from the previous agreement--should start pumping up Ackerley's revenues starting in late 1998.

Meanwhile, Ackerley is moving to reduce its dependence on tobacco advertising on its billboards. Dan Evans, director of public affairs, says Ackerley no longer carries tobacco advertising in the Seattle area. One result, he says, is that "we've gotten new categories that have not traditionally been outdoor advertisers," such as telecommunications firms and automobile dealers.